Over the last decade, short-term rentals have enjoyed an incredible surge in popularity thanks to home-sharing platforms like Airbnb and VRBO. These companies, among others, opened the door to changing people’s perceptions of alternative ways to stay.
Fast forward to today, and the change in the way we work and travel has seismically shifted since the pandemic, making short-term rentals even more appealing.
During Q1 of 2021, Airbnb announced that for the first time in its history, stays of seven nights or more drove over 50 percent of bookings. These changing travel patterns will only become more pronounced as work-from-anywhere permeates every part of the white-collar world.
Consumers are not only seeking out short-term rentals for longer stays but are also opting for alternative accommodations over traditional hotels. They want the space of an apartment with the conveniences of home (think kitchens and laundry), at the price-point of a hotel.
It’s only a matter of time before the appeal of hotel points is replaced by the conveniences a 650-square-foot apartment offers over a 200-square-foot hotel room.
Solutions for busy consumers
The short-term rental market delivers a product solution that meets consumer demand. In 2019, do you think anyone was considering working out of multiple cities within a one-year period as a life choice? Not a chance.
The remote-first approach to work has enabled a work-from-anywhere culture, and therefore a live-from-anywhere culture. This nomadic lifestyle doesn’t seem to be slowing, which is great news for companies whose product only accepts stays of 30+ days, like Blueground, Zeus, and Landing.
But moving from city to city isn’t everyone’s reality. What is within reach is traveling for work and staying for ‘play.’ Today, people are heading to their favorite locations, working remotely from Wednesday to Friday, and exploring over the weekend.
Would you want to spend that entire time cooped up in a hotel room? I wouldn’t. Enter, the home-style stay product.
What remains to be seen is which business strategies will win in this evolving consumer landscape. It feels very similar to the dot-com days when everyone was building online retail sites.
Yes, it was obvious then that digital shopping was the future, but we didn’t know who would end up on top. At that time, the idea that most online shopping would occur on mobile devices, not personal computers, would have been comical.
So, what are the big surprises coming in the home-style stay evolution? And what does this mean for consumers?
Some obvious winners have already been anointed. The marketplaces consumers use to book alternative lodging — Airbnb, VRBO and Booking.com being the top three — have seen tremendous growth.
But what comes next? If we look to the traditional hotel world for clues, this new short-term rental ecosystem still needs beloved brands, solid tech, and a set of large real estate investors and lenders.
The X factor in all of this is the less obvious outcomes, the unknowns. In online retail, those X factors included the success of Amazon leading to AWS and kicking off cloud services in a huge way.
The smartphone became the mode for online shopping as opposed to personal computers. And surprisingly, this ecosystem led to a robust service industry for smaller sellers to bring their products into the digital world, thanks to companies like Shopify and Etsy.
So, where are the set of winners coming from in this real estate revolution?
- Brands: Those that create a seamless experience through technology are likely going to be winners. Brands that integrate new approaches to F&B through modern platforms, like DoorDash and Instacart, will end up changing traditional hotels in the process (goodbye, hotel restaurants). Sonder is currently making strides on this, and Butler Hospitality was onto something with their ghost kitchens but got the wrong business model with leases.
- Tech: Companies that prioritize technology as part of their operational platform are going to have a huge advantage. This requires scale. What remains to be seen is if the tech will come from the big hotel brands, small upstart operators, or be built by existing software shops that are already the backbone of running apartment buildings or hotels. How will tech need to be different? It will need to be customer-centric while creating operational efficiencies.
- Investing in real estate: Real estate investors and lenders stand to make the most money in absolute dollars. There will be a huge upside for investors and lenders if they get their fit and timing right. Relatively new asset classes, like private student housing and data centers, have represented this in a niche way (think billions of dollars), whereas single-family rentals seem poised to do this in an even bigger way (think hundreds of billions of dollars). A revolution in urban housing and hospitality would shake up two of the largest multitrillion-dollar industries in real estate.
- X-Factors: This is where the biggest unforeseen opportunities will arise. At Placemakr, we believe flexible buildings are going to completely revolutionize the real estate landscape (this is the AWS opportunity relative to Amazon). Others are making similar bets, namely Sentral, The Guild, and companies in Europe with blended, private student housing and short-stays, like The Student Hotel. Other companies think the X factor is empowering residents to contribute their units in a condo-hotel model, where renters make money when they are not around. And let’s not forget those blending the single-family and build-to-rent assets with hospitality, most notably AvantStay.
Many different business models have emerged. A number of well-funded startups, like Sonder, Kasa, Mint House, and Sextant built their inventory through multifamily leases, with some now pivoting into the management agreement space.
Others, like Local, Rabbu, and FrontDesk are operating as service providers for real estate owners. Our approach at Placemakr is two-pronged. The first is to operate an owner’s entire building as a flexible-use asset.
That means we commingle hospitality and residential uses in one property and flex between the two depending on market demand, allowing us to accommodate both short and long-term stays.
The second is to buy real estate with unrealized value. Sellers don’t price properties based on dual-use (multifamily plus hospitality), which means there is significant value to unlock for these assets (Sentral has taken a similar approach).
It would be short-sighted not to mention that there will be some casualties as the STR market continues to evolve (RIP Lyric, Domio, and Stay Alfred). But those that get the services, experiences, and operations right will avoid a pets.com fate.
What comes next? We are making bets to win big in all four categories above.
But in the end, consumers should be the biggest winners. Companies that choose to adapt to these emerging trends will reap the most significant rewards, and those that don’t will become relics of an old way of doing business.
Jason Fudin is the CEO and co-founder of Placemakr.