Short-term rental (STR) demand is exceeding all expectations in 2021 as demand surges in small-town and destination markets throughout the United States. In Q1 2021, the U.S. hit a record for new bookings each month leading up to April 2021 when demand (nights) surpassed 2019 levels for the first time since February 2020. This milestone marked the end of the recovery and the beginning of the next phase of expansion for the U.S. short-term rental industry.
The next major performance milestone is whether or not the industry recovers demand back to the level it would have achieved if it had maintained its 2019 growth rate.
While significant progress has been made, our baseline outlook calls for another 2+ years to achieve it, though it could be reached sooner if certain scenarios play out. This report will outline these scenarios and how their assumptions would impact the U.S. short-term rental industry.
In April 2021, occupancy for U.S. STRs reached 61.6%, the highest April occupancy level in industry history. Peeling apart that figure, we find that demand has recovered in four of the six location types that AirDNA tracks. When we compare April 2021 to April 2019, the data shows:
- 67% more listing nights sold in 2021 than 2019 in small cities/rural markets
- 25% more demand in both destination/resort locations (mountain/lake and coastal)
- Eight percent demand growth in mid-size cities
- 13% lower demand in suburban areas
- 41% lower levels of demand for urban properties.
Short-term rental supply has historically been volatile as owners add units during high demand periods (Super Bowl) and then remove them during low demand periods (Cape Cod in the winter). This trend generally held over the past year with 40% fewer available nights in urban areas and 25% more nights available in small city/rural locations.
Destination/resort areas have somewhat bucked this trend. Although demand remains high, many markets have seen availability decline. While destination markets near major cities continue to see increased demand for single-family housing, many owners have chosen to take their properties off the available market, preferring to use second homes themselves.
Short-term Rentals’ Economic Outlook
The rebound in travel, and recovery in demand for short-term rentals, has been the result of many factors. The most important has been the rollout of vaccines and the subsequent decline of COVID-19 cases.
As of the beginning of June 2021, all states have seen major declines in the rate of new cases since the winter, have eased economic restrictions, or have fully re-opened their economies after shutting them down to help stop the spread of the virus.
Unlike prior recessions, the rebound for the travel sector will not be predicated on consumers’ ability to travel, usually limited by discretionary income. Consumer incomes have remained high — partly as a result of people cutting back on consumption to account for the pandemic, which has sent savings rates close to a record high — and in part due to government support. This time, the recovery will be dependent on easing safety concerns, and the reopening of businesses and attractions to draw visitors.
The U.S. government provided an unprecedented amount of stimulus to support American workers and businesses. This support enabled many businesses to continue operations and workers to keep their jobs throughout the past year. Through May 2021, the U.S. had only lost 5.0% of employed workers and recovered over 14 million jobs over the past year.
As an industry that depends on the free movement of people and gathering publicly in large cities, the leisure and hospitality sector has not been as fortunate as other sectors and has yet to see major recovery in overall employment. The overall decline in accommodation employment has roughly mirrored the recovery in hotel performance and closely aligns with short-term rental demand in large U.S. cities.
Each of these sectors remains dependent on cities reopening, attractions like Broadway theaters, sports arenas, and concert halls returning to full capacity, and business travelers getting back on the road.
It is expected that U.S. consumers will lead the recovery and that pent-up demand for services like restaurants, travel, and entertainment will rebound strongly throughout 2021. Current forecasts call for real GDP to increase 6.5% in 2021, and to then taper off to 4.4% growth in 2022. The biggest risks to recovery are new COVID-19 variants emerging and slowing vaccine uptake.
With consumption roaring and government unemployment benefits expiring, most economists expect employment to recover to pre-pandemic levels by the end of 2022, which is significantly earlier than any prior estimates.
Expectations for the Short-term Rental Industry
The Return of Urban Travel
New demand in small city/rural and destination/resort markets dominated 2020 and 2021. 2022 will focus on a return to the great American cities. Through April of 2021, demand in urban areas was still down over 40% compared to 2019. But as more people are vaccinated and attractions begin to reopen, we expect urban travel to begin to recover in the back half of 2021 and in earnest in 2022. We expect urban demand to fully recover to 2019 levels by 2023.
Urban short-term rentals could see an even quicker rebound if business travelers show a preference toward having their own space and added amenities like a kitchen and separate living space.
There may also be additional demand as remote workers plan trips back to headquarters to meet with colleagues and get facetime with their bosses. A limiting factor to urban demand recovery may end up being supply — especially in markets where new and existing regulation limits the potential addition of new listings.
Another risk to the rebound in urban markets remains the recovery of international travel. In markets like New York, San Francisco, and Miami, as much as 30% of historical demand could be attributed to international guests.
With the U.S. leading the way in vaccinations, it’s possible that Americans could resume overseas travel before foreign guests are allowed to travel to the States, creating an imbalance of travel that could temporarily impair U.S. performance while vaccination rates catch up around the rest of the world.
Will Travel Flexibility be Restricted by the Reopening of Schools and Offices?
The opportunity that many Americans have had throughout the pandemic to work or go to school remotely provided them flexibility to “travel anytime, anywhere, and stay longer,” as Airbnb pointed out on a recent call.
Short-term rentals have no doubt benefited from this flexibility and people’s willingness to live anywhere by appealing to digital nomads looking for new, unique places to live and explore. In its Q1 2021 shareholder letter, Airbnb notes that 24% of its nights booked were long-term stays (defined as stays of 28 days or more), up from 14% in 2019.
People Can Travel Anytime, Anywhere, and are Staying Longer
Our outlook is optimistic. We expect that more companies will have a hybrid option that allows more flexibility to work remotely more often, but falls short of expecting remote work to remain the norm once safety is no longer a concern for most companies to return workers to the office.
With added flexibility, though, extended trips will be much more common than pre-pandemic as more and more travelers will combine business and leisure trips. Many workers have embraced the remote lifestyle, and if they are able to maintain their option to live and work from anywhere, that will further support more travel, especially in short-term rentals which appeal to extended-stay travelers.
In Q1 2021, the average length of stay was four days — a full 25% higher than prior to the pandemic. This was mainly due to longer stays in large and mid-size cities. As leisure and business travel returns to these cities, we expect the length of stay to shorten but remain materially higher than 2019 levels.
AirDNA’s Industry Outlook
Building on 10+ years of forecasting the hotel industry, AirDNA’s economists have developed the short-term rental industry’s first econometric forecasting models to help industry participants better understand what the future may look like. These models incorporate expectations of U.S. economic growth through employment and GDP forecasts as well as how underlying changes in the housing market may impact the available supply of vacation rental properties.
High levels of demand and a delayed expansion of the available supply of new short-term rental units will mean at least two years of elevated occupancy levels for U.S. properties. In 2020, demand for short-term rentals contracted by 16.1% for the year. A significant portion of that demand was for private and shared rooms or 1- or 2-bedroom apartments listed on Airbnb and primarily located in large metropolitan areas.
A shift away in demand from those types of properties to larger homes in destination/resort markets, where the average rates per unit are higher, led ADRs to grow in 2020 and 2021. This same factor, but now in reverse, will cause ADRs to decline in 2022 as demand returns to the cities and subsequently to smaller properties. Even with the contraction in rates in 2022, the average rate will be 7.5% higher than in 2019 and total revenues will increase by 42% over the four-year period.
No Vacancy: Summer Rentals in Short Supply
So far, new supply has struggled to keep pace with the rising demand. New campaigns from both Airbnb and Vrbo should help, but will not be enough to satisfy the record demand for this summer. As of May 2021, there have been about 52,000 new units added on either Airbnb or Vrbo, which is about 10% lower than a typical year over the same period.
Our current expectations are that many new listings will be added throughout this summer into 2022 as the revenue opportunity in the short-term rental sector entices more owners and investors to rent out more units. The average number of unique available listings on Airbnb and Vrbo is expected to increase by 20.5% in 2022 to over 1.3 million listings.
Bookings already show a strong summer 2021 for most markets in the U.S and, as expected, destination/resort markets will capture most of that demand as domestic travel to beaches and mountains remains popular. Through mid-May, demand (nights) in those markets was up over 40% relative to the same time in 2019. Small cities/rural areas are already pacing 62% higher for this summer than in 2019.
Cities’ Slumps Mean Fewer Guests
A recovery in large cities is just beginning to take shape. Since the start of the year, each week’s new bookings have looked slightly better when compared to 2019. In early 2021, bookings in large cities were 45% lower than 2019’s pace. Now, bookings are only 15% below 2019’s pace.
The deficit of new bookings continued to compound and summer bookings are currently about 46% lower in urban areas than in 2019. Lead times for stays in large cities will remain short, as there continues to be plenty of availability and little incentive to book far in advance.
The “New Normal” of Travel is Here
Will increased flexibility to live and work anywhere change the short-term rental sector forever? Probably not, but there are plenty of tailwinds for the sector that should help it get back to its pre-pandemic trend growth rate. In the longer term, we will see the short-term rental industry continue to professionalize and expand its share of total lodging spend. Brands like Vacasa and Sonder will grow and competition between Airbnb and Vrbo will intensify, especially as Booking.com continues to penetrate the short-term rental space and hosts increasingly look for ways to drive direct bookings.
While the industry will somewhat normalize with the return of international travel, consumer trust and sentiment towards the short-term rental sector has strengthened during the pandemic, which will accelerate its recovery rates compared to its lodging counterparts.