Airbnb vs. Hotels: How Guests Choose & Why It Matters

Key Takeaways:

• The battle between Airbnb and hotels is closer than ever, but it's not just about price wars. Travelers crave unique experiences, giving Airbnb hosts a chance to shine.
• Though hotels previously enjoyed higher average daily rates (ADRs) than short-term rentals, the gap is narrowing. 
• While hotels dominate in urban centers, Airbnb takes the lead in less saturated markets like coastal and mountain towns. For hosts, this means a golden opportunity to offer unique and cost-effective lodging alternatives to traditional hotel stays.

The age-old competition of Airbnb vs. hotel has never been so neck-in-neck. Just a few years ago, hosts built short-term rental (STR) businesses by targeting travelers who sought unique experiences that went beyond what hotels had to offer. During the COVID-19 pandemic, travelers found it easier to isolate in an Airbnb than to hull up in a packed hotel, making rental homes the more attractive option. 

Today, that’s all changed. As travel restrictions loosen, rental hosts find themselves competing more directly with hotels than ever before. In 2022, for example, hotels reported an average daily rate (ADR) 26.6% higher than short-term rentals.

This may sound like stiff competition for STR business owners. What looks like an obstacle, though, may also present an opportunity. It’s now easier to predict travel trends and find accurate data as hotel and rental markets overlap. Let’s talk about how. 

Airbnb vs. Hotel: How Travelers Choose

Staying at an Airbnb gives guests a sense of adventure that you just won’t find with a hotel. Sure, decisions about where to stay can depend on cost, quality, and accommodation type, but travelers love a unique experience, too. As such, hosts should focus on creating great experiences.

Accommodation Type

Airbnb offers everything from snug urban lofts to rustic countryside cottages. Hotels offer a more standardized experience, complete with crisp linens and friendly front desk staff. 

Value-for-money factors heavily into booking decisions for hotel and rental guests alike, but atmosphere and location reign supreme. 

Rentals also have a huge advantage in markets where hotels are underrepresented: coastal and mountain towns. These areas have proportionally fewer hotels, making them a fertile ground for rental hosts savvy enough to make their mark.

Cost

Savings can be a win for rentals in the Airbnb vs hotel comparison. While hotels offer room service and premium cuisine options at a high price, Airbnb travelers can cook and clean for themselves, helping to offset costs and create a “home away from home” vibe.

Quality

Rentals have come into their own as far as fostering high-quality, memorable guest experiences. While hotels tend to be perceived as more reputable and trustworthy than rentals, Airbnb’s Superhost and Guest Favorite badges are helping to close that gap by rewarding hosts who go above and beyond for their guests. 

In addition, Marriott launched its London-based home sharing program with Hostmaker in 2018, naming vacation rental property management companies like TurnKey Vacation Rentals, LaCure, and Veeve as partners in the expansion. 

As international brands venture into home sharing, the quality of vacation rentals will only increase. 

Why Do People Choose Airbnb vs. Hotels?

Hotels are convenient and easy to book in big cities, but they can be hard to find elsewhere. The cost can also be higher. 

People choose an Airbnb vs. hotel due to:

• More customized accommodations, such as extra space and amenities for large groups.
• Lower costs for guests who opt to cook and dine in, rather than go to restaurants.
• A more homely atmosphere that comes with staying in a house rather than a hotel

Emphasizing these qualities can help STR owners reach more discerning travelers looking for a unique experience (so long as the price is competitive).

What Rental Hosts Should Know about Lodging Competition

Travel accommodations can set the tone for a whole trip. Whether it’s a family hitting an amusement park or a business traveler heading to a conference, choosing between a hotel or a vacation rental takes some thinking. 

Before the pandemic, hotels and vacation rentals enjoyed a wave of rising demand. Growth rates soared by +30% and +26.4% year over year, respectively, but by Q2 of 2023, rental growth slowed to 11.7%. Hotels dipped into negative territory at -0.6%. 

What changed? Bleisure—a mix of business and leisure travel where remote workers swap out stuffy hotel rooms for cozy rentals with all the trimmings. These travelers are less interested in big cities, opting instead for quieter, more rural areas, where vacation rentals dominate the market.

While the competition between Airbnb vs. hotel is close in urban centers, rentals outperform hotels in mid-sized cities, suburbs, mountain getaways, and coastal havens. 

As of May 2023, short-term rentals in small city and rural hideaways saw an eye-popping 24% spike in demand, leaving hotels in the dust with a flatline growth of 0%. 

Why is this happening?

1. The ADR Gap Is Closing

The pandemic threw a wrench in the dynamic between Airbnb vs hotel. While hotels experienced a massive drop in occupancy and average daily rates (ADRs), short-term rentals actually saw an increase from the previous year (in the US, Spain, Italy, France and China).

Consumer perception has typically favored Airbnb vs. hotel when it comes to affordability, and for good reason. Hotels reported 42.9% higher average daily rates (ADRs) than rentals in large cities in 2019. However, as of 2022, that gap closed to 26.6%. 

For a time, hotel ADRs were growing at a faster rate than that of STRs. Since peaking in 2022, however, the year-over-year (YOY) ADR change for hotels has dropped to 3.7%, just over a decimal point higher than the rate of change in rentals.

Hotels saw faster ADR growth (7.2% YOY) compared to short-term rentals (2.8%). However, this growth was largely driven by performance in the top 25 markets, which include urban areas and mountain/lake resorts. Short-term rentals are still 20% cheaper than hotels in urban areas. Rentals are slightly more expensive in other location types, reflecting the larger spaces and amenities that they are able to offer outside of cities. 

Travelers looking for deals may perceive hotels to be more approachable in certain markets. However, location is often more heavily weighed than even value-for-money, which can help Airbnb maintain their competitive edge. 

As rental prices come closer to those of hotels, property managers can better predict the future of the rental market— in 2021, one sector’s demand could accurately predict the other’s 87% of the time. In 2019, that was only possible about 50% of the time.

2. Hotels Are Back in Force—But Not Everywhere

Rentals dominate the market in locations where hotels are less prevalent, such as coastal and mountainous areas. However, hotels are making a push to get involved in the rental market. 

Per AirDNA data from 2019, hotels represent just under 2% of Airbnb and HomeAway listings in the U.S. However, that number is expected to grow. In 2019, Airbnb acquired HotelTonight, which squarely put them in the traditional lodging game. With companies like Airbnb entering the hotel industry, rentals will be competing with hotels more directly. 

COVID-19 Impact on Hotels and Short-Term Rentals

The features that differentiate Airbnb vs. hotel—full-service amenities, space to spread out, bigger properties, and locations in remote destinations—were exactly what guests wanted during the pandemic. Data from AirDNA shows that length of stay increased by 58% during the pandemic, thanks to guests being able to socially distance and stay for longer periods of time. The rental market share of lodging demand also soared to 17%, a record high.

Before the pandemic, hotels outperformed their short-term rental counterparts. But during the pandemic, short-term rentals showed resilience and outperformed hotels in ADR, Revenue per Available Room (RevPAR), and length of stay. This was especially true for larger rentals like four-bedroom homes near leisure destinations, which performed strongest throughout the crisis.

3. Unique Guest Experiences Still Set Rentals Apart

Rental demand is still historically high, reaching an approximately 13% share of all accommodations in 2022 compared to 9.7% in 2018. This is because rentals still offer a unique experience that hotels are only starting to work to provide. 

Rentals Have the Upper Hand Over Hotels According to Data

The share of demand for short-term rentals will continue to grow—from 14.6% in 2023 to an estimated 15.4% in 2024. This is especially true for short-term rentals in small city/rural locations, where rental demand grew by 24% (compared to 0% for hotels). STRs are on firm footing to continue making an impact in the lodging market. 

“The lodging industry is being forced to evolve because of advancing technology and changing guest expectations,” says Scott Shatford, Co-Founder of AirDNA and board member. “Hotel companies know that fighting home sharing is a losing battle. Some have failed to take the time to fully understand the nuances between hotels and vacation rentals—and what drives travelers to choose one over the other.” 

How the Playing Field Is Changing

At the moment, rentals outperform hotels in every setting outside of urban centers. Hotels utilize higher-value real estate to charge a premium on convenient inner city locations—places where homes are either nonexistent or priced too high for home sharing. 

Things are changing in the tug of war between Airbnb vs. hotel, though. As hotels push further into the vacation rental space (as demonstrated by Marriott’s partnership with Hostmaker), STR owners should see ADRs increase across the board. 

Where Rentals Are Headed

There’s been a steady supply of vacation rentals for a while now, with STR supply growth staying above 15% year over year in 2022-2023 (that number was less than 5% for hotels). 

Size and location are the biggest drivers of STR supply growth. Short-term rentals in 2022-2023 expanded faster in rural and suburban areas, at 18% and 14% respectively, while urban areas saw growth rates of 8%.

The fastest STR growth appears in larger properties, with more than 300,000 three-bedroom units now available, outpacing one and two-bedroom units by more than 70,000 each. Three-bedroom units currently see the highest demand growth of any property size.

Hotel Companies’ Reactions to STR Growth

The rising popularity of platforms like Airbnb and HomeAway has created an entire generation of tech-savvy travelers who value experiences over brand loyalty. On one hand, the shift has helped hotels define travel trends of the future. On the other hand, it’s made it impossible for them to own the guest experience end-to-end. 

Brands like Accor and Hyatt saw the opportunity presented by vacation rentals, but their accommodations portfolio struggled to fit the task. Others saw home sharing as a threat, and tried to combat its expansion through negative ads and lobbying efforts to shut it down—efforts which have had little to no impact. 

The only option left for hotels is to embrace STR, as Marriott has done by partnering with Hostmaker. By giving home sharing the goodwill of an international brand, the rift between Airbnb vs. hotel will close, putting them on more equal footing.

What Lies Ahead for STRs

Private accommodations are finding their way into more and more booking websites, just as hotels are showing up on more STR hosting platforms. A rise in competition between the two industries seems inevitable. 

As the graph below indicates, STRs are capturing an increasing share of lodging demand. Property owners can focus their resources on the types of rentals that hotels struggle to compete with—properties that can accommodate large groups of people who plan on longer stays. 

Notably, though, the rental share of demand for 1-bedroom/studio rentals is also growing. This suggests that Airbnbs can have a competitive edge even when their square footage is similar to that of traditional lodging. 

AirDNA’s market intelligence can offer insights into where those resources would best be spent. 

What Airbnb Hosts Can Learn from Hotels

As the ADR gap closes between Airbnb vs. hotel, Airbnb hosts can take a leaf out of the hotel industry's playbook to level up their game. 

Personalized Service

Hotels excel at providing personalized services tailored to each guest's needs. This is what the concierge desk at hotels is all about. Airbnb hosts can follow suit by anticipating guest preferences and going the extra mile to cater to them.

An individual Airbnb host probably doesn’t have the time to provide personalized itinerary recommendations for every guest, but a welcome basket and guidebook can go a long way in making a guest feel cared for. 

Attention to Detail

Hotels are masters of attention to detail. Airbnb hosts can elevate their properties by focusing on the little things that make a big difference, such as cleanliness, decor, and the overall ambiance that creates a welcoming and comfortable environment for guests.

Professional Communication

Clear and professional communication is key to a positive guest experience. Hotels set the bar high with their seamless check-in processes and responsive guest services. Airbnb hosts can enhance communication with quick responses to inquiries, detailed check-in instructions and pre-booking messages, and constant availability to guests throughout their stay.

Consistency

Consistency is the hallmark of any reputable hotel chain. Airbnb hosts can build trust and loyalty among guests by maintaining consistent standards across their properties. 

Adaptability

Hotels know how to meet changing trends and guest preferences. Airbnb hosts can stay ahead of the curve by being flexible and responsive to market demands. 

By drawing inspiration from the best practices of hotels, Airbnb hosts can enhance their rental properties and provide exceptional guest experiences that keep guests coming back time and time again.

Frequently Asked Questions

Why do people choose Airbnb over hotels?

People may choose an Airbnb over a hotel for a number of different reasons, including more customized accommodations, extra space, amenities for large groups, and cost savings.

What are the disadvantages of Airbnb?

Airbnbs can be at a disadvantage in urban areas where homes are either nonexistent or priced too high for home sharing. Hosts may struggle to compete in urban areas where hotels dominate inner-city real estate. Plus, hotels can be perceived as more reputable and trustworthy than rentals, but Airbnb’s Superhost and Guest Favorite badges are helping to close that gap by rewarding excellent hosts.

What’s cheaper Airbnb vs. hotel?

Airbnbs are typically more affordable than hotels. As of 2022, hotels have 26.6% higher ADR (nightly rate over booking period) than rentals in large cities.