Airbnb and Vrbo rentals across the United States have increased by 105% over the past three years propelled by a new wave of travelers looking for more unique and affordable hotel alternatives.
Seeing the outsized returns that short-term rentals generate, real estate investors both big and small have jumped into this new asset class purchasing 1.8 million properties with the intent to earn short-term rental revenue in 2018 alone.
The question is no longer whether short-term rentals are the highest and best use of residential properties throughout most metropolitan cities and leisure destinations. The question is now: how sustainable is this spread between how much short-term and long-term rentals earn and how quickly will it erode, especially with a softening economy?
Many theories exist about how this delicate dance between hotels, private accommodations, and the discerning traveler will play out. The most likely outcome seems to be that cost sensitive consumers and income hungry homeowners will result in a glut of supply; decreasing rates over time for private accommodations.
After listening to different viewpoints of where “in the cycle” short-term rentals are and whether the good times are coming to an end, we at AirDNA decided it was time to add some data to the debate by producing the first monthly report on the state of the U.S. short-term rental market.
Introducing the AirDNA Index
Much like the S&P 500 provides guidance on the fluctuations of the stock market or the Case-Shiller Index provides guidance on the change in home values, the AirDNA Index provide a high-level trend of the revenue generated by short-term rentals. The Index looks at the average revenue generated by all rentals listed on Airbnb or Vrbo to determine whether properties are earning more or less on a seasonally adjusted basis.
The United States AirDNA Index
To best summarize the performance of the entire U.S. vacation rental market we included a representative sample of the entire market by selecting the largest twenty five metropolitan cities by population and the twenty five largest destination markets, as determined by active short-term rental count.
The Index begins on January 2017 with an opening value of 100. Every point fluctuation from 100 indicates a percentage point in the average revenue generated each month. The U.S. AirDNA Index was 139.9 for July 2019, down 6.0 points from the previous year.
Metropolitan vs Destination Markets
Looking at the performance of cities and destinations separately we can see that most of the growth over the past two years can be attributed to strength in the leisure destinations (traditional vacation rental markets). Destination markets are up 35 points over the past two years while cities are up only 12 points over the same period.
Urban Short-Term Rental Markets
For the top 25 metropolitan cities in the United States, we see steady growth. But as vacation rental markets have trended toward larger, higher earning properties, urban markets have started to lag behind.
- Indianapolis – Doubling down on a trend started back in 2018, Indy has seen explosive revenue growth of over 17.4%. While previous reports have cited quality of life, Indy may also be benefitting from transplants supporting its burgeoning tech scene.
- Austin – Despite claims that many short-term rentals are operating illegally and the fact that supply has remained relatively flat, Austin has seen a 8.0% increase in revenue, meaning active rentals are wringing more value from their investments, especially during events such as SXSW.
- Denver – Revenue is up 7.6% year-over-year as millennials continue to flock to the city, and look to diversify their income streams with short-term rentals, despite more stringent primary home regulations.
- San Jose – Despite having some of the Bay area’s more accommodating short-term rental regulations, revenue in San Jose was down 15.5% year-over-year. That said, short-term rental hosts still pocketed an average of $3,895 per rental last month.
- Fort Worth – Hosts in this Texas hot spot saw their revenue decline by more than 18% year-over-year. Whether this driven by commercial regulation or other factors driving down demand remains to be seen.
|City||Revenue Jul '19||Y/Y%||Active Rentals|
|San Diego, CA||$6,909||3.8%||11,855|
|San Francisco, CA||$5,405||-11.8%||6,183|
|Los Angeles, CA||$4,515||3.6%||20,384|
|New York, NY||$4,090||-3.9%||36,097|
|San Jose, CA||$3,895||-15.5%||2,265|
|San Antonio, TX||$3,126||0.4%||3,277|
|Fort Worth, TX||$2,637||-18.0%||982|
Traditional Vacation Rental Destinations
Growth is accelerating, even in several markets that already top our list in terms of gross revenue. Across the U.S. we’ve seen destinations accelerate as they realize the potential of multichannel distribution and trend toward higher grossing, large (4+ bedroom) and luxury units.
- North Myrtle Beach, SC – While spring breakers and family vacationers have long supported tourism across Myrtle Beach, SC, some of the larger, more luxury units in Cherry Grove and other parts of North Myrtle Beach are now coming on to the short-term rental market and seeing amazing revenue gains of 26.5% year-over-year.
- Breckenridge, CO – Skiing, snowmobiling and other outdoor pursuits have long driven tourism to Breck in the winter months, but in the last decade Breckenridge has seen an increase in summer tourism, especially from Front Range locals looking to escape the heat in Denver. That said, growth is slowing, and revenue in this mountain town is down 14.8% year-over-year in July.
- Fort Lauderdale, FL – Despite increasing demand by spring breakers driving up revenue in March, Ft Lauderdale was unable to sustain year-over-year revenue gains throughout the summer, and saw a 11.6% decrease in revenue in July.
- Orange Beach, AL – Despite the heavy regulation of single family homes, Orange Beach vacation rental have seen a decline of 11.1% in revenue year-over-year.
|City||Revenue Jul '19||Y/Y%||Active Rentals|
|Santa Rosa Beach, FL||$10,580||2.3%||5,192|
|Breckenridge, CO (*)||$5,490||-14.8%||4,198|
|Hilton Head Island, SC||$8,241||4.4%||7,371|
|Miramar Beach, FL||$8,002||5.6%||5,493|
|Orange Beach, AL||$7,539||-11.1%||5,811|
|Gulf Shores, AL||$7,501||2.3%||6,601|
|North Myrtle Beach, SC||$7,283||26.5%||4,627|
|Panama City Beach, FL||$6,292||-4.3%||10,296|
|Myrtle Beach, SC||$5,535||-2.1%||7,185|
|Park City, UT (*)||$4,825||-4.7%||4,536|
|Las Vegas, NV||$4,166||6.5%||9,511|
|Miami Beach, FL (*)||$3,779||-5.2%||6,995|
|Fort Lauderdale, FL||$3,770||-11.6%||4,603|
|Saint Petersburg, FL||$3,590||-8.3%||5,613|
|New Orleans, LA||$3,196||-1.2%||8,671|
Short-Term Rental Report Methodology
The AirDNA Index is calculated using the seasonally adjusted mean revenue of all properties the in the market. Currently there are almost 2 million active rentals across the U.S. on Airbnb and Vrbo.
Seasonality is removed by using a revenue coefficient for each market’s monthly average rental revenue over the past five years. This allows us to remove the seasonality swings in each market and report a monthly trend.
After in-depth analysis of several different methodologies that included only analyzing the same basket of properties year over year, or adjusting for property size, to name a few, AirDNA found that the mean of all short-term rental performance provided the most simple and equally accurate indication of the markets’ movement.
The Index is based on all data available in the month prior to publication.