Dallas' STR Ban Could Be A Boon For Suburban Hotels In A Slump

Dallas’ crackdown on short-term rentals could finally be the shot in the arm suburban hotels need to bounce back from the pandemic. 

Dallas City Council voted in June to restrict the presence of companies like Airbnb and Vrbo in single-family neighborhoods, effectively banning up to 95% of the city’s existing STR stock.

The move may read like a panacea for hotels on paper. But the impact of the regulations, scheduled for enforcement in December, is expected to be localized, with suburban properties benefiting the most from the sudden decline in lodging options.

“A lot of these short-term rentals that are being outlawed are in somewhat suburban areas,” CBRE Hotels Executive Vice President Brian Nordahl said. “That’s really where you’re going to see people pushed back into hotels.”

More than 10,000 short-term rentals operate in Dallas, according to AirDNA, a data and analytics firm that tracks STRs. The city’s ordinance allows STRs to continue operating in multifamily zones, which means hotels in dense, urban submarkets like Uptown and Downtown will likely see little to no impact. 

Those properties have already regained their pre-pandemic occupancy and are in many cases pulling in nightly rates that don’t usually align with the budget of an STR client, Nordahl said.

“The super upscale hotels in Uptown really aren’t competing with short-term rentals,” he said. “People are making a choice to stay in that type of property. But when you get into a more suburban area, people are making the choice to stay in one versus the other.”

Suburban hotels have been much slower to bounce back from the pandemic than their urban counterparts. Hotels near the airport are indexing at 80% of the Dallas market, meaning they are underperforming the city as a whole in terms of occupancy, average daily rate and revenue per available room. Near the Galleria, the index drops to 71%.

Conversely, downtown hotels are indexing at 140%. But performance metrics could shift as STRs are removed from the equation, especially at suburban properties, said Lior Sekler, senior vice president of revenue management at HRI Properties.

“Those hotels are obviously experiencing lower demand, lower occupancy levels, and they have lower price points,” he said. “The suburban markets are hopefully going to be able to benefit from less competition.”

This year’s hotel performance reflects a normalization of occupancy and pricing power following double-digit increases in 2021 and 2022 as the industry clawed its way back from the depths of the pandemic, according to CBRE data. 

Occupancy is forecasted to land at 67.9% at year’s end, an annual increase of 1.6%. Revenue per available room is expected to come in at $86.23, up about 7%. The increases could be even more modest in 2024, when CBRE predicts the industry will grow by only 0.3% in occupancy and 3.2% in RevPAR.

At least some of that uptick in demand will be linked to STRs coming offline, Nordahl said.

“From a pure math perspective, if you have less supply and the same amount of demand, you’re going to have increased occupancies,” he said. “When you have increased occupancies at hotels, that creates compression, and they’re able to raise rates.”

Hotels view STRs as an industry disruptor, but for the most part, the clientele tends to be pretty different, said Traci Mayer, executive director of the Hotel Association of North Texas. 

“The STR [client] is looking for a different type of experience,” she said. “They don’t necessarily want to stay in a hotel.”

Countrywide Hospitality has two Dallas hotels in its portfolio. Its operating team expects to see a slight increase in occupancy and RevPAR as a result of the ban, but nothing significant, given that clients who stay in hotels are looking for amenities not usually provided by STRs and vice versa.

“I’m sure there’s going to be some sort of positive impact,” Managing Partner in Operations Sam Patel said. “But I don’t think hotels will all of the sudden run crazy occupancies, RevPARs and average daily rates.”

Hotels in the French Quarter of New Orleans saw an immediate boost in occupancy and pricing power after the city put a moratorium on STRs in 2019, Sekler said. Not long after, a pseudo-STR provider called Sonder — which takes over apartment buildings and leases units on a short-term basis — quickly stepped in to fill the void.

“They’ve taken over, and now they’re a hybrid in this scenario,” he said. “They’re creating another scenario, whereby you might have a moratorium in an area but you still have this other option you can go through.” 

Meanwhile, thousands of STR operators in Dallas whose properties are on the brink of becoming illegal are looking to move their businesses out of DFW. Others are gearing up for legal battles that will likely delay enforcement and stifle the competitive advantage of nearby hotels.

One such lawsuit, led by a group of local STR operators, has already been filed. The complaint alleges that Dallas’ ban is unconstitutional and violates property rights, The Dallas Morning News reports.

“There’s still going to be STRs operating,” Mayer said. “With the lawsuits, there’s still going to be a lot of movement on this, not only here but across the state.”

Airbnb declined to comment, and Vrbo didn't return Bisnow’s request for comment.

Other North Texas cities have enacted similar restrictions as neighborhoods revolt against the industry, claiming STRs are magnets for crime, noise and general disruption. 

Plano City Council temporarily banned STRs in May as it looks to put a more permanent ordinance in place. Arlington limits STRs to its entertainment district. Grapevine’s STR ban, put in place last September, is at the center of a tense legal battle between property owners and the city. 

Neighboring cities that don’t have any restrictions in place could benefit from the bans, though Sekler said he expects the impact to be minimal. 

“Planning a travel experience is typically driven by a reason, whether it’s a business reason or an affinity to a certain destination,” he said. “Once they pick the destination, then they choose their accommodation.”

Whether the STR ban impacts hotel development and acquisition strategies is yet to be seen. For the most part, hotel operators don’t take STR penetration into account when deciding where to build or buy properties, Nordahl said. But that could change as the bans become more prevalent.

“If you’re in an area where 95% of all STRs are going to be essentially illegal once enforcement goes into place … it’s definitely a factor that people should look at,” he said.

There may be some heartburn among STR aficionados if Dallas is successful in enforcing its ban. But once the initial pain subsides, Sekler said he expects travelers will acclimate to the old-but-new hospitality landscape.

“How was life before Uber and Lyft? We managed to navigate and go through life. We just took taxis,” Sekler said. “There were other things before now, and people still have choices.”