Short-Term Rentals Are Gaining Ground, But Hotels Still Far Outpace Them

Traditional hotels now consider Airbnb and other short-term rental sites as direct competitors, but the demands of lodging customers remain diverse enough to prevent STRs from launching a true market disruption. 

“[The rise of STRs is] definitely something that everyone needs to pay attention to,” Sam Moon Group Vice President Daniel Moon said. “I think it’s something where there is a place for it ... And, as you can see, that trend is growing.” 

The numbers coming from the STR community are significant enough to command notice from hoteliers like Moon, who mostly develops full-service hotels, like the Renaissance Dallas in West Plano and the Hyatt Regency at Stonebriar Centre in Frisco, which opens this year.  

CBRE estimates the number of short-term rental units in the U.S. will expand to 650,000 in 2020. That would bring its supply level to roughly 12% of the entire traditional hotel room market this year. STRs in Dallas and Fort Worth have reached market penetration rates of 4.4% and 3.7%, respectively. 

Even though short-term rental growth tapered off a bit in 2019, reaching 26% annual growth, down from 39% in 2018, volumes are high enough for analysts and developers to keep their eyes on. 

“The impacts of short-term rentals are affecting the hospitality business on a macro level in certain markets and customers,” Jackson Shaw Vice President Ron Welborn said. “However, we focus on the differentiators in the hospitality business that sets us apart in the industry and, more specifically, the short-term rental market, by focusing on details.”

Those details include the developer's ability to select a specific location to cater to customers, and to choose appropriate on-site amenities, Welborn and Moon said.

In the long-run, both hotel developers say short-term rentals can't match the full-service amenities or premier locations that define traditional hotels. 

“There is just a sense of safety and a sense of knowing what to expect when you get to a full-service hotel,” Moon said. “Where at an Airbnb, you may go there and it may be a wonderful experience. The owner may greet you and show you around, or maybe it’s an experience where you get to where you are going and you’re afraid.” 

While short-term rentals are not dampening hotel demand overall, STR Senior Vice President of Lodging Insights Jan Freitag said it is possible the rise of temporary rental units is having some impact on average daily room rates. Rates grew 1% last year in the U.S.

While slower rent growth may simply be the result of a decade of growth finally reaching its ceiling, Freitag doesn't discount the emergence of STRs as part of the cause.

“We tend to follow the argument that yes, there is some impact,” he said.

The number of compression nights hotels report each year could also be impacted. Compression nights are times when a hotel benefits from having 95% occupancy and the premium room rates that go with it. 

STR data shows compression room nights hit a peak in 2015 and have declined every year since.

“We are seeing this happening less often," Freitag admitted. "You still have power when you have a compression night, but there are just fewer compression nights out there.” 

The hotel industry also has spent five years without experiencing average daily rate increases, a trend that coincides with the arrival of more short-term rentals in the hospitality market, CBRE reported.