Hotels

Hotels and short-term rentals blur the lines in America’s new lodging market

Skift grip

Short-term rentals have outperformed hotels during the pandemic years in the US lodging industry. However, the lines between hotels and so-called STRs are blurring and it remains to be seen how the two segments will compete to define the market landscape.

Varsha Arora, Skift Research

In our Skift Research Global Travel Outlook 2022 report, we featured that 2020 was the toughest year for the travel industry to date, while 2021 will be remembered as the inflection point of the pandemic, with the industry reaching 70% of pre-pandemic activity. Looking to 2022 and beyond, we are optimistic in our latest report “U.S. Hospitality Industry Market Estimates 2022″ for a short- and long-term travel recovery with growth forecasts for all major travel sectors this year.

The hospitality industry, in line with the industry as a whole, saw an unprecedented decline in revenue in 2020. But Skift Research estimated that the global hospitality industry saw a significant boost in performance with growth in year-over-year by 35% in 2021 and is expected to grow 55% in 2022, to reach $450 billion.

Short-term rentals held up better in 2020 than hotels, registering a 33% drop compared to a 60% drop for hotels. We estimate that in 2021 the sector grew by 42%, heading towards bookings returning to pre-pandemic levels by 2022.

At the country level, our December 2021 Skift Travel Health Index, which is a real-time, holistic measure of travel industry performance, showed that the travel industry in the United States was enjoying strong domestic demand and was increasingly immune to the spikes in new Covid Cases in 2021. Taking an average of all monthly indices for the United States in 2021, the Travel Health Index showed that the American industry travel had recovered around 80.5% and the accommodation sector in particular had recovered around 93% from 2019 levels. For short-term rentals, instead of a recovery, the market has actually risen above the pre-pandemic level of 2019 in 2021.

We released our latest Skift Research report on April 6. Below we share an excerpt from the report.

US accommodation industry estimates

We estimate that total U.S. lodging industry revenue fell 39.3% in 2020 before increasing 66.3% year-over-year to reach 2019 levels in 2021 In 2022, we estimate revenue will be up 12.8%.

U.S. lodging industry revenue, 2018-2022 (USD billion and percentage change)

2018 2019 2020 2021 2022nd
Total revenue $298.87 $317.56 $192.76 $319.94 $360.85
% change 6.3% -39.3% 66.0% 12.8%

Note: Includes establishments that provide short-term accommodation in establishments such as hotels, motels, casino hotels and bed and breakfasts, or in private homes or apartments.

Source: Skift Research, US Economic Census, US Census Service Annual Survey (SAS) and Quarterly Services Survey (QSS), US Bureau of Economic Analysis Travel and Company Filings

Was the pandemic a watershed moment for short-term rentals?

The short-term rental business has been encroaching on the hospitality industry for over a decade now, and no one can afford to ignore the sector for its growing market share and changing consumer expectations that it helped inaugurate.

The importance of short-term rentals increased further during the pandemic, as it was exactly the type of accommodation model that consumers preferred. Many travelers fled hotels during the pandemic and instead fled to short-term rentals, where they could hide out, avoid crowds, cook their own meals, and essentially use it as a quarantine bubble.

We estimate that while hospitality sector revenues were down 41.2% in 2020, short-term rental sector revenues were down only 26%. In 2021, the trend continued with hotel revenue up 60.4% year-over-year, while short-term rental revenue increased 96.8% year-over-year the other.

In 2022, we believe the growth rate for short-term rentals will decline significantly, due to a broader base, but will still register growth of around 16% year-over-year. We also estimate hotels will grow 12% in 2021, with total revenue increasing by $15.8 billion from 2019.

U.S. lodging industry revenue by category, 2018-2022 ($ billion, percent change, and percent of total)

2018 2019 2020 2021 2022nd
Hotels $267.46 $277.94 $163.44 $262.23 $293.70
% change 3.9% -41.2% 60.4% 12.0%
% of total 89.5% 87.5% 84.8% 82.0% 81.4%
Short term rentals $31.41 $39.63 $29.32 $57.71 $67.15
% change 26.2% -26.0% 96.8% 16.4%
% of total 10.5% 12.5% 15.2% 18.0% 18.6%
Total $298.87 $317.56 $192.76 $319.94 $360.85

Note: Includes establishments that provide short-term accommodation in establishments such as hotels, motels, casino hotels and bed and breakfasts, or in private homes or apartments.

Source: Skift Research, US Economic Census, US Census Service Annual Survey (SAS) and Quarterly Services Survey (QSS), US Bureau of Economic Analysis Travel and Company Filings

However, the situation remains fluid and it will take some time for pandemic-induced consumer behavior to reset in the post-pandemic world. Short term rentals have surely become a more popular concept and they have evolved from an alternative accommodation option to a basic accommodation option. For example, Google announcing the new combined hotel and vacation rental search product in 2021 is yet one of the recent testimonies that the lines between hotels and short-term rentals are blurring and it remains to be seen how the two segments will compete to define the market landscape.