COVID-19 impact on hotels and short-term rentals
Will Sanford, Research Analyst, STR
Dillon DuBois, Product Marketing Manager, AirDNA
As the COVID-19 pandemic advanced around the globe during the first half of 2020, accommodation performance fell from all-time highs to unprecedented lows. Efforts to mitigate its spread with stay-at-home orders and social distancing guidance did more than stifle travel demand, however; such measures significantly altered traveler behaviors while surfacing interesting trends in hotels and short-term rentals.
STR and AirDNA analyzed the performance of hotels and short-term rentals, respectively, in 27 markets around the globe. The analysis, which covers the time period from January 2019 through June 27, 2020, compares hotel data with two different categories of short-term rentals:
- hotel-comparable rentals (“Rentals HC”), which comprise studio and 1-bedroom units; and
- “2+ Bedroom Rentals,” which comprise units with 2 bedrooms or more.
A key theme in the early stage of recovery for each segment is a shift in travel patterns away from urban markets and toward regional destination markets. To that end, STR and AirDNA tracked performance variances across destination types in 15 urban markets and 12 regional destinations.
By contrasting performance of hotels and short-term rentals in the year preceding the outbreak, the subsequent economic decline, and post-decline travel patterns, this analysis revealed six key findings:
- Hotels historically have shown higher occupancy and room rates compared to Rentals HC.
- The hotel sector experienced much steeper declines than all short-term rentals as business and group-oriented demand has dissolved.
- As the hospitality industry has emerged from the performance lows of mid-March and early-April, traveler behavior has made regional tourism destinations more popular than their urban counterparts for all accommodation types.
- Since the outbreak, short-term rentals have maintained higher absolute occupancy levels.
- While the hotel sector endured the hardest hit to performance, it has experienced noticeable week-over-week growth since its low point.
- The short-term rental sector is much closer to reaching previous year levels in revenue per available room (RevPAR), the industry standard metric when grading performance.
Hotel data was provided by STR using data sourced directly from hotel owners and operators on a daily, weekly and monthly basis. Short-term rental data was provided by AirDNA using data scraped and sourced data from Airbnb and Vrbo, and includes two short-term rental unit types:
- Rentals HC: Entire place listings that are a Studio or 1 bedroom
- 2+ Bedroom Rentals: Entire place listings that are 2 bedrooms or greater
Data from shared rooms or private rooms in listings with shared common space were excluded, as they are not viewed as directly comparable to hotels.
This analysis covers 27 markets globally, including 15 urban markets and 12 regional markets. STR hotel market geographical boundaries were aligned with AirDNA market by selecting hotel properties that fall within each AirDNA market definition. The 27 markets were selected based on several factors, such as data availability and market type (urban or regional). Data reference throughout this article is an aggregate of performance among these 27 markets, unless otherwise noted.
Only hotel data from properties reporting demand for the given week or month were counted within supply calculations. For short-term rentals, a listing must show at least one available day in the month or have a reservation to be included in supply. Properties with no reservations were excluded.
Data for the 27 markets used in this analysis covers January 1, 2019 through June 27, 2020. The “COVID low point” (or simply “low point”) refers to the respective low point for each performance metric in a given market. The date of each “low point” varies by market and sector.
All revenue data was converted into USD to ensure consistency in the global aggregations.
Neither STR nor AirDNA were remunerated for this analysis; participation from either party was not contingent upon developing or reporting predetermined results.
All-time highs precede the pandemic
The global economy and accommodation industry had achieved unprecedented success in the years and months leading up to the pandemic. As of February 2020, annualized global hotel occupancy exceeded 66% for a record 58th consecutive month. From 2015 through 2019, the U.S. short-term rental peak-season occupancy rate grew 2.3% annually, reaching a record high of 58.6% in 2019 (Figure 1).
Hotel performance trends higher historically
Prior to the pandemic, hotels historically had the upper hand in performance compared to their short-term rental counterparts. In 2019, for instance, hotel occupancy was on average 11.4 percentage points higher (75.0%) than Rentals HC occupancy (63.6%) and nearly 20 percentage points higher when compared to 2+ Bedroom Rentals (56.3%). The same was true with average daily rate (ADR), which was 22.7% higher for hotels ($161.39) compared with Rentals HC ($131.50) (Figure 2).
One driver of higher performance in hotels was business travel. While both the hotel and short-term rental sectors rely heavily on leisure (transient) travel demand, which accounts for nearly three-quarters of global hotel demand and a much higher percentage of short-term rental demand, the hotel sector generates approximately one-quarter of its demand from business travelers (business transient and group).
As the economy thrived pre-COVID, business travel demand boomed, especially in urban markets. Urban markets traditionally have had an occupancy advantage over regional markets: Urban hotel occupancy held a 6.7-point edge over regional market hotel occupancy in 2019. The urban advantage for short-term rentals also was apparent last year, albeit less pronounced (Figure 3).
Momentum for short-term rentals
Prior to this year’s COVID-19 pandemic, the short-term rental industry had just wrapped up a half-decade sprint of nearly 300% total growth driven by travelers seeking more affordable and unique experiences. While 2019 saw its fair share of slowed growth and volatility, the industry as a whole remained remarkably strong (Figure 4).
The pandemic pushes performance to rock bottom
As the pandemic spread globally, so too did travel restrictions and nosedives in accommodation demand. In the markets covered in this analysis, hotels bottomed out at 17.5% occupancy for the week ending March 28 while short-term rentals (Rental HC and 2+ Bedroom Rentals) reached a low of 34.3%.
Hotels hit harder during COVID economic downturn
Hotel occupancy declined 77.3% and ADR fell 50.4% when comparing data for the week of March 31, 2019, to its weekly March 2020 low point. By comparison, Rentals HC and 2+ Bedroom Rentals occupancy declined 45.1% and 46.2%, respectively. ADR among these two rental types fell by a more modest 11.6% (Rentals HC) and 6.4% (2+ Bedroom Rentals) (Figure 5).
Urban and regional markets were hit just as hard in the decline, with hotel occupancy declining 78.6% in regional markets and 77.6% in urban locations. Rentals HC declined 46.2% in regional spots and 44.5% in urban markets (Figure 6).
Decreases were felt uniformly within all 27 of the markets covered, with the exception of Atlantic City’s resilient short-term rentals. Among the worst-hit markets was New Orleans, which experienced a 92.9% decline in hotel occupancy and a 67.4% decline in Rentals HC. Rome also was hit hard with a 97.2% (hotel) and 58.8% (Rentals HC) decline in occupancy. Figure 7 summarizes these declines in occupancy for each market.
Factors behind the impact on hotels
While both sectors experienced dramatic declines in performance, the data offers a few key insights about why hotels may have been hit harder.
First, as quarantine restrictions, social distancing and economic troubles took hold, many business meetings, conferences, and other events were canceled. Given the hotel sector’s reliance on demand from group and business travel, this had an unequal impact on hotel occupancy.
Second, as the economy struggled, hotel travelers migrated toward Midscale and Economy class options, which led to a significant decline in hotel ADR. For instance, demand in Nashville, Tennessee, for high-end hotels declined by 53.7% from March 2019 through March 2020, while demand for Midscale and Economy class options declined by 22.3%. Austin, Texas, experienced a similar trend with a 62.1% decline in higher-end options and 21.3% decline in Midscale and Economy class options.
Short-term rentals not immune – but not as bad
All major short-term rental key performance indicators plummeted within the span of a few weeks as well. Global new bookings fell 47% from more than 2.3 million in January 2020 to just 1.2 million in April. Year over year, global new bookings were down 61% (Figure 8).
While these numbers seem grim, the fall for short-term rentals was not as severe as hotels’ for a variety of reasons.
First, short-term rentals can make social distancing easier given the availability of larger units (see 2+ Bedrooms and entire homes) as well as an availability of inventory in more rural and/or remote vacation markets—locations that allowed travelers to escape more densely populated urban markets where cases were spiking.
Second, most short-term rentals offer full-service amenities (such as kitchens and living space), which allowed for longer-term stays and became more popular as families looked for spaces to retreat. As a result, average length of stay increased by 58% during the crisis.
Performance starting to stabilize
With the accommodations sector crippled with all-time low occupancies, it likely will take years to rebuild performance to pre-COVID levels.
For context, the U.S. hotel industry experienced 19 consecutive months of year-over-year RevPAR declines during the Great Recession. And the largest year-over-year RevPAR decline during the Great Recession was 20.4%. By comparison, the first few months of the COVID-19 pandemic yielded much more significant year-over-year RevPAR declines of 51.7% in March, 80.0% in April and 71.0% in May.
For the markets in this analysis, after week-over-week losses reached their low-point in mid-to-late March, the accommodations sector began to rebound with modest, week-to-week occupancy gains beginning in April (Figure 9). Weekly hotel occupancy increased at an average rate of 8.8% since the COVID low point, compared to a 5.3% average weekly increase for short-term rentals.
Hotel performance fell much further, so gains (statistically speaking) have been more pronounced. Hotel occupancy bottomed out at 17.5%, down 77.3% from the prior year; Rentals HC occupancy fell “only” to 36.4% (-45.1% from the prior year). Hotel occupancy has since increased 123.8% from its low, while Rentals HC occupancy increased 60.0%. Hotel ADR has increased 31.9% during that same period, while Rentals HC ADR increased 23.2%.
During the stretch from early April to early July, the global vacation rental industry rebounded as pent-up travel demand led to a 257% increase in global bookings. Figure 10 shows supply counts (Airbnb + Vrbo) for various countries from pre-COVID through to today. Overall, supply has remained relatively steady as hosts are opting to keep their listings active and welcome bookings for the fall and winter months.
In terms of average daily rate, 2020’s booked rates are already back on track with 2019 levels. In fact, Airbnb rates in July are reporting higher than in 2019 for many countries around the world (Figure 11).
These gains—combined with hotels’ greater decreases—has meant the short-term rental industry is now outperforming hotels.
As of June 21, 2020, hotel RevPAR was still 64.8% lower than the previous year while short-term rental RevPAR was down just 4.5%. The more modest declines on the short-term rental side are largely due to more stable ADR in the sector, which was level (even with a slight increase) year over year.
Whether this is a momentary or longer-lasting trend is difficult to predict. While short-term rentals have recorded stronger performance of late, the hotel sector continues to make up ground.
Shift in travel behavior
Early, post-pandemic recovery looks different depending on the location. While urban and regional markets were both affected by COVID-19, regional markets have performed better most recently.
The average weekly occupancy increase in regional markets since the COVID low point has been 13.1% for hotels compared to 7.1% in urban markets. From the COVID low point through the week ending June 21, hotel occupancy in regional markets increased 210.4%, compared to 98.9% for urban hotels. For Rentals HC, the average weekly increase in urban markets was also lower at 3.4% compared to 5.7% for regional markets (Figure 12).
As an example, the Gatlinburg/Pigeon Forge, Tennessee, market, which is within a four-hour drive of Nashville, Atlanta, Charlotte, Raleigh and Knoxville, experienced a 1,294.3% increase in hotel occupancy from its COVID low point. The market had the most ground to gain; its hotel occupancy bottomed out at 5.6% in mid-March, the lowest level of any market in this analysis. By June 21, occupancy had climbed back to 78.1%. For comparison, Gatlinburg’s hotel occupancy during the comparable time the year prior was 89.1%.
Rentals HC in this regional market ended the week at a similar level, with occupancy at 73.7%—nearing their prior-year levels of 77.6%. These rentals did not have as far to climb, however; the pandemic didn’t hit the segment as hard, so the rebound amounted to “only” a 91.8% gain compared to hotels’ quadruple-digit increase. Larger short-term rentals (2+ Bedroom Rentals) increased at a slightly higher 111.0%, a sign that more families and larger groups are traveling to the Smoky Mountain destination.
Other destination markets with similar occupancy trends include:
- Atlantic city (+695.4% hotels | +123.6% Rentals HC | +195.4% 2+ Bedroom Rentals)
- Gulf Shores (+1,139.2% hotels | +174.6% Rentals HC | +132.0% 2+ Bedroom Rentals)
- Barcelona (+332.0% hotels | +11.1% Rentals HC | +15.4 2+ Bedroom Rentals)
- Australia’s Gold Coast (+298.1% hotels | +26.9% Rentals HC | +28.6% 2+ Bedroom Rentals)
Figure 13 summarizes the post-COVID trends for the 27 markets in this study.
Too Soon to Call it a Rebound?
Given the latest spike of COVID-19 cases, especially in the U.S., it’s unclear whether these week-to-week increases are truly sustainable. While performance appears to be trending upward for both sectors, things are not back to normal in most cases.
Short-term rentals are nearer to pre-COVID levels in RevPAR for the week ending June 21, 2020, reaching $165.35 (down 4.5% from June 30, 2019, thanks to relatively stable ADR). Hotels, however, have a much longer road to recovery. For the same week, hotel RevPAR stood at $40.81, which was 64.8% lower than the previous year RevPAR of $115.83 (Figure 14).
Still, as we monitor the progress, the changes in travel behavior in a COVID-19 world offer interesting insights into how quickly the accommodations sector can adapt and recover.
As the world began to grapple with the virus, social distancing and other restrictions took its toll on business and group travel, which had a disproportionate impact on hotels. Meanwhile, many of the short-term rental sector’s unique sell propositions became strengths post-outbreak.
Whenever the pandemic subsides or a vaccine becomes widely available, we expect urban markets to slowly return to normal. And while it may be too soon to call it a rebound, the post-COVID improvements in the lodging industry has been an encouraging trend to watch in an otherwise difficult year.