2024
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AI, M&A, ESG and more: STRz 2024 predictions

Worldwide: A lot can happen in the space of a year – 12 months ago, X was still Twitter, a third prime minister of the year had just entered office in the UK, and ChatGPT sounded like something out of pure science fiction. And as anyone in this industry can testify, a year in the short-term rental industry can feel like a rollercoaster as the rate of technological innovation and adoption accelerates, and companies scramble for funding to survive and keep up with shifts in consumer behaviours.

This puts us in an intriguing position as we reveal our predictions for the year ahead in the short-term rental space – a global market which is expected to grow at a CAGR [compound annual growth rate] of 10.8 per cent over the next ten years, according to Future Market Insights.

In spite of ongoing geopolitical turbulence, unprecedented weather events and potential recessions, the travel and tourism industry – and by extension the short-term rental segment – has underlined its resilience amid the challenges. Consumers retain an insatiable appetite for travel and flexible lifestyles as new patterns continue to normalise, and that will be the overriding feeling heading into the new year.

We brought out the crystal ball to explore the prospects for technology, regulations, rental spaces and more among our insights for 2023 – now a year on, check out our previous predictions article to see how we did. What did we get right and where did we go wrong?

Scroll down to discover our five predictions for the industry in 2024.

 

  • ‘AI’ is about more than ‘Airbnb’ – get ready for a new era of AI-driven “hyper-personalisation”

2024 will mark a new era in the STR space, when AI-driven “hyper-personalisation” will become the norm, not the exception, as the segment positions itself to be at the forefront of a new digital transformation, redefining guest expectations and experiences.

Although a recent YouGov poll revealed that a fifth of UK firms fear artificial intelligence, travel and STR businesses are embracing the efficiencies that AI can bring. Jessica Gillingham, founder and CEO of Abode Worldwide, said: “AI was not a new thing this year – OTAs have been using it for some time. But in 2024, we will see the huge exponential growth of the use cases and the adoption of it in all aspects of our lives.”

Marketplaces including Airbnb, HomeToGo and Plum Guide are flexing their muscles in AI:

  • HomeToGo has unveiled its ‘Modes’ travel planner powered by Generative AI to curate search experiences and is preparing to roll out additional AI products in the future.
  • Airbnb recently made its first acquisition since 2019 and first as a public company with the purchase of GamePlanner.AI for over $200 million as it seeks to branch into new ventures.
  • Discerning traveller booking platform Plum Guide has implemented AI to “revolutionise” the brand’s home acquisition process, boost business efficiencies and fuel growth.

 

From now on, we will see platforms integrate hyper-personalisation, no longer to segment us into distinct traveller demographics, but to provide recommendations tailored to each individual’s preferences. Platforms will leverage data and information from reviews and user habits to determine these preferences, thereby improving the guest journey and experience and engendering loyalty. Ultra-personalised marketing will will mirror what Netflix, Amazon and Tinder are doing for streaming, shopping and dating choices, while juggernauts like Airbnb will cement their status as ‘super agents’ and ‘travel concierges’ to strengthen their market share.

John Lyotier, co-founder and CEO of TravelAI, alludes to the “profound” economic impact that AI will have on STR businesses: “I foresee 2024 as a watershed year for short-term rentals. Based on recent data from TripAdvisor, we know that travellers who use AI to create itineraries also spend three times more. We also now know that about two-thirds of people are interested in using AI to help them plan, but only six per cent have done so. This trend is set to skyrocket in 2024, benefitting both guests and owners.”

Property managers and property management softwares [PMS] will continue to adopt AI to increase efficiencies and solve common pain points, particularly when it comes to guest communication before, during and after a guest’s stay. Jeremy Gall, founder and CEO of Breezeway, agrees on that front but reiterates that property managers will have to leverage every unique aspect of their rental to attract guests through OTAs, in order to match extremely specific criteria that is sought by travellers: “Operators need to be prepared to feed the OTA and search machines with increasingly detailed property listings. Expect this personalised search dynamic to extend to direct booking websites, reshaping how consumers find short-term rentals on operators’ websites and leverage search engines like Google for discovery.”

On the flip side, as the rate of AI adoption continues to exceed expectations, the impact of incoming regulations cannot be ignored. A landmark EU AI Act has just been passed in the European Parliament, specifically, which will provide the first comprehensive legal framework on such technology, ban AI uses that infringe on fundamental rights including real-time facial recognition, promote innovation, and impose strict penalties on companies that do not comply with the new rules. It is clear that there is a long way to go to craft safe, transparent and reliable AI that benefits all parties.

 

  • Wellness and regenerative tourism is on the rise again as travellers crave ‘micro trips’

Talk of “digital detoxes” and “wellness” may cause cynics to roll their eyes but “regenerative” tourism is one of the fastest growing segments around in travel. The Global Wellness Institute estimates that wellness trips accounted for 7.8 per cent of all tourism trips in 2022, and with global spending forecasted to soar from $868 billion to $1 trillion over the next 12 months, it indicates that guests are putting their own personal wellbeing first as a motivation for getaways.

Our lifestyles have changed immeasurably over the last 20 years, to the extent that we now rely overwhelmingly on technology and the boundaries between our work / home lives have blurred. Covid-enforced lockdowns were an accelerant of this, making us more digitally connected but leaving us longing for new experiences that could quell the tech overload monotony. That desire to escape our insular surroundings has not dissipated and ‘micro-trips’ – adventures that are short, simple, local, cheap – yet still fun, exciting, challenging, refreshing and rewarding [coined by Alastair Humphreys] – will be worth monitoring.

Startups promising to deliver “immersive retreats in nature settings” and “wilderness experiences” are springing up, from Raus to Getaway and Unyoked. The fact that all are securing investment and expanding into new markets offers the clearest evidence yet that this segment is ripe for growth.

Building on that, startups such as Unplugged and Tomu offer cabins and modular housing that can be transported easily and operated sustainably using eco-friendly materials and products. As wellness tourism evolves, our travel choices will be more deliberate and intertwined between our own self-regeneration and the regeneration of the environment around us.

Unplugged co-founder Hector Hughes said: “Sustainability is going to become more and more important. Our concept has a minimal impact – off-grid cabins [with solar-powered compostable toilets] in modular buildings that can be taken apart and built elsewhere with the same building blocks. People,just care about it [sustainability] more – they want to know that the companies they are buying from are sustainable. It’s just good business.”

Martin Reichenbach, co-founder and CEO of Apaleo, concurs while adding that technology can still have a large part to the play in this trend: “Operators of alternative forms of accommodation, such as cabins, finally have the chance to scale just as fast as more traditional, urban operators, all the while providing as good a digital guest experience as you’d find anywhere. Their main gain is the fact they don’t need so many people on the ground anymore, unlocking economies of scale, so they are now as equipped to grow as any bricks-and-mortar provider. The great outdoors is going to find new audiences with these tech-driven experiences, and that should lead to significant growth.”

 

  • Brand authenticity and transparency

The STR industry may not have always been widely synonymous with trust and transparency, but in 2024, guests will not only expect brands to be authentic and transparent – they will demand it right the way through the booking process.

Above all, guests must believe in a brand that matches their morals and values, a shift being predominantly driven by Gen Z and millennial travellers as they seek out meaningful, fulfilling and immersive experiences and activities, beyond simply a stay with a short-term impact. The days of mass consumerism in travel are waning.

This sector has suffered somewhat from a lack of wider brand awareness among traveller groups who typically stay in Airbnb listings or opt for hotels, making it difficult for STR brands to garner loyalty in the same way that globally renowned hotel chains can roll out loyalty and rewards programmes. Hilton, for example, has poked fun at short-term rentals for a perceived lack of security and consistency as it launched its own ‘For The Stay’ brand platform to remedy such concerns.

For brands to showcase their authenticity and transparency in the year ahead, content writer and I-PRAC managing director, Neely Khan, argues that “the biggest thing missing from hospitality is hospitality itself”: “We need to return more to the raw elements of hospitality – ultimately people want to be more hospitable. We live in a very tech-enabled world and what I find interesting is that a lot of tools are designed to make hosts’ lives easier, save time around creating content [e.g. ChatGPT], and enable growth for us to be more efficient, which is quite a self-indulgent thing. It is saving time but damaging the guest experience, which defies the whole point of hospitality.”

Khan adds that humanisation will become a “luxury” in a time when trust and security are of paramount importance, and when Airbnb has taken 59,000 “fraudulent” listings off its platform in the space of a year, despite pledging to make ID verification mandatory for all reservations worldwide. There is a huge opportunity for brands to appeal to “advance planners” [the largest and most significant growing traveller segment] if they can deliver what they say they will deliver, while generating more referrals and positive recommendations.

From tightening regulations [New York City and Paris etc] to ESG [Environmental, Social, Governance] commitments, brands in the STR space are facing intense scrutiny alongside competing lodging segments. When it comes to ESG declarations, brands will have to talk the talk as well as walking the walk, otherwise they will be left behind by those leading with environmentally friendly practices. Furthermore, businesses should be aware that the European Commission has adopted the European Sustainability Reporting Standards, thereby ensuring that businesses can show the conscious efforts they are making to meet the Green Deal Agenda and that double reporting or “greenwashing” can be rooted out.

 

  • Urban revival and expanding seasonality

Who could have predicted the impact that Taylor Swift’s ‘Eras’ tour would have had on regional economies around the world 12 months ago? Such is the popstar’s sky-high popularity, the tour generated an estimated $27.3 million in STR revenue in the United States this year. And according to AirDNA, ‘Swifties’ are flocking to book rentals for the next European leg in 2024, notably in Warsaw [a 2,020 per cent YoY rise in nights booked] and Vienna [current demand serendipitously up 1,989 per cent].

Hotly-anticipated sporting events including the Olympic and Paralympic Games in Paris will also contribute to a resurgence in urban tourism. For the Olympics alone [July – August], demand is pacing 332 per cent higher than the two weeks prior and current listings in Paris are up 30 per cent YoY. Airbnb meanwhile suggests that as many as 20 per cent of Parisians could host during the Games. That lucrative revenue highlights the power of major events and the earning potential for hosts in city hubs.

This sentiment is echoed by ForwardKeys, which detailed how urban destinations are gaining heightened traction among tourists, as opposed to leisure / resort destinations. This year, the data intelligence company reported a 52 per cent growth rate in searches for urban destinations, as opposed to a 26 per cent uptick in ‘sun and beach’ destinations over the same period in 2022.

Bram Gallagher, economist at AirDNA, predicts that a strong dollar would encourage more overseas tourism to Europe, while normalising inflation rates would also lead to more international travel back to the United States. He explained that a strong year for urban markets in 2023 would bode well for 2024 as repeat business recovers closer to pre-pandemic levels.

Gallagher said: “Urban demand growth was twice as strong YoY as coastal resorts and 50 per cent stronger than mountain resorts so overall it had a pretty strong year. Looming uncertainty did have a dampening effect on coastal / mountain destinations in 2023 but for 2024, the economic landscape is changing. Inflation has gone down remarkably and wages are now growing faster than the rate of inflation.”

Another factor to consider is climate change, which will result in all-year-round tourism and expanding seasonality in the long term. Unprecedented weather events in the Northern Hemisphere, from extreme record temperatures to wildfires and floods, will have an indefinite effect on travel preferences – on the one hand, soaring temperatures in hotter destinations in the summer season will deter tourists, while cooler regions will be more appealing [and cheaper] propositions for travellers on the other hand.

A potential obstacle to this trend is the tightening of regulations in high-demand cities such as New York City. The knock-on effects of measures such as Local Law 18, which mandates that hosts register with the city’s government, are still to be fully realised but it will likely fuel ‘shadow’ markets substituting the inventory that has already left the STR market.

 

  • Expect more consolidation and a fresh wave of new players entering the industry

Besides European Camping Group’s purchase of Vacanceselect Group for €1 billion in January and NUMA’s acquisition of YAYS in November, 2023 was a relatively stunted year for major transactions. The failed sale of Center Parcs at a lofty £4 billion price tag reflected how potential buyers were hesitant to commit to larger, riskier deals until economic conditions improve, and how buyers and sellers were not on the same page in valuations.

Despite this, the sense is that merger and acquisition [M&A] activity will bounce back in 2024, albeit more from a consolidation perspective than pure hyper-growth moves. The days of operators scaling rapidly and internationally are dwindling, as businesses prioritise profitability through cuts and layoffs [note Sonder, Vacasa, Evolve etc], and margins compress.

The outlook remains positive overall, however. AB Bernstein expects vacation rental penetration to rise as lodging supply growth fails to meet demand growth, suggesting that there is a major structural growth opportunity for the sector.

Those underlying numbers will entice new players to enter the industry and try to take their slice of consumer loyalty. Hyatt followed Accor and Marriott’s lead by unveiling its own vacation rental platform [Homes & Hideaways] and acquiring Mr & Mrs Smith for £53 million, private equity firms [e.g. TPG] are snapping up homes before entrusting operators to manage the properties, while credit card firms and banks [e.g. American Express, Capital One] are muscling in with rewards programs that blur the lines between travel, hospitality, retail and commerce. And this is just the start.

Elsewhere, consolidation is inevitable in the fragmented extended and blended living sectors as businesses fully recover their depleted cash positions. NUMA’s acquisition of YAYS exemplifies the shift towards ‘mixed living’ [as coined by Hotel Analyst] and STR brands may in turn buy up serviced apartment operators, in order to provide a clearer offering to both consumers and investors, and expand geographical presence across more country markets.

If the slowdown in private equity dealmaking is anything to go by, we can expect an “explosion” of M&A activity according to Luisa Beltrán, whose publication Fortune reported that around 1,200 private US companies are anticipated to run out of money in the coming months. Keep an eye out for Goldman Sachs-backed proptech software firm Inhabit to be one of the first out of the traps in 2024 – the company has already purchased competing brands Streamline, LiveRez, VRN, SuperControl and LMPM and a $2 billion sale is rumoured.

Robin Craigen, co-founder and CEO of Moving Mountains, said: “The landscape is changing and we will continue to see new players enter the industry. There will be big changes for those who had it easy for the last couple of years, and were helped by a big increase in supply, who spoke about the industry in ways as if we didn’t understand it. Some of those will struggle and the discussion is around distressed sales, lower multiples of players as we weather this economic storm.”

Watch our 2024 predictions webinar now at this link.

Watch the recordings of selected sessions at the 2023 STRz Summit here.

Agree or disagree with our predictions? Email me at paul@internationalhospitality.media with your thoughts.

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