Cushman & Wakefield [Credit: C&W]

Key takeaways from Short-Term Rentals: The Next Evolving Asset Class

Worldwide: Real estate company Cushman & Wakefield has published its latest report, entitled “Short-Term Rentals: The Next Evolving Asset Class”.

The report details how the multifamily sector, including student and senior housing, co-living and micro units are attracting major interest from investors due to the emergence of home-sharing platforms in the overall hospitality sector.

The major takeaways from the report are as follows:

  1. Short-term rentals are the next niche in multifamily

– Platforms like Airbnb and Vrbo revolutionised the lodging market, before a new crop of startups emerged to “legitimise and streamline” the market, in doing so creating independent platforms that list hundreds of branded, furnished apartments
– In 2019, the master lease model is taking off as major operators on a national scale lease out entire buildings to be listed as short-term rentals. Stay Alfred and the Airbnb-backed Lyric are two of the prominent names operating using this model, while multifamily operator WhyHotel has just launched its own rental development building subdivision
– Units are furnished with apartment-grade amenities, such as fully-equipped kitchens, dryers, baths etc and an operational platform streamlines the guest booking process
– Unlike a traditional multifamily, guests pay per night and average stays last a few nights
– The benefits of including short-term rentals in a multifamily asset is reduced vacancy across the customer database, an enhanced net operating income (NOI) and full time residents can benefit from additional amenities such as discounts and event planning

2. Demographic factors are preparing US markets for a short-term rental surge

– Travellers are increasingly seeking out accommodations with a full set of amenities that one would expect in a furnished apartment, while half of all millennial travellers in a Condé Nast Traveller survey said lodging should feel like a home away from home
– According to surveys conducted by The National Multifamily Housing Council, over 60 per cent of renters expressed positive views towards sharing their buildings with short-term renters, particularly when it came to the under-25 age demographic
– Short-term rentals aimed at business travellers are on the rise – the sector already accounts for up to 15 per cent of all Airbnb global bookings and that figure is set to rise to 30 per cent by the end of 2020

3. Are short-term rental operators the next niche asset classes on investors’ radar?

– Rental operators using the master lease model have already reportedly raised close to $320m in venture funding
– As niche real estate classes like age restricted affordable housing, co-working and data centres make waves as solid investments, short-term rentals are set to follow the same path given their potential growth footprint

4. Rental platforms are partnering with multifamily buildings to lease empty units and diversify revenue streams

– Over the past decade, the rental arena has evolved significantly, with the rise of home-sharing platforms like Airbnb, Stay Alfred, Lyric and Sonder
– Travellers are evaluating their preferences for accommodation as they place more emphasis on homely features and amenities rather than simply having a place to stay
– Three major short-term rental trends are emerging: 1. Build-to-spec short-term rental developments will proliferate; 2. Institutional investment and attention will continue growing; 3. Continued expansion across US and international markets

To view the report in full, visit the link here.

With thanks to Cushman & Wakefield managing director Susan Tjarksen, senior research analyst Laura Ballou, and research analyst Jacob Albers.

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