Worldwide: If 2019 is anything to go by, the next 12 months look set to be another defining period for the short-term rental industry. Back in 2018, I gazed into my ShortTermRentalz crystal ball to predict what would transpire in the year ahead and I will now do the same for 2020.
This time last year, I foresaw that properties would be used increasingly for investment purposes over personal use, penalties for regulation violations would become more severe, age group demographics for hosts would rise on Airbnb, and that new technology and experiences would attract more millennials to short-term rentals. So, how did I do? The full predictions piece for 2019 can be viewed here.
Looking ahead, I will decipher the trends that may manifest themselves in 2020, while revisiting last year’s claims on ShortTermRentalz to see which have rung true. We already know that Airbnb is planning to go public next year, either through a direct listing or an initial public offering [IPO], and the fate of that is sure to have a significant impact on the overall global market.
I collated the views of several leading figures across the industry, from which I have pinpointed the following ten predictions for the short-term rental market in 2020:
1) Brits will verge towards domestic or local ‘staycations’ due to Brexit uncertainty
With the political cloud and uncertainty of Brexit hanging over Britain at the moment, research suggests Brits will favour travelling domestically for staycations in 2020 due to the sharp drop of the pound and the cheaper, hassle-free alternative to holidaying abroad.
Some holidaymakers will also opt for “homes away from home” in off-the-beaten track destinations to avoid congested areas with high numbers of tourists. This comes after I predicted last year that there would be a sustained backlash against over-tourism in densely-populated tourist destinations.
Euromonitor International projects that a No Deal Brexit scenario would see outbound departures from the UK drop by five per cent from now until 2024, accounting for a drop off of 4.7 million trips.
The shift towards domestic stays is also evident in the UAE and America, as AirDNA and Family Features surveys suggest. In the latter case, rental demand statistics show that in urban tourist destinations such as Chicago, Philadelphia, Dallas and Atlanta, the largest traveller origin market was their own city. One factor in this is ‘celecations’, where groups book accommodation to spend time with family and friends for milestone events such as birthdays or weddings, often in driveable distances of 300 miles or less, according to Vrbo travel expert Melanie Fish.
2) “The Greta Effect”: Millennials and Gen Z travellers, in particular, will encourage an eco-friendly / ethical tourism drive across short-term rentals
Fuelled by the so-called ‘The Greta Effect’ [after Swedish activist schoolgirl Greta Thunberg], travellers are placing more emphasis on the environment as a driver for their choice of travel and accommodation, according to Euromonitor.
A UN World Tourism Organisation study this year revealed tourism accounts for up to five per cent of global carbon emissions worldwide, and to help mitigate against negative impacts on the environment, millennial and Gen Z travellers are prompting companies to be more transparent about how they are operate and are offsetting their carbon footprint.
Examples of these companies include:
• London-based City Relay has introduced eco-friendly initiatives such as recycled toilet paper, biodegradable cleaning products and organically grown coffee pods
• Fairbnb.coop promotes “authentic, fair and conscious tourism” by launching a reservation system for travellers to stay in apartments supporting local community projects
• The Holiday Exchange Cooperative wants to be the world’s first social economy home exchange platform and 50 per cent of the company’s surpluses will fund social and solidarity economy projects
ABTA [Association of British Travel Agents] chief executive Mark Tanzer said: “We predicted that 2019 would be the year that sustainability issues would go mainstream and that has proved to be the case, with a spotlight thrown on climate change in particular. Sustainability issues are now firmly in the minds of holidaymakers.”
With millennials projected to spend $1.4 trillion on each year by 2020 [TurnKey], travellers will now go to extra lengths to offset their carbon footprint, thus affecting their end-to-end rental service choices. In one such case, ethical search engine Ecosia Travel encourages you to book its rentals by displaying the butterfly sustainability mark, which identifies a sustainable, luxury-approved brand. A portion of its profits are also diverted to planting more trees.
To keep on top of this trend, ShortTermRentalz has introduced an Eco Award for the inaugural Shortyz Awards, to be held in London on 11 March 2020.
3) The industry will implement broader public guidance on regulations to encourage responsible tourism
As the importance of ethical tourism is highlighted, we can also expect cities to promote responsible tourism in 2020. To do this, however, those grappling with restrictions on the usage of rental properties must overcome an impasse with booking platforms and collaborate with them.
UnderTheDoormat CEO and STAA [Short-Term Accommodation Association] chair, Merilee Karr, says: “In 2020, we will see some broader policy guidance come from the industry to help cities regulate in a balanced way and ensure the benefits from responsible growth of the industry.”
My 2019 predictions piece for ShortTermRentalz led with the statement that illicit rentals would come under increased regulatory scrutiny and penalties for violations would become more severe. Opposition towards Airbnb-type platforms is already mounting in cities such as Amsterdam, Paris and Toronto over claims that they create unfair competition with hotels, contribute to rising rental costs and reduce available affordable housing stock. To move forward, regulators look set to experiment with tech and data solutions to better gauge the social and economic impacts of the alternative accommodation sector.
Citing Airbnb pre-IPO, Lavanda founder Guy Westlake says the platform will be scrutinised for the risks and challenges with its future growth, but if this can be successfully navigated, it will inform regulators on the best course for future regulatory decision-making and ensure more effective compliance by hosts and property managers.
4) PMCs will race for overall dominance with mergers and acquisitions to be the next unicorns
2019 saw industry heavyweight Vacasa become the first property management unicorn [valued at over $1 billion] and though we should see more follow with significant mergers and acquisitions in 2020, it will be left to a select number of players to assert their dominance in the space.
AJL Consulting CEO Simon Lehmann tells ShortTermRentalz he expects Sykes Holiday Cottages and Vacasa to fight it out, as well as “elephant in the room” OYO, which is “creating chaos” following its purchases of the likes of Danamica, Belvilla and @Leisure Group to strengthen its vacation rental segment.
However, Lehmann maintains it will be dangerous for consumer-facing hospitality brands to build up by pure acquisition at speed, especially in light of the failed WeWork and Uber IPOs, and it remains to be seen how it will pan out.
According to both Lehmann and Merilee Karr, smaller property management companies with 10-100 properties will also look for partners to give them more power in the market in 2020. This will be increasingly vital in order to compete in a crowded marketplace where larger companies armed with better technology typically dominate.
5) Demand for unique alternative accommodations and experiences is on the rise once again
After we predicted on ShortTermRentalz that niche markets would gain traction 12 months ago, this phenomenon shows no signs of abating in 2020. As the year has passed, travellers are seeking out ‘destination markets’ that provide unique experiences and novelties, as the likes of Airbnb and HomeAway report growth in barn, houseboat and treehouse bookings notably.
This was echoed by VP of marketing at TravelNest, Cameron Boal, who highlighted the popularity of glamping in the countryside: “Setting up glamping pods or wigwams can be a cost-effective way of starting out in the short-term rental market and testing the water before investing further. We’re seeing quite a bit of innovation within the farming sector, and increased use of the core business to help properties stand out.”
While the alternative accommodations segment is in a constant state of evolution, demand for unique alternative accommodation solutions grows and the market is doing its best to keep up. Businesses are latching onto the trend of ‘slow travel’ where holidaymakers seek to slow down the tempo of their frantic trips and experience destinations on a more profound level, which is exemplified by Airbnb’s move into Experiences and Ancestor programmes and the success of tour and activity companies including Xplorie.
As 2020 progresses, we expect hosts and property managers to invest more time into making their listings “grammable” for the millennial, tech-savvy generation that documents their lives over Instagram and platforms of that ilk.
According to Guesty COO Vered Raviv Schwarz, millennials are swaying towards short-term stays over buying homes because of a lack of affordability [NOwnership] and the fact that they live more digitally nomadic lifestyles than previous generations. That means property managers will need to prioritise memorable experiences that trigger fear of missing out [FOMO], rather than physical products.
6) The hospitality, real estate and travel industries will maintain their convergence
Staying on the theme of unique guest experiences, a key takeaway from this year was the growing convergence between the short-term rental sector and other verticals, including the serviced apartment and aparthotel spaces. In 2020, we expect the lines between the real estate, hospitality and travel industries to be blurred further as brands benefit from changes in consumer behaviour as demand for greater choice and experiences grows.
Simon Lehmann says: “Consumers are looking for choice and places to stay that are individual from an experience point of view, so it is more of an individual product than serviced apartments. The consumer behaviour and urge for better travel experiences have brought about that change.”
Airbnb’s acquisition of HotelTonight highlights how the “distinction between the [boutique hotel, serviced apartment / rental] sectors will become more blurred to consumers”, according to Skift senior research analyst Wouter Geerts. Similarly, the investment into its powered brands [i.e. Niido / Natiivo], the adoption of the master lease model and the emergence of Google and Amazon as market disruptors will accelerate this convergence as landlords want to maximise occupancy of their properties and providers seek to capitalise on rising demand for the segment.
Guy Westlake adds: “Expect major global real estate players to broaden their strategies in order to better capitalise on local short-term rental demand and explore more diverse rental channels across their portfolios. Classic hotel chains, large and small, will look to diversify and gain a foothold in the rapidly growing alternative accommodations segment.
7) Industry-wide standardisation and quality control will be implemented
As the real estate, hospitality and travel models mature and converge, the short-term rental industry will need to react appropriately to implement higher standards that stand up to the same scrutiny as hotels and other traditional accommodations.
The shooting incident that led to four deaths at an Airbnb property near San Francisco over Halloween put the spotlight back on the platform’s verification of guests and hosts, prompting CEO Brian Chesky to pledge to verify all listings and ban “party houses” outright as a result.
This process is likely to be led by major OTAs, Marriott and Booking.com, which already employ star rating systems based on customer reviews and / or overall appeal.
Market convergence has occurred from opposite ends of the spectrum as Marriott International launched its Homes and Villas platform and Four Seasons Hotels and Resorts announced it would grow out its home-sharing portfolio, while on the other hand, Airbnb partnered with real estate developers RXR Realty to operate apartment-style suites at New York’s Rockefeller Center.
Merilee Karr says the foray of traditional hotel players into the short-term rental space will ensure stricter standards are implemented broadly across the rental industry.
“I expect we will see the bar rise for standards generally and a stratification of the market between commodity Airbnb service providers and the high-end branded side of short-term rentals in 2020,” she says.
8) Travel companies will feel more compelled to introduce subscription components to their models
As companies [Smiling House Luxury, Veeve, UnderTheDoormat etc] capture the luxury rental accommodation segment and Airbnb rebrands its top tier to Luxe, consumers seeking flexibility, ease of booking and high-end stays are being drawn to a trending buzzword: subscription.
Private travel club Inspirato is one case study in renting out luxury homes to affluent travellers with a subscription model. By offering packages for its Pass holders to stay in four-star-plus hotels or at its vacation rentals, Inspirato members can book multiple trips per month for a six-month minimum subscription period – the “look, book, repeat” method that CEO Brent Handler outlined at July’s Skift Global Forum in New York. Most importantly, its key differentiator is not listing prices on its site, which ensures high-end properties can offload excess inventory without compromising on rate integrity and the consumer perceives that they are getting value for money.
San Francisco-based Landing is another to follow suit with a membership model, launching recently in another five cities in the United States. Offering annual membership fees of $199, members pay to live in fully-furnished apartments for 30 days+ with housekeeping / concierge amenities included, making it conducive to young professionals and their ever-changing lifestyles. With an aim to be operating in 30 cities worldwide by 2021, CEO Bill Smith is convinced the trend will catch on.
This model is now being explored in travel to build long-term, personal engagement with subscribers, including millennials and Gen Z, who see such services as a tool for increasing convenience and reducing time and effort spent on booking. The challenge will be to emulate the success of Netflix, which has seen its paid subscriptions rise to 60 million in the U.S.
If subscriber numbers grow as the projections indicate, it would not be surprising to see other firms take a leaf out of this book with a subscription element.
9) The tech space will consolidate quicker than the short-term rental space in 2020
A recent survey by Transparent showed that only 20 per cent of property management companies were relying on technology to automate their offline operations. On the back of this, Simon Lehmann predicts that technology adoption will be an increasingly important trend in 2020.
Companies are adopting technology into their operations to create the most seamless guest experience possible, from booking a rental property, right through to checking in and out. Lehmann envisages that more operational management software providers will look at how they can build property management software, which will result in the tech space consolidating quicker than the short-term rental space in 2020.
If this turns out to be true, we can expect to see fewer players operating across the property management and channel management spaces in 2020, and the attendance at the VRMA Europe Summit in Lisbon in March may reflect these changes. Ultimately, time will tell.
10) Businesses will have to prove their profitability following the WeWork troubles
In the wake of WeWork’s fall from grace and failed IPO, investors are likely to raise the question of profitability of business models more so than ever before in 2020, especially in the case of the master lease model, that we featured on ShortTermRentalz.
As funding for short-term rental operators and startups taking out master leases dries up, investor confidence in “dubiously profitable business models relying on similar “lease arbitrage” plays for growth has ebbed” according to Guy Westlake. As such, businesses including other Softbank-funded companies will come under greater strain to adapt or be beset by similar issues faced by WeWork.
GuestReady CEO Alex Limpert concurs, saying that more industry participants in the short-term rental sector will look to employ “revenue-sharing or franchise models” in a renewed focus on sustainability. They may follow in the footsteps of housing startup Bungalow, who have shifted to a joint master lease and revenue-sharing model and secured a $47 million Series B round last month.
Those thoughts are echoed by T5 Strategies managing director and principal, Sean Worker, with the verdict still out as to whether investors will eventually cash in.
He said: “Co-living and co-working spaces, as well as the tech ecosystems supporting the alternative accommodations category, are rapidly evolving. The investors that enabled these businesses to grow are demanding these models to professionalise and we can all see the pressure building to deliver a pathway to profit, sooner rather than later.
“Third party managers may have to figure out how to: 1- Reach scale and flatten the demand and supply curves 2- Highly leverage terrific technology to manage operations and distribution 3- Develop mutually beneficial bi-lateral engagement with companies such as Airbnb. Those who do will be huge winners, and if not, Darwin may make a visit!” he added.
Do you agree with me? What do you think will be the most significant industry trends in 2020? Drop me a line at paul@internationalhospitality.media and let me know.
2020 will also see the launch of the ShortTermRentalz team’s inaugural Shortyz Awards in London on 11 March 2020. View our event website here for information on the event, how to nominate yourself for a category, the judging panel, sponsorship opportunities and contact details.
