A new reality for travel and hospitality: STRz 2023 predictions

Worldwide: 2020 and 2021 may have been unprecedented years but no amount of hindsight could have prepared us for what was to come in 2022 and our predictions for the year ahead.

Over the last 12 months, the world has lurched from geopolitical tensions [most notably the invasion of Ukraine] to ensuing global economic and energy crises, and more political upheaval. In comparison, the spectre of the coronavirus is now a relatively distant memory, although the scenes we have seen in China where strict lockdowns have been enforced and protests have broken out are stark reminders to the rest of the world that we cannot allow ourselves to become complacent.

In spite of this difficult backdrop, people’s appetite for travel is undiminished. We may be entering an uncertain new reality but travellers are returning with vengeance to seek out spots where they can live, stay and work more flexibly than ever before.

We analysed the future of value-added services, flexible living and housing solutions, and the investment landscape among our insights for the short-term rental industry in 2022 – 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 six predictions for the industry in 2023.

 

  • Tech but not for tech’s sake

Now more than ever, property managers are scouring the market for ‘best in class’ technology and tools, but they are also identifying what most makes sense for their offering and portfolio. What will ‘best in class’ tech look like in 2023?

Jessica Gillingham, founder and CEO of Abode Worldwide, says that ‘best in class’ technology ultimately comes down to what represents the best value for property managers. Property management is a complex business and managers will increasingly have the option to bundle up their technology, whereby the property management system [PMS] chooses the best tool for their offering, or the PMS will allow the manager to choose the best digital guidebook, revenue management system or channel manager for themselves among an array of tech offerings.

Technology companies are branching out to hosts and smaller property managers [approximately 90 per cent of Airbnb listings are managed by hosts with 20 properties or fewer], while new entrants such as realtors and multifamily asset owners see STRs as attractive propositions, creating an even more competitive marketplace.

As merger and acquisition [M&A] activity ramps up and companies buy into new verticals, AJL Atelier co-founder and CEO, Simon Lehmann, predicts that “technology will be further consolidated and we will see fewer PMS and smaller niche providers”.

In 2022, the challenging fundraising environment exacerbated the shortage of investment opportunities for tech firms – data from CRETI shows that global venture capital funding for proptech companies dropped from $32 billion to $19.8 billion this year. At the same time, well-backed companies such as Guesty and Operto are capitalising on the opportunity to expand into new markets and snap up competitors to grow their own market share.

Seamlessness in the end-to-end booking experience will also remain a big talking point in 2023. The explosion of innovative technological solutions on the market have enabled operators to lead a more standard-driven, professional approach and ensure a smoother experience for hosts and guests, whether it is for housekeeping, payment authentication, guest screening or insurtech.

And what for the future of loyalty? The STR industry has yet to fully adopt subscription or membership models as many operators are still fairly small, however successful programmes in other spaces e.g. Marriott Bonvoy, citizenM’s mycitizenM+ and Blueground Pass are paving the way for emerging players such as Hopper Homes to stake their claim for loyalty in the STR space.

Hopper Homes, the app-based OTA that launched in January, is making significant inroads among Gen Z travellers by building out its social commerce offerings to increase engagement, loyalty and user acquisition. Its head, Susan Ho, says the company will roll out additional fintech products [e.g. Price Freeze and Cancel for Any Reason] next year to help customers save money and decrease stress when booking.

Expect to see broader fintech adoption across the travel industry in 2023 as businesses explore new ‘best in class’ tech offerings.

 

  • The affordable housing crisis will be the motivation for further regulations

Despite the accelerating professionalisation of the sector, short-term rentals have long been derided as scapegoats for wider socio-economic issues, including being perceived to contribute to rising rents in urban centres and shortages of affordable housing in major cities and agglomerations around the world.

While these tensions at local / national levels have long been present, the simmering hostility felt by traditional lodging providers has boiled up in recent years due to fears that the rental market will reduce their market share and spark an exodus of their core audience. As the pandemic shifted travellers’ preferences to prioritise stays in private and spacious homes, the global coverage of the STR industry has skyrocketed and so too has the broader scrutiny on it from national governments, particularly when high-profile incidents such as parties and shootings arise in commercially listed properties.

The pressure exerted by disgruntled communities on authorities to regulate the STR sector will culminate with the enforcement of stricter legislation in 2023, nowhere more so than in Europe, where registration schemes designed to bring more properties back into the long-term [residential] housing market are moving ever closer in Ireland, England and Scotland.

Within the next 12 months, the 27 member states of the European Union and European Parliament will also convene to vote on European Commission proposals that would require the major booking platforms to provide data on the number of users using their services and the total nights they stay in listings to national authorities. Should a single set of pan-European rules to legislate the sector be passed in 2023, it is expected to be some sort of middle ground aimed at “levelling the playing field” for accommodation providers, following the closure of a public consultation period last December.

STR associations and advocacy leaders are voicing their opposition to tighter rules that are “disproportionate, unjustified and discriminatory”. They add that hotels are the main drivers for restrictive market access requirements because they want to limit the competition and blame STRs for a lack of housing.

Viktorija Molnar, interim Secretary General of the European Holiday Home Association [EHHA], said: “STRs are an increasingly important part of the tourism sector. They represent nearly one quarter of the total EU supply of tourist accommodation, are very popular among travellers and create opportunities for businesses, in particular SMEs, and citizens who use earnings from hosting to cover increasing cost of living. EHHA welcomes the Commission’s proposal for a regulation which aims to increase the transparency so that informed policy solutions could be developed.

“The lack of understanding of the complexity of the STR ecosystem at a national & local level always leads to misunderstandings and misconceptions and these often lead to stricter, unjustified, disproportionate and discriminative STR rules which do not solve local looming issues. It is more than ever important for every single player within the STR ecosystem to step up and be vocal towards the policymakers,” she added.

Ultimately, tighter rental regulations are inevitable in the future. Over in the United States where more cities are cracking down on STR operations, the challenge for regulators will be how they go about enforcing them, how strictly they do this, and how they encourage compliance, according to Dana Lubner, head of leadership development at Rent Responsibly.

Lubner said: “Without meaningful STR community engagement, regulations will be reactionary and driven by fear which will neglect the voices of well-meaning, but disengaged constituents. By engaging stakeholders in a conversation about regulations, local governments can gain valuable insight into the needs of the community and their perspectives on how regulations can be implemented. This will lead to more effective regulations and better outcomes for the community.”

Moreover, regulatory pressures will be met with increasing tech adoption, according to PointCentral general manager Nate Wysk: “2023 will bring tech solutions that address regulatory pressures. For example, tech to solve occupancy issues or noise disruptions that, left unchecked, could threaten the ability to rent out a particular property or in a particular community.”

 

  • Rental spaces will be more diverse, more user-specific and more flexible

As short-term rentals have edged further into the mainstream, our perception of what exactly they constitute is constantly evolving. As a term that is relatively vague and unscientific, the ‘short-term rental’ concept has different connotations to everyone you meet in the industry and its definition will expand in 2023, ranging between the ‘super short-term’ [e.g. renting by the minute] to more flexible, extended stays [30 days or above].

Across the spectrum, booking platforms have facilitated the opportunity for hosts to rent out spaces for different purposes, different demographics, and for varying lengths of stay.

A diverse range of startups are built on this growing concept – providing rental spaces for anything such as events, filming, photography, company off-sites and more [e.g. Peerspace, Tutti], offering balconies or rooftops for hire overlooking stunning locations [e.g. Viewnary], allowing hotels to rent out private spaces for guests to “catch a nap” on a per minute or hourly basis [e.g. Recharge], or even offering up swimming pool facilities for groups or individuals [e.g. Swimply].

Airbnb, too, has stepped up to this emerging phenomenon with the launch of accommodation categories, allowing users to browse lodgings according to predetermined, destination-based categories and a plethora of filters on its platform. This includes anything from historic homes to vineyards, to more recently welcoming homes added within the last ten weeks, properties adapted for wheelchair access, homes with basketball courts / golf courses, or even Hanoks [traditional Korean houses].

Gabriel Isserlis, founder and CEO of Tutti, offered his insights: “There are more and more companies offering ‘super short-term’ hire because people are starting to realise it’s a lot better for the environment if you borrow / rent rather than buy. It’s like an unofficial trial period: you can always buy after you’ve borrowed / rented, if you like the thing so much you absolutely need it, but it’s a lot harder the other way around.”

Peerspace co-founder Matt Bendett maintains that his company does not consider itself a ‘short-term rental’ platform, but instead one that specialises in sharing spaces, creating an overlap between hosts who want to rent out accommodation by the hour or overnight, or for residential or commercial purposes.

He said: “The shift that we see occurring is opening up the potential for hosts to earn additional income streams and those who  want a short-term rental experience. It is becoming more than just about overnight accommodation but also memorable and unique experiences, as well as the income potential that comes with that.”

The shift away from traditional online travel agencies [OTAs] such as Airbnb, Booking.com and Expedia is on course to continue in 2023. As more companies launch alternative sites for specific demographics, it is a reflection of how consumers are more prescriptive than ever before when it comes to their accommodation requirements, and Isserlis believes that “people want places that stand out and are willing to pay a little extra for them”.

 

  • The sustainability discussion will shift to stopping greenwashing

November’s COP27 in Egypt was pinpointed as a key turning point in global action to combat climate change and the travel industry has a significant role to play too, given how tourism accounts for eight to ten per cent of global greenhouse gases [CarbonBrief]. By now, it is an inescapable fact that the effects of climate change are upon us and 2023 will be the year that frameworks for implementing sustainable practices and avoiding greenwashing in the travel industry will become more robust.

No companies will be judged more critically than the OTAs, which are starting to incorporate a key focus on sustainability in their strategies, ahead of next year’s COP28 in Dubai.

In the last 12 months, Booking.com has launched its Travel Sustainable programme to champion the sustainable efforts of its partners, as well as enhancing its eco badging and establishing a tie-in with external eco-accreditation schemes.

Danielle D’Silva, head of sustainability at Booking.com, said: “It is about looking at all the great things that travel brings and amplifying those, but making sure we’re also aware that travel can bring some negative impacts to the environment – socially, economically and culturally. We’re trying to highlight the partners that are actually taking these steps so we can understand where they’re at in their journey and how to help them.”

Meanwhile, Expedia Group has unveiled a new global social impact and sustainability strategy, which Tessa Lee [senior manager, climate and sustainability] addressed on a RockSTRz “smarter, sustainable, responsible tourism” webinar. The strategy will be underpinned by three pillars – increasing access for under-served traveller demographics, democratising the travel economy and innovating sustainable solutions, in a bid to tackle inequalities in travel, accelerate change, and ensure a healthier planet.

EnviroRental founder Bob Garner anticipates more tangible action from booking platforms in 2023: “It is organisations like these that have the data and research to understand the shift in consumer behaviour and attitudes that will affect our industry. Now watch for the next level – OTAs modifying their algorithms further to raise eco-friendly accommodations to feature higher and be given more profile in the search results.”

On the other hand, Booking.com research indicates that 73 per cent of guests are more likely to book at a property that has sustainability practices in place. It proves that consumers across the board are paying more attention to their travel choices and their environmental footprint, according to Jessica Gillingham.

Gillingham said: “Environmental, Social, and Governance [ESG] will become much more important in our industry next year. Consumers across the board will be increasingly selective about buying from companies that share their values, and the short-term rental industry, like many sectors, will be impacted by this shift.”

  • Destinations will continue incentivising digital nomads to encourage flexible living and working

The shifts in the ways we now stay, live and work can no longer be assessed as merely short-term trends rooted in the pandemic. Indeed, the policies that cities, countries and large corporations have introduced to embrace nomadic working have helped to perpetuate this trend into a lifestyle that anyone can access to some extent.

Spain, Barbados, Croatia and Portugal are among the destinations seeking to attract digital nomads, freelancers and entrepreneurs to their shores with specific digital nomad incentives, enabling foreign workers to obtain a residence and multi-year work visas. Attractive tax rates, warm weather and a low cost of living are all enticing pulls that governments can factor into these incentives, as well as the opportunity to encourage entrepreneurship and spur the digital economy in their countries.

Mexico City, meanwhile, has become so popular with remote workers that locals have taken to the streets to protest against a housing squeeze and the “gentrification of communities”, following the city’s partnership with Airbnb and UNESCO in October.

Sam Symons, senior expansion manager – US & Americas at Lavanda, said: “The last three years have seen a pretty dramatic transformation in this space. Covid essentially moved this digital nomad lifestyle from something that was very unique and very niche, kind of internet sub culture for freelancers and e-commerce entrepreneurs and moved it into something that broad swathes of the population can access fully or partially.”

On a wider scale, corporations and governments are much more receptive to the benefits that digital nomads can bring. While tech behemoths including Airbnb, Google and Facebook were early adopters of remote working structures, “legacy” businesses such as Allianz are starting to give the green light for employees to work abroad for an allocated amount of time, which will only add more gravitas to this lifestyle development.

In 2023, businesses that operate with innovative models to attract globe-trotting workers will secure higher investment and gain more traction than their counterparts. Notable examples include flexible apartment living membership company Landing [which raised $125 million in Series C funding in August] and Marriott International’s recently launched Apartments by Marriott Bonvoy offering, propelled by the ‘bleisure’ market.

International travel hubs such as the United Arab Emirates [UAE] are removing barriers for digital nomads, freelancers and relocated families to enter the country and stay for extended periods, resulting in an influx of skilled workers. Nomads can opt for job exploration entry visas, temporary work mission permits and green residence policies to prolong their residence.

Reem Al-Khatib, regional managing director GCC at GuestReady Group, told Arabian Business: “The UAE’s new visa policies are set to create staggering demand for holiday homes and short-term rentals, with an influx of visitors staying in the country on a short- and mid-term basis. Many of these individuals and families will struggle to find the right accommodation, but this is a challenge that property owners can easily solve, while leveraging this opportunity for themselves.”

 

  • Supply and demand will remain stable and flexibility still rules for consumers

If 2020 and 2021 have taught us anything, it is that consumers will always prioritise travel, even when their spending has been squeezed in tough economic environments. As we move into a New Year and the strong possibility of another economic recession, the resilience of the short-term rental sector will be tested once again by fresh pressures.

To illustrate the point, AirDNA’s 2023 outlook report predicts that both STR supply and demand will grow in the year ahead, albeit at a more stunted rate than 2022 levels, due to economic burdens on consumers. The vacation rental analytics provider forecasts that the supply growth of available rentals will slow down to nine per cent next year [duet to the narrowing of premiums], whereas demand will rise by 5.5 per cent in 2023, a quarter of its 2022 growth level.

VP of research, Jamie Lane, suggests that this transformational shift can be seen from two angles, either that demand in large urban, populated markets is lagging behind pre-pandemic levels, or that smaller, less-populous towns and rural markets are doubling their 2019 future booking levels.

Hostaway CEO Marcus Rader takes the point a step further, predicting that STR consumer demand will outpace supply in 2023 due to “the impact of increasing interest rates, energy costs and labour costs”, at a time when OTAs are finding new ways to source high-quality, professionally managed inventory.

Airbnb, meanwhile, is going to great lengths to attract fresh supply by launching a mass recruitment drive for new hosts. After reaching a record 6.1 million listings in 2022, the company is rolling out a host of new features and campaigns in order to tout more hosts to sign up and earn fresh revenue streams amid a global cost of living crisis.

Shorter booking windows were a characteristic of the pandemic era but they are now shooting up as traveller confidence returns, as per ALTIDO CEO Will Parry: “Twelve months ago, up to 50 per cent of reservations we received were placed in the last week while now we are registering only 30 per cent of last-minute bookings – we expect to hit a peak of 20 per cent last-minute reservations next year.”

Although traveller confidence is returning, more and more guests are prioritising flexible bookings should they not be able to fulfil their reservations for whatever reason. Parry added: “70 per cent of guests are paying more for flexible rates including free cancellation policies. Whilst travel is safe again, travellers are not prepared to give up on the flexibility they gained during Covid years.”

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