The Pulse of the Ecosystem: December 2021
Welcome to the end of December and Happy New Year.
Here’s a recap of the last 31 days of an unprecedented 12 months for the short-term rental ecosystem. These are the major insights and trends that shaped the ecosystem this month and will continue to inform decisions in 2022:
In 2021, uneven global restrictions forced travel changes, dampening consumer confidence. However, the industry responded with a slew of innovative ways to overcome barriers by meeting specific traveler types requirements. Companies also found ways to raise capital and strengthen the sector through JVs, acquisitions, IPOs, digitalization, and more. While new Covid variants are again causing uncertainty, individuals are desperate to travel after so much isolation and travel restrictions, thereby boosting domestic travel and the STR market.
Another stumbling block has been the egregious disparity in vaccine distribution, with just over 54% of the global population fully vaccinated and billions waiting. Also, while many small to medium-sized tourism businesses have shut down, the need for government support and funding to boost recovery has come to the fore.
Short-term rentals (STRs) are seeing record-breaking occupancy and surging nightly rates (more substantial revenues per listing). This demand boosts the popularity of destinations like South America, which has had the most dramatic supply increase over the past two years (+11%). Also, the latest AirDNA research shows that US STR will reach 2.6% more demand in 2021 than 2019 and 14.1% more growth in 2022 over 2021. Nevertheless, STR shows mixed forecasts for the global hospitality industry in 2022. The impact of new Covid variants and other factors predict a 4% drop in US short-term average daily rates (ADRs).
Given the above uncertainty, domestic travel is proving to be a firm favorite for pent-up travelers, causing record-breaking occupancy and surging nightly rates.
Demand is incredibly robust for rural experiences and unique properties (tiny houses, nature lodges, buses, and huts) over hotels, as travelers seek to escape the crowds and engage more with the outdoors. Also, millennials and Gen Xers are considering renting RVs for future road trips next year.
Overall, this period is being called the “no-regrets” travel style or the “GOAT” (Greatest of All Trips) mindset, or as per Expedia, the “never-ending” summer.
Another trend to watch and benefit from—especially for Property Management Companies (PMCs) to gain a competitive advantage—is demand for rentals enabling working from anywhere and longer length of stay (LOS). This market requires serviced apartments and extended stay accommodation providers to meet needs for fast Wi-Fi, safety, security, and workstations within the accommodation.
Online Travel Agencies (OTAs)
The OTA market is maturing and consolidating. Firstly, OTAs are working together to address illegal practices and offenders. Competitors Airbnb and Vrbo partnered to share information on US party house listings and have invited other OTAs to join the effort.
Regarding acquisitions, some OTAs are expanding their investments and acquisitions to fill gaps in offering the entire travel experience. Booking Holdings, for example, spent nearly $3.5B in less than a month acquiring Getaroom, Etraveli Group, and Lifehouse to plug holes in their accommodation offering and bolster their partner business and distribution capabilities.
Similarly, after 20 prior acquisitions, leading Property Management Company VTrips just acquired two of the industry’s most recognizable vacation rental brands – Taylor-Made Deep Creek Vacations and Ryson Vacation Rentals.
Another trend is the rise of niche OTAs answering the unmet needs of particular consumer segments. For instance, StayBillety, the Airbnb for sports fans, events planners, university alumni organizations, or Floasis, catered to remote workers in unique locations.
Raising funds has been another industry dynamic from platforms that have vastly increased their ROI. Perfect examples would be AvantStay, which decorates high-end owners’ properties and turns them into rentals that offer the same experience as staying at a five-star hotel. The company, which raised $160M in a Series B round of funding, saw tenfold revenue growth in the last two years and has amassed a total of over 1,000 properties in more than 100 cities.
Leading US Vacation Rentals Management company Vacasa has gone public through a deal with SPAC TPG Pace Solutions. The company aims to acquire PMCs in strategic regions to dominate local markets, wield market pricing power, and achieve economies of scale for its operations. Vacasa has already acquired up to 160+ PMCs.
Next up are companies, particularly large PMCs, opening up IPOs to raise money from public investors. Others are consolidating. Headlines report London-based Selina aiming to go public with NY-based BOA Acquisition Corp. The companies expect a value of around $1.2B and will trade on the NY Stock Exchange as Selina Hospitality. Before this deal, Selina raised funding of about $350 million. In January, boutique apartment-hotel hospitality company Sonder plans to go public via SPAC with Gore Metropoulos.
Lastly, the travel industry sees increased fintech products targeting travel payments for growth. These players are issuing physical and smart cards, supporting payouts in tens of currencies, including inbuilt policies, and more.
The industry is poised for 2022, but external factors, namely Covid, will influence how things pan out.