NASHVILLE, Tennessee — There are fewer dollars in the pockets of U.S. guests, and their behavior in accommodation bookings have shifted accordingly.
Speaking at the 16th annual Hotel Data Conference on a presentation titled “Share Shift from Hotels to Alternative Accommodations,” Isaac Collazo, vice president of analytics at STR, CoStar’s hotel analytics firm, said the growth in demand for alternative accommodations has outpaced that of hotels, with the lower hotel-industry segments responsible for most of this shift.
The average daily rate growth for alternative accommodations also is outpacing hotel average daily rate growth.
“The economy [segment] has been declining since April 2022. The lower tier peaked in 2023, well ahead of [other tiers], but now it is declining. ... A third of lodging spend comes from lower-income households."
Collazo added household income and spend can easily explain the situation. Of late, housing took up 25% of spending in lower-income quartiles, but since the end of 2023 that percentage increased to its current levels of 35%.
Jamie Lane, senior vice president of analytics and chief economist at AirDNA, said the data does not reveal a segmentation trade-down in hotels, but that does not mean that a trade-down is not occurring.
“Maybe there has been, and it is short-term rentals that have taken this share," he said. “Rentals are in destination types more likely favored by lower-income travelers — suburbs, rural, urban and mid-size cities, respectively."
Collazo said guests are now seeing rental sharing as a benefit for themselves, friends and family, a solution that keeps the travel experience but at a reduced cost.
“Lower-income households are being disproportionately hurt by the compounding impact of inflation over time,” he said.
He added this has resulted in both supply and demand increasing for alternative accommodations.
“Eighty-five percent of rental locations have seen demand increases, while only 38% of hotel locations have seen demand gains. … The biggest losses are incurring on that lower-tier side where see that bifurcation, with the economy hotels being impacted the most,” he said.
Lane outlined some of the main U.S. markets seeing an increased demand for alternative accommodations.
“There seems to be quite a few in Florida. We’ve got Ocala, Daytona Beach, Sarasota, Melbourne, Titusville, St. Lucie,” he said, noting that in these markets, hotels are seeing a “massive loss in the lower tier.”
He added these losses are significantly more than seen on average across the nation.
“We’re seeing losses in demand on both mid and upper tiers. So, it’s not just isolated lower- tier [hotels], but on the lowest tier. And it is big declines,” he added.
Flowing Florida
AirDNA's Lane said with the numbers the devil can be in the details.
He said in Florida, overall hotel demand is down 7%, but that of short-term rentals on a nightly basis is up 5%. If those two numbers are broken down, that equals a decline of 4% in those markets for all accommodations options.
“We’re like, maybe these are just weak markets, [or] maybe this trend of people is staying in larger listings, and if we take the short-term rental data and then instead of treating each listing as one, we treat each listing by the number of bedrooms in that property. And what we find is that then total rental rooms demand is up 8%, which, funnily enough, aligns almost exactly with what we saw in the total increase of Airbnb reviews in these markets.
“If we look at it on a total room nights basis, there’s no change in overall room nights when we look at both hotels and short-term rentals,” Lane said.
“That means in these selected markets, total accommodations demand is flat, but it has shifted, and it has shifted from hotels to short-term rentals,” Collazo said.
“Not only is consumer preference changing, but the amount of supply being added into these markets actually fits, and consumers actually had more options in the larger units to be able to rent. Essentially, the larger the unit type, the higher the growth we’re seeing,” Lane said.
Collazo added that luxury alternative accommodations are seeing some of this demand shift as even if per-night listings are above $1,000, this still represents a savings for large groups of friends or family.
“Potentially, this is a way guests are trying to save money by staying in these larger units, whereas before they would have rented multiple rooms to accommodate everyone,” Lane said.
Small is beautiful
STR's Collazo and Lane said the U.S. has seen high supply growth in small- and mid-sized cities, markets in which competition between short-term rentals and hotels can vary dramatically by location, destination and type.
“What we’ve seen really consistently over the past five, six years is that the fastest growth in short-term rentals has been in these small- and mid-sized cities, and where we’ve seen almost no increase in new hotel supply,” Collazo said.
“What’s interesting about small- and mid-sized cities and where they really differ from the rest of the short-term rental industry is one sees almost no churn. Hosts coming into this are finding success either by not pulling listings out or it’s almost all individual hosts,” Lane said.
“It is people with just one, two or three listings. It’s not professional operators or big management companies. It is almost all mom-and-pop people making a small investment in managing these properties, essentially on an individual basis,” he said.
He said it is in the cities such as Birmingham, Alabama; Chattanooga, Tennessee; and Waco, Texas; that this trend is happening, in cities with populations between 10,000 and 100,000 people.
There are markets in the U.S. that are seeing losses in both segments — Orlando, for example — and gains in both segments — Washington, D.C., for example — but it is in cities such as Milwaukee; Tacoma, Washington; San Antonio; and Nashville, Tennessee; where hotels are seeing losses and rentals are seeing gains.
Regulation is affecting short-term rentals in some markets, like New York City, Collazo and Lane said.
“This is where we see hotels winning, when there is a decline in short-term rentals listings. It’s not just New York City. We’re seeing it in Los Angeles, in Dallas, in Philadelphia,” he said.
Business travelers are not following the shift to short-term rentals, Lane said.
“We saw during the pandemic that maybe more people want to choose a short-term rental for longer stays, but now that’s really shifting back, and we’re seeing pretty significant share gains by hotels in these urban markets and in quite a few suburban areas as well,” he added.