HENDERSONVILLE, Tennessee—As the economic effects of the COVID-19 pandemic took hold of the global economy in early 2020, the travel industry was left in shambles with many markets experiencing unprecedented, single-digit occupancy rates.
In a new study released this week, STR and AirDNA analyzed the performance of hotels and short-term rentals, respectively, in 27 markets (15 urban and 12 regional destinations) around the globe. The analysis, which covers the period from January 2019 through 27 June 2020, compares hotel data with two different categories of short-term rentals:
- hotel-comparable rentals (“Rentals HC”), which comprise studio and one-bedroom units; and
- “2+ bedroom rentals,” which comprise units with two bedrooms or more.
The “COVID low point” (or simply “low point”) refers to the respective low point for each performance metric in a given market. The date of each “low point” varies by market and sector.
While hotels historically have shown higher occupancy compared to Rentals HC, in the wake of the COVID-19 downturn, short-term rentals have surpassed hotel occupancy and have maintained higher absolute occupancy levels. Also, during this early stage of recovery the industry is experiencing a shift in travel patterns away from urban markets and toward regional destination markets.
Hotel performance trends higher historically
Prior to the pandemic, hotels historically had the upper hand in performance compared to short-term rentals. In 2019, for instance, hotel occupancy was on average 11.4 percentage points higher than Rentals HC occupancy and nearly 20 percentage points higher when compared to 2+ bedroom rentals. (Figure 1). The same was true with average daily rate (ADR), which was 22.7% higher for hotels ($161.39) compared with Rentals HC ($131.50).
Source: STR, © 2020 CoStar Realty Information, Inc.
This was the case in both urban and regional destinations.
A review of select urban markets reveal stronger occupancies (2019) for hotels:
- Austin (TX) (hotel, 74.6%; rental HC, 61.8%)
- Berlin (hotel, 80.3%; rental HC, 71.5%)
- Dubai (hotel, 74.4%; rental HC, 51.5%)
- Sydney (hotel, 82.3%; rental HC, 65.0%)
Select regional markets show the same performance advantage for hotels:
- Atlantic City (NJ) (hotel, 60.9%; rental HC, 41.7%)
- Australia’s Gold Coast (hotel, 69.2%; rental HC, 61.1%)
- Myrtle Beach (SC) (hotel, 60.0%; rental HC, 52.8%)
- Savannah (GA) (hotel, 71.0%; rental HC, 53.8%)
However, as COVID-19 spread, hotels appear to have lost this edge over short-term rentals.
COVID-19 pandemic hits the travel industry
Along with the significant economic downturn, efforts to mitigate spread of the virus with stay-at-home orders and social-distancing guidance stifled travel demand.
As business meetings, conferences, and other events were canceled, this had an unequal impact on hotel occupancy given the hotel sector’s reliance on demand from group and business travel. Hotel occupancy declined 77.3% when comparing data for the week of 31 March 2019 to its weekly March 2020 low point. By comparison, short-term rental occupancy declined significantly (though not as dramatic as hotels) by 46% during that time.
All major short-term rental key performance indicators plummeted within the span of a few weeks as well. Global new bookings fell 47% from more than 2.3 million in January 2020 to just 1.2 million in April. Year over year, global new bookings were down 61%.
Figure 2 illustrates this decline in terms of year-over-year percent change for the week of 31 March 2019 through their COVID-19 low point (March through April of 2020) for the 27 markets in the analysis.
Source: STR, © 2020 CoStar Realty Information, Inc.
Why weren’t short-term rentals not hit as hard?
While these numbers seem grim, the fall for short-term rentals was not as severe as hotels’ for a variety of reasons. Many would argue that short-term rental sector’s unique selling proposition became strengths post-outbreak.
First, short-term rentals can make social distancing easier given the availability of larger units (see 2+ bedrooms and entire homes) as well as an availability of inventory in more rural and/or remote vacation markets—locations that allowed travelers to escape more densely populated urban markets where cases were spiking.
Second, most short-term rentals offer full-service amenities (such as kitchens and living space), which allowed for longer-term stays and became more popular as families looked for spaces to retreat. As a result, average length of stay increased by 58% during the crisis.
Signs of improvement … especially in regional destinations
Early, post-pandemic recovery looks different depending on the location. While urban and regional markets were both affected by COVID-19, regional markets have performed better most recently.
It is important to note that hotel performance fell much further in the initial outbreak, so gains (statistically speaking) have been more pronounced. However, these gains are most apparent (for both sectors), in regional travel destinations.
From the performance depths of March and April of 2020, travel patterns have shifted noticeably toward regional travel destinations. Figure 3 shows how both hotel and short-term rentals in regional markets have seen occupancy recover at a faster rate post-COVID-19 downturn than urban destinations.
Source: STR, © 2020 CoStar Realty Information, Inc.
Gatlinburg/Pigeon Forge, Tennessee, for example, experienced a 1,294.3% increase in hotel occupancy from its COVID-19 low point. This regional destination is within a four-hour drive of Nashville, Tennessee; Atlanta; Charlotte, North Carolina; Raleigh, North Carolina; and Knoxville, Tennessee.
Rentals HC in this regional market ended the week at a similar level, with occupancy at 73.7%—nearing their prior-year levels of 77.6%. These rentals did not have as far to climb. However, the pandemic didn’t hit the segment as hard, so the rebound amounted to “only” a 91.8% gain compared to hotels’ quadruple-digit increase.
Other regional markets that saw notable occupancy gains from their COVID-19 low points include:
- Atlantic City (NJ) (hotel, +695.4%; rental HC, +123.6%)
- Australia’s Gold Coast (hotel, +298.1%; rental HC, +26.9%)
- Gulf Shores (AL) (hotel, +1,139.2%; rental HC, +174.6%)
- Myrtle Beach (SC) (hotel, +459.0%; rental HC, +127.1%)
- Savannah (GA) (hotel, +186.8%; rental HC, +179.5%)
Even with performance recovering, is it too soon to call it a rebound?
While these gains in performance are positive signs that things are improving, it’s unclear whether these week-to-week increases are truly sustainable, especially given the most recent surges in COVID-19 casts.
As the short-term rental sector is nearer to their previous year’s RevPAR levels, down 4.5% from 30 June 2019, thanks to relatively stable ADR, hotels however have a much longer road to recovery, even with promising weekly gains in the past few months.
Still, as we monitor the progress, it is positive to see how quickly travel behavior can adapt to push a dynamic accommodations landscape toward recovery.
More data and detail available at https://str.com/whitepaper/covid-19-impact-on-hotels-and-short-term-rentals-airdna
Will Sanford is a Research Analyst at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.