New report shows short-term rentals gaining ground on hotels

Short-term rentals may still be riding a wave of interest stirred by the COVID-19 pandemic, as a new report shows them closing the gap with hotels in the United States, especially in less populated areas.

The report — a collaboration between AirDNA, an analytics company that tracks short-term rental data, and hotel data provider STR — used aggregate data from 2018 to May 2023 to examine trends in supply, demand and average daily rates for hotels and short-term rentals in the U.S. One big takeaway: The short-term rental industry is growing its share of overall travelers, despite more restrictions in big cities.

While hotels still account for 85% of the U.S. market, short-term rentals’ 15% share is nearly double the 8% it held in 2018, said Jamie Lane, chief economist at AirDNA.

“This industry is growing more and more,” he said. “People are trying it for the first time, and seeing that for certain types of travel, it is a much better fit for how you want to interact and have accommodation when you go on vacation.”

Don’t shed tears for the hotels, though. The report showed they enjoyed a 7.2% year-over-year growth in average daily rates, while rentals grew by just 2.8% through May. The biggest gains for hotels were in its urban markets, which grew by 9.7%. When urban tourism began to recover, the hotel supply was prepared to absorb demand, the report noted.

“Hotels have seen really strong performance in the past couple of years,” Lane said. “A big part of that is the return of business travel or return of conferences, with people going to these big events, and hotels now have significant pricing power.”

A wildcard affecting this year’s numbers may have been the lifting of pandemic restrictions in Europe. Analysts blamed that for cooling demand in the U.S. for both hotels and rentals as more Americans venture overseas. In 2022, year-over-year demand was up 30% for rentals and 26% for hotels. Yet by the second quarter of this year, those numbers had dropped to 12% growth for rentals and a loss of nearly 1% for hotels.

Europe aside, the analysts cited a couple of reasons why rentals were gaining market share. First, they see a continuing of the pandemic-inspired trend to blend business and leisure, leading travelers to book more long-term lodging for their “bleisure” stays. The strength of three-bedroom units — which are driving growth in both supply and demand among rentals — supported that theory.

And rentals are stronger overall in less densely populated areas, where they comprise a greater proportion of lodging options. Demand for rentals through May in small city/rural areas was up 24% year over year, while demand held flat over the same period for hotels.

It was a different story in urban areas, where both rentals and hotels saw 12% growth in demand. Analysts pointed to more restrictions on short-term rentals in cities such as Miami, Boston and Los Angeles to explain slower rental growth in major urban areas. Rental growth was better in small and midsize cities.

“It’s not because of anything the short-term rental industry is doing, but rather what’s happening in terms of regulation,” AirDNA’s Lane said of the slower growth in urban areas. “All the growth that we’d seen in 2018-2021 has essentially disappeared because of lack of supply in those markets to accommodate guests, due to regulation.”