short- term rentals · 2020-01-28 · 2018. los angeles, new york and orlando ... short-term...

CBRE RESEARCH

SHORT-TERM RENTALSA Maturing U.S. Market & Its Impact on Traditional Hotels

2 © 2020 CBRE, Inc.

EXECUTIVE SUMMARY

• Thesupplypenetrationrateofshort-term

rental(STR)unitstotraditionalhotelunits

reached10.4%in2019andisexpectedtohit

12.2%thisyearwiththeadditionofmore

than100,000netnewunits.

• STRsupplygrewby26%in2019,down

from39%in2018andaftersevenyearsof

exponentialgrowth(100%to500%)since

2009.Growthratesareexpectedtoslow

furtherto19%in2020.

• RecentgrowthforSTRshasbeenprimarily

insuburbanandruralareas.Unitsinurban

areasmakeuponly21%oftotalsupply,

downfrommorethan45%in2014.

• LosAngelesremainedthelargestSTRsupply

marketin2019afterovertakingNewYorkin

2018.LosAngeles,NewYorkandOrlando

togetheraccountedforabout12%oftotal

STRsupplyintheU.S.lastyear.

• Guestsconsistentlycitepriceandlocation

astheirtopreasonsforchoosingalternative

accommodations.

• Brandedapartment/hotelmodelssuchas

Sonder,StayAlfred,LyricandDomiodepend

onthepricingarbitragebetweenmonthly

apartmentrentandnightlySTRrates.

Manycompanieshaveenteredthemarket,

primarilyinU.S.urbanareas.

• Giventheundeniablechangeunderwayin

thelodgingsector,historicalhotelvaluation

underwritingpracticeswillnolongersuffice.

Areasonableunderstandingoftheshort-

termrentalmarketisrequiredforproperly

valuinghotels.

A MATURING MARKET | CBRE Research 3

4 © 2020 CBRE, Inc.

Therenolongerisanyquestionthatthe

sharingeconomy—andtheshort-termrental

marketspecifically—isheretostay.Once

dismissedasarelativelyinconsequentialniche

productandadistantcousintotraditional

hotels,STRshavebecomeawidelyaccepted,

mainstreamformofnightlyaccommodation.

STRstotalmorethan10%ofthesizeof

thetraditionalU.S.hotelroomsupplyand,

accordingtoSkiftTravel,havebecomean

estimated$115billionindustryasof2019.

Thisalternativelodgingmarkethasevolved

fromcateringtotheadventurous,millennial

leisuretravelertotargetingcorehotelguests

likethebusinesstraveler,alaAirbnbPlus.

Giventheundeniablechangeunderwayin

thelodgingsector,historicalhotelvaluation

underwritingpracticeswillnolongersuffice.

Areasonableunderstandingoftheshort-

termrentalmarketisrequiredforproperly

valuinghotels.

Intermsofsizeandproductofferings,STRs

nowdemandtheattentionofhotelowners,

operatorsandindustryprofessionalsalike.

Professionaloperators,buoyedbyhundreds

ofmillionsofdollarsinprivateequity

investment,havetakenanarguablyinferior

productandhelpedtransformSTRsintoa

mainstreamalternativeforthoseseeking

temporaryaccommodations.

Increasingly,venturecapitalistsand

traditionalrealestateinvestorsarefueling

theSTRmarketeitherthroughproperties,

brands,managementcompaniesorvendors

thatprovideservicestothegrowingnumber

ofSTRoperators.

Asthehotelindustrycontinuestoenjoyhigh

occupancylevels,thescarcityofavailable

traditionalhotelroomsduringpeakperiods

causestravelerstolookforalternativeoptions

likeSTRs.Inadditiontoavailability,guests

aresearchingforaffordability,locationand

localexperiences.

AsSTRsnowcompetedirectlywithhotels,the

platformsusedtobookthemhaveevolved

aswell.Airbnb,Booking.comandExpedia

(HomeAway/VRBO)remainthelargest

distributionplatformsandmanyproperty

managerslisttheirunitsacrossmultiplesites.

ThisreportdetailsthecurrentsizeoftheSTR

marketintheU.S.,howandwherethesectoris

growing,andhowindustryparticipantsshould

viewthismaturingsectorwhenanalyzingthe

performanceofexistingandnewhotels.

INTRODUCTION

6 © 2020 CBRE, Inc.

SHORT-TERM RENTAL GROWTH IN THE U.S.

DeterminingthetotalsupplyofSTRunitsis

difficult,butthemostwidelyavailableand

reportedestimateisthetotalnumberofunits

listedoneachplatform.Thereweremore

than1.5millionSTRunitsonvariouslisting

platformsin2019—atleastseventimesthe

amountin2014.However,notalltheseunits

wereactiveoravailableforbookingyear-round.


FIGURE 1TOTAL UNITS & ACTIVE/AVAILABLE AVERAGE DAILY SUPPLY OF SHORT-TERM RENTALS

Source: AirDNA, CBRE Hotels Research, Q4 2019. Note: Data from 2014 to 2019 provided by AirDNA, forecasts generated by CBRE.

1,800,000

1,000,000

1,400,000

600,000

1,600,000

800,000

1,200,000

400,000

0

200,000

2014 2015 20182016 2019E2017 2020F

Total Units Active/Available Average Daily Supply ForecastUnits

8 © 2020 CBRE, Inc.

Thepenetrationrateofshort-termunitsto

traditionalhotelunitsreached10.4%in2019.

Forcontext,CBREestimatesU.S.flexoffice

space(i.e.,WeWork,Regus,Spaces)hasa

penetrationrateofonly2.0%.

DespitetheimpressivegrowthofSTRsover

thepastdecade,thedaysoftotalSTRunits

doublingeveryyeararelonggone.Thatdoesn’t

meanthenumberofunitsaddedperyearhas

slowed;2018wasarecordyearfortheabsolute

numberofunitsenteringthemarket.

DataproviderAirDNAreportsthattherewere,

onaverage,approximately123,000moreunits

intheU.S.in2018,upfromroughly114,000

addedinboth2017and2016.In2019,unit

growthslowedto115,000andisexpectedto

slowfurtherin2020.

Despitetheslowergrowthrate,newunitshave

averagedover100,000peryearsince2016,with

2020markingthefifthconsecutiveyearthat

thisthresholdhasbeenmet.BasedonCBRE’s

projections,thepenetrationrateofSTRsto

hotelsupplywillriseto12.2%in2020.


FIGURE 2SHORT-TERM RENTAL ACTIVE/AVAILABLE AVERAGE DAILY SUPPLY GROWTH

Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.Note: Data from 2014 to 2019 provided by AirDNA, forecasts generated by CBRE.

700,000

12

300,000

4

500,000

8

100,000

600,000

10

200,000

2

400,000

6

0 0

0.7%

2015 20182016 201920172014 2020

Existing Supply (L) New Supply (L) Supply Penetration (R)

Units (%)

1.8%

4.1%

6.2%

8.4%

10.4%

12.2%

10 © 2020 CBRE, Inc.

FIGURE 3SHARE OF SHORT-TERM RENTAL SUPPLY BY LOCATION TYPE

Source: AirDNA, CBRE Hotels Research, Q4 2019.

50

10

30

40

0

20

2015 20182016 201920172014

Urban Suburban/Airport Resort Small Metro/InterstateShare of Total Supply (%)

FIGURE 4SHORT-TERM RENTAL PENETRATION BY LOCATION TYPE

Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.

20

4

12

16

0

8

2015 20182016 201920172014

Urban Suburban/Airport Resort Small Metro/InterstateSupply Penetration (%)


WithabiggerbaseofSTRunits,year-over-

yearpercentagegrowthratesforSTRsupply

intheU.S.willcontinuetodecline.STRunit

supplygrewby26%in2019,downfrom

39%in2018andaftersevenpreviousyears

ofexponentialgrowth(100%to500%)since

2009.Growthratesareexpectedtoslow

furtherin2020to19%.

RecentgrowthofSTRshasprimarilyoccurred

insuburbanandruralareas.Unitsinurban

areasdroppedto21%oftotalSTRsupply

in2019from46%in2014.Asof2019,57%

ofunitswerelocatedoutsideoflargecities

(urbanandsuburban/airportlocations).

Mostofthechangeinshareresultedfrom

largeincreasesinresortandrurallocations

thatprimarilyservedestination-vacation

travel.Unitsforrentalongthebeach,atlakes

andatski/mountainresortsaccountfor42%

ofunitsoutsideofurbanareas.

SlowingSTRsupplygrowthcanbeattributed

tomanyareasreachingmarketsaturationand

othersseeingincreasedregulation.

Thegrowthstoryoutsideofthemetroareas

isalsosupportedbythehighergrowthrates

inhomerentalscomparedwithapartment,

condoorloftrentals.Withtheincreased

growthoutsideofcities,thepenetrationrate

ofSTRunitstohotelroomshasincreasedthe

mostinthoseareasaswell.

In2019,supplyofunitsinurbanlocations

grewby17%,wellbelowthe30%+growthrates

forallotherlocationtypes.Hotelsupplyis

growingby3%intheseurbanareasonayear-

over-yearbasiscomparedwith2%nationwide.

Lookingatjustthetop30traditionallodging

markets,thesetrendsholdaswell.In2019,

40%ofSTRunitsinthosemarketswerein

urbanareas,downfrom60%in2014.All

otherlocationareashavegainedshareduring

thisperiod.

12 © 2020 CBRE, Inc.

A REVIEW OF STR PROPERTY TYPES

Note: The balance of this report will focus on

an analysis of the top 30 U.S. hotel markets to

isolate the trends impacting areas where most of

the hotel investment takes place.

Housesandapartment/condo/loftunitsmake

upabout96%ofallthepropertiesavailablefor

rentintheU.S.onSTRdistributionchannels.

Theother4%includesuniqueunits(like

lighthouses,boatsandtents),B&Bs,hotels

andhostels.Thesenationalpercentageshave

stayedrelativelyconsistentovertime.Butin

thetop30markets,thenumbershavevaried.

Whileapartment/condo/loftscomprised

morethan60%ofrentalunitsinthesetop

30marketsin2014,theynowmakeuponly

42%.Housesinthetop30havegrownata

significantlyhigherrateandnowaccountfor

about54%ofthetotal.

It’sclearthathome/apartmentunits

dominatethesupplyofavailableunits,

accountingforabouttwo-thirdsofthetotal.

Sharedspaces(privateandsharedrooms)

representonlyabout30%ofsupplyinthetop

30hotelmarkets.

13A MATURING MARKET | CBRE Research

14 © 2020 CBRE, Inc.

STR PROPERTY TYPES

House

ThelargestpropertytypeavailableforSTRbookingintheU.S.Thisincludes

single-familyhomes,townhouses,vacationhomes,cabinsandvillas.

Other

Uniqueunitsincludingboats,lighthouses,planes,tents,treehousesandyurts.

Apartment/Condo/Loft

ThesecondlargestgroupintheU.S.Thisgroupprimarilyincludesmultifamily

properties.

Bed & Breakfast

Traditionalbed&breakfastlistings.

Hotel/Hostel

Hotels,resorts,boutiquehotels,naturelodgesandhostels.Anyanalysisofthese

unitscanbeskewedsinceasinglelistingcanrepresentmultipleunitsavailable

forbooking.

Note: For the analysis and statistics in this report, all bed & breakfast, hotel, and hostel

units are removed.


Thereisastrongcorrelationbetweenthe

highprevalenceofprivate-roomdemandand

marketswithelevatedhotelaveragedailyrates

(ADRs).Thissupportsthenotionthatpriceisa

significantfactorforguestswhenchoosingto

stayinanSTRunit.Inhigh-ADRmarketslike

NewYork,SanFranciscoandBoston,private

roomsrepresentbetween40%and50%of

totaldemandforSTRunits.Anotherfactor

mayberegulation,asthesemarketsgrew

quicklyattheonsetoftheSTRtrendandhave

sinceseenstringentregulationonhomeand

apartmentrentalsforlessthan30dayswhen

theownerisnotpresent.

FIGURE 52019 PERCENT OF SHORT-TERM RENTAL SUPPLY BY PROPERTY & LISTING TYPE


Property Type House Apt./Condo/Loft Other Listing Type Total

Entire Home/Apartment 34.4% 32.2% 1.3% 67.9%

Private Room 19.1% 8.9% 0.2% 28.3%

Shared Room 1.0% 0.6% 0.0% 1.6%

Hotel/Hostel - - 1.6% 1.6%

Bed & Breakfast - - 0.5% 0.5%

Property Type Total 54.5% 41.8% 3.7% 100.0%

16 © 2020 CBRE, Inc.

MARKET LEVEL FINDINGS

ThemostpenetratedmarketsforSTRsareLos

AngelesandMiami,with22.3%and19.2%of

theirhotelroomcount,respectively,allocated

toSTRs—roughlydoublethenationalaverage

of10.4%—duetotheirbeinghigh-occupancy,

high-ADRmarketsthatcatertoalargevolume

ofleisuretravelers.

OncethevolumeofSTRunitsreaches

approximately10%ofthetotalhotelsupplyin

urban/suburbanmarkets,growthratesstartto

slowsignificantly(Figure6).Onlythoseurban/

suburbanmarketswithalargedestination/

resortdemandorientationlikelyhavethe

potentialtoreachanSTRpenetrationrateof

15%ormore.Theseexamplesshowthat15%

to20%penetrationratesmaybetheceiling

inlargeurbanandsuburbanmarkets,while

marketswitharesortcomponentmaybeable

toreachasmuchas25%penetration.

ManymarketshadflattodecliningSTR

penetrationratesin2019.Onaverage,the

30largestlodgingmarketsincreasedtheir

penetrationby1.6%comparedwitha2.0%

nationalaverage.

Fivemarketshadpenetrationincreasesofless

than0.5%(NewYork,Minneapolis,Seattle,

DenverandBoston),whileNewYorkhada

decreaseforthefirsttimewithacombination

ofslowgainsinunits(1.9%)andaverystrong

supplyincreasefortraditionalhotels(3.7%).


FIGURE 62019 SHORT-TERM RENTAL UNIT PENETRATION TO HOTEL SUPPLY IN 30 LARGEST HOTEL MARKETS


Los Angeles, CA

Atlanta, GA

22.3%

19.2%

Orlando, FL

Norfolk/Virginia Beach, VA

Tampa, FL

Minneapolis, MN

Austin, TX

Anaheim, CA

Seattle, WA

Baltimore, MD

Nashville, TN

Houston, TX

Phoenix, AZ

Fort Worth, TX

Miami, FL

Philadelphia, PA

San Diego, CA

San Antonio, TX

San Jose/Santa Cruz, CA

Charlotte, NC

San Francisco, CA

St. Louis, MO

New York, NY

Washington, D.C.

New Orleans, LA

Chicago, IL

Boston, MA

Dallas, TX

Denver, CO

Detroit, MI

18.0%

16.8%

16.2%

15.9%

14.9%

14.2%

13.8%

13.7%

13.2%

12.7%

12.4%

10.4%

9.8%

9.6%

8.8%

8.1%

7.5%

6.3%

6.3%

6.0%

5.3%

5.2%

5.0%

4.8%

4.4%

3.8%

3.7%

3.1%

20 © 2020 CBRE, Inc.

MARKETS WITH THE GREATEST SUPPLY OF SHORT-TERM RENTALS

LosAngelesremainedthelargestmarketfor

STRsupplyin2019afterovertakingNewYork

in2018.LosAngeles,NewYorkandOrlando

togetheraccountedforabout12%oftotalSTR

supplyintheU.S.lastyear.

TheexpansioninSTRsupplyfromSuperBowl

LIIIpropelledAtlantatothefastestgrowing

marketin2019withanannualizedgrowthrate

of68%.TotalunitsinAtlantaincreasedby

113%duringthemonthoftheevent.

In2014,the10largestmarketsforSTRsinthe

U.S.were,inorder,NewYork,LosAngeles,San

Francisco,Miami,Washington,D.C.,Chicago,

SanDiego,Austin,Boston,Seattleand

Portland.These10citiesrepresentedabout

55%ofSTRsupplyintheU.S.

Sincethen,mostofthegrowthhasbeen

outsideofthesemajormarkets.Today,those

sametop10MSAsmakeuponlyabout25%of

totalsupplyintheU.S.,adeclineof30%.New

regulationshavecurtailedgrowthinmanyof

thelargestMSAs.

Leisure/destination/resortareashave

dominatedthelistoffastestgrowingmarkets

overthepastfiveyears,whichconfirmsthat

theseplatformsarebeingusedmorebyowners

andpropertymanagersforvacationrentals.

Whiletheseunitsarenewtotheplatforms

trackedbyAirDNA,theymaynotbenewSTR

competition,havingbeenrentedinotherways

bytheirhostsorpropertymanagers.

TheavailabilityofSTRsallowsmarketsto

capturemoreovernightguestdemandthan

everbefore.Forexample,byaddingtheaverage

nightlydemandforSTRsinNewYorkCityto

itsaveragenightlyhoteldemandduringpeak

monthsandthencalculatingoccupancyusing

onlythecity’savailablehotelsupplyresultsin

anoccupancyrateof104%—wellabovewhat

traditionalhotelsalonecanaccommodate.


FIGURE 7LARGEST SHORT-TERM RENTAL MARKETS, 2018 & 2019 SUPPLY & YEAR-OVER-YEAR CHANGE


Los Angeles, CA 9.0%

0 5,000 10,000 15,000 20,000 25,000

San Diego, CA

Austin, TX

Orlando, FL

Washington, D.C.

Phoenix, AZ

Chicago, IL

New York, NY

Atlanta, GA

Seattle, WA

San Francisco, CA

Miami, FL

Boston, MA

Tampa/St. Petersburg, FL

Nashville, TN

As of 2018 As of 2019 Year-over-Year Change (%)Units

1.8%

31.2%

22.9%

18.6%

68.1%

13.1%

7.5%

17.4%

7.6%

44.4%

36.0%

14.2%

14.9%

26.6%

22 © 2020 CBRE, Inc.

WHY GUESTS CHOOSE SHORT-TERM RENTALS

Manyfactorsmotivateconsumerstochoose

STRaccommodations,includinglocal

interaction,home-likeamenities,more

spaceand/oranunusualexperience.Price

andlocation,however,remaintheprimary

motivators.

Accordingtoanannualsurveyoftravelers

byMorganStanley,morethanhalfsaidthat

priceisthemostimportantfactorforSTR

use.Indeed,STRscanprovideaffordable

optionstotouristsvisitingcitiesinwhich

hotelsaredisproportionatelyhigh-priced.

Moreover,thetypicalhomeorapartment

unitoffersuniquealternativebenefits(e.g.,

kitchenandlaundryfacilities)andmore


local,authenticdestinationexperiencesand

intimatesocialinteraction.

Figure8showstheaverageroomrate

differencebetweenhotelsandSTRs.To

determinearelativelycomparablerate,CBRE

filteredtheSTRunitstojustonebedroom

orstudiounitsinapartment,condoor

loftbuildings.Onaverage,STRsoffereda

discountofabout5%acrossthe30markets

studied,whileinthemoreurbanU.S.cities

thediscountwasashighas20%to30%.

24 © 2020 CBRE, Inc.

FIGURE 82019 HOTEL & SHORT-TERM RENTAL ADR COMPARISON BY MARKET WITH PREMIUM/DISCOUNT

Norfolk/V

irginia

Beach

, VA

Houston

, TX

Detroit

, MI

Grand

Total

Fort W

orth, TX

New Orleans,

LA

Dallas,

TX

San Die

go, CA

Nashville

, TN

Tampa,

FL

Charlot

te, NC

Minneap

olis, M

N

Atlanta

, GA

Austin,

TX

San An

tonio,

TX

Anahei

m, CA

$0

$100

$200

$50

$150

$250

$300

2019 Average Daily Rate (ADR)

- 6.5%-5.7%-4.5%

-4.0%

-3.7%-2.1%

1.9%0.1%

2.4%4.8%

12.8%

16.6%18.0%

24.4%

-5.3%


FIGURE 82019 HOTEL & SHORT-TERM RENTAL ADR COMPARISON BY MARKET WITH PREMIUM/DISCOUNT


Boston

, MA

San Jos

e/Sant

a Cruz,

CA

Denver,

CO

Los An

geles,

CA

Seattle

, WA

Washing

ton, D.

C.

Orlando,

FL

San Die

go, CA

New York, N

Y

Philad

elphia

, PA

Chicag

o, IL

Phoeni

x, AZ

San Fra

ncisco,

CA

Baltim

ore, M

D

Miami, F

L

St. Lou

is, MO

Anahei

m, CA

-40

0

-20

20

40

1 Bedroom, Entire Apartment/Condo/Loft Unit (L) Hotel (L) Discount/Premium (R)

(%)

-32.6%

-25.3%-25.1%

-19.5%-19.3%-16.8%

-15.0%-12.9%-12.8%-12.7%-12.4%

-10.6%-8.0%

- 6.5%

-12.7%-14.9%

-13.9%

26 © 2020 CBRE, Inc.

LOCATION

Afterprice,locationgenerallyisthemost

likelyreasontravelerschooseSTRs.One-

thirdofMorganStanleysurveyrespondents

saidthatlocationwasthebiggestreasonfor

choosinganSTRunit.

ACBREanalysisofhotelandSTRunit

locationdatashowsthatmorethan35%

ofSTRpropertiesarelocatedmorethana

milefromtheclosesthotel(Figure9).That

increasesto57%forrurallocations(small

town/metro&interstate).

Combinedwithrecord-highhoteloccupancy

levels,itisunderstandablewhySTRshaveseen

suchstrongadoptionoverthepastfewyears.


17.8%

11.5%

3.8%1.5%

0-1 Miles 2-5 Miles1-2 Miles 5-10 Miles 10+ Miles

FIGURE 9 PERCENT OF SHORT-TERM RENTAL PROPERTIES LOCATED MORE THAN 1, 2, 5 & 10 MILES FROM CLOSEST HOTEL

65.4%


28 © 2020 CBRE, Inc.

IS ADR GROWTH OVER?

InmostmarketswithhighSTRsupply

growth,ADRincreaseshavebeenbelow

inflationarylevelsand/orrecenthistorical

trends.Thisislogicalgiventheelasticityof

STRsupply,whichcanbedeliveredduring

timesofdemandspikeslikepeakseasons,

fillnightsorduringmajoreventsandthen

removedafterward.This,inturn,limitsthe

pricingpowerthattraditionalhoteloperators

havehistoricallyreliedontooptimizerates

duringthesehigh-compressionperiods.

TheU.S.traditionalhotelindustryhasnot

experiencedrealADRgrowth(inflation-

adjusted)since2016(Figure10).RealADRs

reachedtheirpre-recessionpeakin2015.

Despiterecordhoteloccupancylevels

sincethen,theinfluxofSTRunitsandan

expandingsupplyoftraditionalhotelrooms

hascurtailedhotelmanagers’abilityto

furtherraiseADRs.

30 © 2020 CBRE, Inc.

FIGURE 10REAL ADR CHANGE FOR HOTELS

-12

-10

-8

-6

2

0

-4

4

-2

6

8

Y-o-Y Change (%)

2000 200820042002 201020062001 200920052003 2007


FIGURE 10REAL ADR CHANGE FOR HOTELS

Source: STR, CBRE Hotels Research, Q4 2019.

52

60

56

54

66

62

58

68

64

Real ADR (L) Occupancy - 4 Quarter Moving Average (R) Forecast

Occupancy (%)

2012 20172010 2014 2019E2013 20182011 20162015 2020F


Historyclearlyrevealsthatwhenconditions

(drivenbystrongrealADRgrowth)makenew

developmentattractiveagain,newsupplywill

comeintothemarket.Inthecurrentcycle,

however,withtheevolutionofthesharing

economy,additionalcapacityhascometo

marketmuchmorequickly(andefficiently)

thaninpreviouslodgingcycles.

FIGURE 11AVERAGE MONTHLY NEW UNIT GROWTH FOR HOTEL ROOMS & SHORT-TERM RENTAL UNITS


25,000

5,000

15,000

20,000

0

10,000

2019200919991989 201420041994

Hotel Rooms Short-Term Rental Units Hotel Rooms & Short-Term Rental UnitsSTR Units/Hotel Rooms

Asperformanceacrosstheindustryrecovered

in2015,sodidtotalsupplygrowth,butthis

timeitwasacombinationofbothtraditional

andnon-traditionalunits.However,the

numberoftraditionalhotelunitsbuilthas

notbeenatnearlythesamelevelasinpast

cycles.Takentogether,though,newsupply

hasexpandedtomeettherisingdemandfor

overnightaccommodation.

34 © 2020 CBRE, Inc.

QUANTIFYING THE IMPACT

AstudybyBramGallagherofCBREHotels

confirmswhatotherresearchers(Zervas

2017,Dogru2019)haveshown:Newsupply

bothfromtraditionalhotelsandSTRs

hasasignificantandnegativeimpacton

hotelrevenueperavailableroom(RevPAR),

primarilybyimpedingmanagement’sability

toraiseratesatexistinghotels.

Inanalyzinghistoricalsupply-and-demand

dynamicsofhotels,theseresearchers

isolatedtheimpactofrisingSTRsupplyon

traditionalhotelRevPARandconfirmedthe

anecdotalevidencewehaveheardfrommany

ofourclients.

Thisresearchsuggeststhatbecauseofthe

fluidnatureofSTRsupply,pricepremiums

realizedduringpeakdemandperiods—both

cyclicalandseasonal—willremainmitigated

overtime.Additionally,ouranalysisshows

thatdecliningrealADRlevelscouldbe

restrainingnewhotelconstruction.

Itisdifficulttoshowadirectimpactat

themetrolevelasSTRsarejustoneof

manyfactorsthatareimpactingdailyhotel

performance.Inurban/suburbanlocations,

STRunitsmaycompetemuchmoredirectly

withhotels,astheyaremorecomparable

productsandtypicallyofferasignificant

pricediscount.Thiscouldbeacontributing

factortourbanandsuburbanlocations’

underperforminghotelssince2016(Figure12).

Resort/rurallocations,ontheotherhand,

continuetooutperformthenationalaverage

evenwithhighconcentrationsofSTRunits.

Potentialreasonsinclude:

• STRsaremorecomplementaryinthese

locationsanddon’tcompeteascloselyasin

themajorMSAs.

• Thereisamoredifferentiatedproduct

(entirehomewithmultipleroomsvs.hotel

room)intheseareas.

• Ahigherpercentageofhomerentalscan

leadtoSTRshavinghigherrentalrates

thantraditionalhotels,whichnegatesany

potentialcostsavings.

• AlargepercentageofSTRs(57%)donot

haveahotelwithinonemileoftheir

location.

• Manyoftheserentalpropertieshave

beenavailablefordecades.Thegrowthin

penetrationisaresultoftheseunitsonly

nowmakingthemselvesavailableinthe

onlinebookingplatforms.

https://www.hospitalitynet.org/opinion/4090453.html


FIGURE 12 INDEXED HOTEL REAL ADR GROWTH BY LOCATION TYPE

Source: STR, CBRE Hotels Research, Q4 2019.

110

85

100

105

80

90

95

20152009 20182012 20162010 20192013 20172011 201420082007

Urban Suburban/Airport Resort Small Metro/InterstateADR Index (2007 = 100)


Inanalyzingareaswithlowvs.highlevels

ofSTRpenetration,thereisnosignificant

differenceinhotelmanagement’sabilityto

raiserates.Hotelswithahighnumberof

STRunitsnearbyactuallyaredoingbetter

thanareaswithalowernumberofSTR

units,especiallyinlargeMSAs(urbanand

suburbanlocations).

Thiscouldreasonablybeexplainedbythe

factthathighlypenetratedsubmarketsare

nearmajordemandgeneratorsandinareas

wherehotelsarefullyoccupiedduringpeak

periods.Theremaybeaconsiderablenumber

ofguestswhowouldhaveotherwisestayed

outsideofthecoretradearea,orperhaps

wouldnothavemadethetripatall,but

becauseofSTRoptionsarenowabletostay

closertotheiroptimallydesiredlocation.

Inthesetypesofsituations,weexpectthat

suburbanhotelswouldbenegativelyimpacted

astheynolongerbenefitfromthesamelevel

ofdemandgivenanincreaseinSTRunitsin

theurbansubmarkets.

38 © 2020 CBRE, Inc.

THE NEXT WAVE: BRANDED APARTMENT UNITS

Distinctbusinessmodelshaveevolvedin

recentyearsacrosstheSTRuniverse,notto

mentionthelargenumberofcompaniesthat

havestartedtoassistthesecompanieson

operations,hardware,guestsupportservices,

revenuemanagement,pricing,etc.

39A MATURING MARKET | CBRE Research

MODELS

DESCRIPTION

ADVANTAGES

DISADVANTAGES

EXAMPLES

FIGURE 13SHORT-TERM RENTAL BUSINESS MODELS

ONLINE PLATFORMSBRANDED STR APARTMENTS

APARTMENT COMMUNITIES

POP-UP HOTELS

An online marketplace where individual properties can be

listed as short-term rentals

Commissions paid to the company,

regulations restricting the use of short-term

rentals in major cities, issues of safety

Airbnb, Vrbo and HomeAway

Allows a property to rent a subset of units to a property manager who then sells the units as

short-term rentals

Logistics, safety concerns from other building residents

Sonder, Lyric, Stay Alfred, Domio

Designed for residents to rent out their units on short-term rental plaforms, in which

profits are shared with the landlord

Logistics, safety concerns from other building residents

Niido, Airbnb friendly buildings

Takes a large number of units and runs

them as short-term rentals during ramp-

up period for new apartment buildings

Short investment period per property

for STR management company

whyHotel

Property owners can increase their exposure, which can lead to more

bookings; allows for an increase in travel and tourism across

markets and locations

Increased occupancy, decreased liability to owner, premium rent

Property owners can increase their

revenue by collecting monthly rent as well

as a commission from STRs; residents are able to reduce

their monthly cost by renting their unit

Improved internal rate of return for building

owner, reduced absorption risk and increased economic

efficiency of property

Source: CBRE Hotels Research, Q4 2019.

40 © 2020 CBRE, Inc.

Theprogressiveriseofprofessionaloperators

since2017isevolvingfurtherwiththe

adventofnewbusinessesfocusedentirely

onmanagingandmarketingshort-term

rentalunits.Thisbusinessmodelcanbetter

competewithindividualoperatorsinthe

followingways:

• Consolidatingmultipleunitsinthesame

building,allowingtheoperatortomore

efficientlycleanandmanagemultipleunits.

FIGURE 14SHORT-TERM RENTAL BRANDED MANAGEMENT COMPANIES

Source: CBRE Hotels Research, AirDNA, company websites and press releases, Q4 2019.*Includes units under contract but not available to rent yet.

DOMIO LYRIC MINT HOUSE NIIDO STAY ALFRED SONDER THE GUILD WHYHOTEL

Year Founded 2016 2014 2017 2016 2011 2012 2016 2017

Location of Headquarters New York, NY

San Francisco, CA

New York, NY

San Francisco, CA

Spokane, WA

San Francisco, CA

Austin, TX

Washington, D.C.

Number of Markets 12 13 10 2 33 28 6 4

Number of Bookable Units 500 475 400 80 2,500 4,500 535 400

Number of Signed Units* 1,966 - - - - 10,000 800 -

Funding (US$) 117M 185M 15M 200M 62M 400M 31.5M 34M

• Brandingtheunits,signalinga

differentiated,consistentandtrusted

productandserviceforconsumers.

• Leveragingtechnologyandventurecapital

toscalequicklyandbuildbrandawareness.

• Focusingonpurpose-builtorconverted

apartmentbuildings,whicharethen

convertedtoSTRs.


Brandedapartmentbusinessmodelsdepend

onthepricingarbitragebetweenmonthly

apartmentrentandnightlySTRrates.STRs

havebenefitedfromanexcesssupplyofluxury

apartmentsinsomemarketsinrecentyears

andcouldseefurthersupplymadeavailablein

theeventofarecessionorsomeotherimpact

todemandforapartment/condospace.

Otherfactorsthatcouldimpactthehotel/STR

supply-and-demanddynamicsinarecession:

• STRs increase their share of available

demand.Intheeventofarecession,price

becomesanevenbiggerconsideration

andcouldcausebothleisureandbusiness

travelerstoshifttheirchoiceoflodging

towardthemoreeconomicaloption.

• Hosts remove their units from STR

inventory. OverallhotelADRscontract

significantlyenoughthatSTRhosts/

operatorsnolongerhaveastrongrevenue

incentivetobringtheirpropertyintotheSTR

marketplace.Evidenceshowsthathostsadd/

removetheirunitsduringpeak/lowseasons

basedonavailabledemandandthepotential

toearnrevenue.

• More hosts rent their available units.If

thereisasignificantamountofjob/income

lossthroughoutthecountry,itcreatesa

strongincentiveforpeopletolisttheirextra

bed,roomorhouseonanSTRplatform.

Givenalowornon-existentcostbasisand

thesunkcostnatureoftheirhousingunit,

hostsmaychoosetolisttheirspacewithout

regardtolowerachievablerates,which

causesmorepressureonhotelstolower

theirratestoremaincompetitive.

• Apartment owners shift supply into the

STR market. Inanattempttomakeupfor

lostdemandduringarecession,apartment

ownersmakemoreoftheirunitsavailable

fornightlybookingseitherthroughrenting

theirunitsdirectly,signinglong-termleases

withbranded/STRoperatorsorentering

intoamanagementagreementwithanSTR

operatortorentvacantunits.

44 © 2020 CBRE, Inc.

STRs’ IMPACT ON HOTEL VALUATIONS

Hotelvaluationtechniquestodatehave

largelyentailedanalyzingADR,occupancy

(OCC)andRevPARtrendsfromthird-party

reportsandreviewingpipelinereportsand

county-sourceddatatoassessfuturesupply

shiftsintraditionalhotels.Itiscommon

amongpractitionerstoignoretheSTR

marketaltogether,ornotgiveitadequate

considerationinvaluationunderwriting.

Traditionalmarketforceslikeshiftsin

competitivehotelsupply,consumerspending

patterns,demandgeneratorsandnon-

recurringeventsareusedtoexplainhistorical

fluctuationsinADR,OCCandRevPAR,and

areemployedasthebasisforcriticalvalue

assumptions.

Withsomeexceptions,negativeimpactof

newsupplyisoftenaccountedforonthe

occupancysideoftheequation—atemporary

declineuntilnewsupplyisabsorbed

andreturnstohistoricnorms.Moreover,

beneficiariesofRevPARupsidepotential

wouldbeconsideredsolelythroughthelens

ofahotel-centriccompetitivemarket,without

acknowledgementofpotentialrestrictions

fromlodgingalternatives.

Whilethesevaluationtechniquesaresound,

theymustnowbeexpandedtogivedue

considerationtotheimpactoftheSTRmarket,

particularlyinlocationswheresupplyis

sizableenoughtoinfluencetraditionalhotel

performance.Aminimumcursoryreviewand

understandingofthequantityandquality

productofferingsiswarrantedinmarkets

whereSTRsupplyislow,whilemarketswith

morethan10%ofSTRsupplymayrequire

moredetailedanalyses.

Outsideresearchanddatapresentedinthis

reportindicatethatprimarymarketswith

largeurbancoresorpopulardestination

marketshaveexperiencedthehighestlevelof

growthinSTRs.Further,STRsareprevalentin


marketswithmanyfillnightsthathavehigh

occupancylevelsandasignificantvolume

ofdisplacedand/orunder-accommodated

demand.MostofthetopSTRgrowth

markets,whileexperiencingnegativeRevPAR

pressures,havenotexperiencedsharp

occupancydeclines.

Newsupplyfrombothtraditionaland

alternativeunitshavesatisfiedmuchof

thedemandthathadhistoricallybeen

displacedandhaveinducednewdemand

andbroadenedthelodgingconsumerbase

inthemarket.However,thereiscompelling

datatosuggestthenegativeimpactofSTR

supplyonhotelRevPARcanbemeaningful

anddisproportionatelyaffectsADRgrowth

overoccupancy.

TheimpactonhotelADRisparticularly

importantasitrelatestohotelvaluationssince

thereisastrongrelationshipbetweenADR

anditsflowthroughtoprofitability(NOI),and

thereforeassetvalue.Assuch,itisimperative

torecognizethenatureofhistoricalRevPAR

fluctuationsinacompetitivesetandidentify

thestageoftheSTRlifecycleinordertomake

informeddecisionsonforecasts,particularlyin

marketswith10%+STRsupply.Forexample,

itmaybereasonabletoforecasttemporary,

negativerealADRgrowthinlaggingmarkets

thatarejustnowhittingtheirgrowthstride.


Conversely,extrapolatingweakADRgrowth

basedonrecenthistoricaltrendsinsaturated

marketswheretheSTRproducthasalready

beenintroducedandlargelyabsorbedcould

beconsideredpunitive.Further,limited

opportunityforhoteloperatorstooptimize

ratesduringpeakperiodscanreducethe

probabilityorprolongtheconstructionof

plannednewhotelsupplythatmayalreadybe

marginallyfeasible.

Finally,therecouldbeopportunityfor

hoteloperatorstocapitalizeonancillary

revenuesourcesbyprovidingserviceslike

food&beverage,meetingroomrentalsand

dailyhousekeepingtoguestsofnearbySTR

units.Intheseinstances,rategrowthand

revenueprojectionsandvaluationsmaybe

underestimatedifnotproperlyanalyzed.

ManyofthelargestSTRmarketshavebegun

toexperiencesignificantdeclinesinsupply

growthoverthepasttwoyears.Itappearsthat

thesemarketsareatornearsaturation.

CBREresearchindicatesthatsaturation

pointsforthetop30marketsgenerally

rangefrom10%to20%,withmature

marketsinprimarylocationsattheupper

endoftherange.Mostoftheremaining

marketsareinvariousstagesofthegrowth

lifecycle,includingsomebelow10%,but

areconsideredmaturemarketsbased

onhistoricalgrowthtrendsandmarket

characteristics.

Formarketsatornearsaturation,whether

theSTRsupplyceilingis10%or20%,we

anticipateaneasingofdownwardrate

pressureasthenewSTRsupplyisabsorbed.

Moreover,mountingeffortstoexpandand

enforceregulationsonSTRhoststolevelthe

playingfieldwithtraditionalhotelslikelywill

suppressfutureSTRgrowthandmayeven

resultinsupplyreductionsinsomemarkets.

Overall,traditionalhotelvaluation

underwritinghasforeverchanged.Whilethe

STRmarketisstillveryfluid,practitionersare

nowequippedwithenoughhistoryanddata

toprovideforbetter-informedassumptions

whendevelopingvalueopinions.Thejury

isstilloutonhowmodernhotelvaluation

practiceswillevolve,butataminimumitis

certaintoincludearespectfulconsideration

ofshort-termrentals.

48 © 2020 CBRE, Inc.

APPENDIX 12019 SHORT-TERM RENTAL PENETRATION TO HOTEL SUPPLY FOR TOP 30 LODGING MARKETS


Rank Market

Hotel Rooms Supply

Short-Term Rental Units

Supply Penetration

16 Atlanta, GA 100,320 9,583 9.6%

17 Philadelphia, PA 49,800 4,391 8.8%

18 Anaheim, CA 57,931 4,674 8.1%

19 Washington, D.C. 115,240 8,691 7.5%

20 Norfolk/Virginia Beach, VA 36,633 2,303 6.3%

21 San Antonio, TX 47,725 2,987 6.3%

22 Baltimore, MD 35,476 2,128 6.0%

23 Chicago, IL 119,033 6,319 5.3%

24 Minneapolis, MN 44,432 2,320 5.2%

25 Charlotte, NC 37,716 1,904 5.0%

26 Houston, TX 92,872 4,493 4.8%

27 Dallas, TX 91,538 4,070 4.4%

28 St. Louis, MO 39,885 1,517 3.8%

29 Fort Worth, TX 34,523 1,272 3.7%

30 Detroit, MI 44,471 1,361 3.1%

30 Market Total 1,919,308 208,525 10.9%

U.S. Total 5,308,519 552,773 10.4%

Rank Market

Hotel RoomsSupply

Short-TermRental Units

SupplyPenetration

1 Los Angeles, CA 105,038 23,413 22.3%

2 Miami, FL 57,787 11,069 19.2%

3 Austin, TX 41,325 7,422 18.0%

4 New York, NY 124,981 20,972 16.8%

5 Orlando, FL 128,531 20,768 16.2%

6 San Diego, CA 63,234 10,044 15.9%

7 Seattle, WA 49,404 7,375 14.9%

8 New Orleans, LA 41,317 5,847 14.2%

9 Tampa, FL 47,918 6,617 13.8%

10 San Jose/Santa Cruz, CA 36,523 4,943 13.5%

11 Nashville, TN 46,015 6,059 13.2%

12 Boston, MA 58,748 7,441 12.7%

13 San Francisco, CA 53,214 6,615 12.4%

14 Phoenix, AZ 66,133 6,882 10.4%

15 Denver, CO 51,544 5,045 9.8%

50 © 2020 CBRE, Inc.

METHODOLOGY

Todeterminethenumberofunitsavailable

forrentonagivennight,wecalculatethe

averageavailabledailysupply.Wefirstremove

inactive(nobookingactivityinthepast

month)andunavailableunits(delistedfrom

thebookingplatform).Next,wesubtract

nightswhenaunitmaybeunavailablefor

rentalsorblocked.

Therearemanyreasonswhyunitsmaybe

blocked,includingowneruse,restrictions

ondaysavailableforrentandscheduled

cleanings,amongothers.Inourmeasure

oftheactiveavailableaveragedailysupply,

orjustsupply,theblockednightsare

removedfromtheestimatedsupplyfigureby

calculatingtheaveragedailyavailablesupply

thatonlyincludesunitsthatareeitherbooked

oravailableforbooking.Toestimateasupply

numbercomparablewithtraditionalhotel

data,thisisthemostrelevantmetric.

Afterthisfurtheranalysisandremoving

unavailableandinactivelistings,theaverage

dailynumberofunitswasroughly566,000in

2019,upfrom35,000in2014.

MEASURING SHORT-TERM RENTAL SUPPLY

Whilemeasuringthesizeofthetraditional

hoteluniversehasbeenrelativelyeasywith

brandedpurpose-builtproperties,commercial

licensesanddedicatedsalesteams,itis

muchmoredifficulttoassessthesizeofnon-

traditionallodgingunits.Thisstemsfromthe

factthatSTRplatformsarecontrolledbyjust

afewcompanieswithlimitedtransparency

intotheirinventory.Addingtothecomplexity,

manyunitsarelistedinmultipleplatforms

andmanyapartmentorcondominiumunits

arelistedunderthesameaddress.

Inourreviewoftheavailablesourcesto

analyzethesizeandscopeofthenon-

traditionallodgingspaceintheU.S.,we

havefoundAirDNAhasthemostcomplete

datasetandlongesttimeseriesofSTRdata.

Itgeneratesestimatesofthenumberof

properties,bookingsandrevenueofSTRunits.


MEASURES OF STR SUPPLY

Total Units:Totalnumberofunitsavailabletorentthatmonthatanypreviouspoint

intime(usuallythepast12months);matchesupmostcloselywithdatareportedby

thelistingplatforms.

Active Available Average Daily Unit Supply (Supply):Averagedailysupply(nights

availableforbookingorbooked)ofunitsavailableforrentandactive(i.e.,withat

leastonebookinginthatmonth).

LOCATION ANALYSIS

Tofurtherunderstandhowandwheresupply

isgrowing,wecategorizedeveryU.S.property

bylocationtypeasdeterminedbyhoteldata

providerSTR(formerlyknownasSmithTravel

Research).Eachunitwasgiventhelocation

typeofthenearesthotelproperty.Thisallows

foradirectcomparisonofthesetwolodging

segments(traditionalhotelsandSTRs).

Therearesixhotellocationcategories;

however,forthisanalysis,wecombined

AirportandSuburbanaswellasSmallMetro/

TownandInterstatebecausetheycover

similargeographicareasandhaveexhibited

similarperformancetrendsovertime.

• Urban:Denselypopulatedlocationina

largemetropolitanarea.

• Suburban:Suburbsofmetropolitanmarkets.

• Airport:Hotelclosetoanairportthat

primarilyservesdemandfromairport

relatedactivity.

• Interstate:Propertyclosetoamajor

highwaywiththeprimarysourceof

businessviapasserbytravel.Hotelslocated

nearamajorhighwayinasuburbanarea

havethesuburbanclassification.

• Resort:Propertyinaresortareaormarket

whereasignificantsourceofbusinessis

derivedfromleisure/destinationtravel.

• Small Metro/Town:Areawitheithera

smallerpopulationorremotelocations

withlimitedservices.Sizevariesbymarket

orientation.Suburbanlocationsdonotexist

inproximitytotheseareas.

Source:https://www.STR.com

https://www.STR.com

CONTACTS

TolearnmoreaboutCBREResearch,ortoaccessadditionalresearchreports,pleasevisitwww.cbre.com/research-and-reports.AdditionalU.S.ResearchfromCBREcanbefoundhere.

Jamie Lane SeniorManagingEconomistCBREHotelsResearch|CBREEconometricAdvisors+14048125045jamie.lane@cbre.comFollowJamieonTwitter:@Jamie_Lane

Tommy Crozier ExecutiveVicePresidentValuation&Advisory,Hotels&[email protected]

Mark Woodworth SeniorManagingDirectorCBREHotelsResearch|[email protected]

Will Webster ResearchAnalystCBREHotelsResearch+14048125151will.webster@cbre.com

Richard Barkham, Ph.D., MRICS GlobalChiefEconomist&HeadofAmericasResearch+16179125215richard.barkham@cbre.comFollowRichardonTwitter:@RichardJBarkham

Spencer G. Levy ChairmanofAmericasResearch&SeniorEconomicAdvisor+16179125236spencer.levy@cbre.comFollowSpenceronTwitter:@SpencerGLevy

FOR MORE INFORMATION PLEASE CONTACT:

FOR MORE INFORMATION REGARDING CBRE RESEARCH, PLEASE CONTACT:

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

http://www.cbre.com/research-and-reports

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short- term rentals · 2020-01-28 · 2018. los angeles, new york and orlando ... short-term...

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