Short-term rentals took a considerable hit with the onslaught of the COVID-19 pandemic. Having strangers in their building wasn’t something operators or residents were willing to take on, especially earlier in the health crisis, which ultimately led to the closing of several flex-living businesses.
“Some owners and managers were burned by the short-term rental companies and are likely hesitant to dive back into it,” said Rick Haughey, vice president of industry technology initiatives at the National Multifamily Housing Council. “However, the pandemic highlighted business models that worked and others that didn’t, so any new attempt at post-pandemic short-term rentals will be informed by the experiences of the last year and will likely avoid some of the riskier partnerships and agreements they entered into prior to the pandemic.”
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Beyond the obstacles of last year, the flexible living sector is now showing strong rebounds in some areas of the country, with jobs and tourism coming back in pockets. According to AirDNA, new bookings for short-term rentals increased in January 2021 to their highest level on record, surpassing June 2020 by 22 percent.
Although short-term rentals hit a rough patch, the sector has the overall ingredients to perform positively throughout 2021. According to a report from Cushman & Wakefield, dubbed “Short-Term Rentals: The Next Evolving Asset Class,” incorporating flex living into a multifamily property reduces vacancy by diversifying its customer base to fill empty units, can boost NOI through multiyear leases with guaranteed market rents and can provide additional amenities to full-time residents.
Location is everything
The flex-living sector is now performing best in secondary and tertiary markets. Travelers are largely avoiding larger cities and international travel, sticking to beach towns, mountains and the countryside.
“We’ve seen fewer bookings but more night stays, which means travelers are spending more time and money during these stays,” said Eric Broughton, chief strategy officer at InhabitIQ, at NMHC’s OpTech conference last November. “There are more people working remote so why not do your work somewhere else?”
According to AirDNA, markets in coastal and mountain destinations generated 64 percent of all booking value in January, compared to just 52 percent from 2017 to 2020. “Being able to work from anywhere has drastically shifted how we think about travel and living,” added Jesse DePinto, co-founder & chief product officer at Frontdesk, who was also a panelist at the conference. “People are excited about the future of working from home in a post-COVID-19 and vaccine world.”
According to the Cushman & Wakefield report, business travelers made up 15 percent of Airbnb bookings, with the global business travel industry estimated to weigh more than $1 trillion prior to the pandemic. Over 700,000 companies had already utilized Airbnb for employee travel lodging as of 2019, the report states. Short-term platforms that can provide consistent, guaranteed accommodations with high proximity to downtown offices are the premier choice for business travelers. However, “one-third of short-term rentals used to cater to business travel and now that has quickly switched over to mostly leisure because people are no longer hopping on planes,” added DePinto.
Leasing strategies
Short-term rentals have had a positive impact in leasing-up communities. They provide an opportunity for potential residents to gain access to properties they might not have thought of before and do a test run.
“The revenue for short-term rentals is far bigger for owners than the traditional 12-month lease,” said Susan Tjarksen, managing director at Cushman & Wakefield. Offering flex-living spaces within a community provides the potential for lead awareness for future residents on a regular lease. “Some people will use these to see about neighborhoods they might be interested in but don’t have time to make the choice,” she added.
Serving residents that need, flexible-length stays can present an advantage to all parties—owners, residents and guests. “By widening their customer base, multifamily landlords can address longstanding pain points like vacancy and seasonality, thus mitigating risk and creating value in the real estate,” said Will Hu, senior vice president of acquisitions and development at WhyHotel. Meanwhile, guests can enjoy accommodations beyond what a hotel would offer, including larger rooms with kitchens and laundry machines, cleaning and laundry services, as well as receive a higher level of service than a traditional hotel stay might bring.
Key considerations
Before entering the short-term rental market, owners and operators need to do their research. Compliance with local rules and regulations is of utmost importance, and failure to do so can result in penalties, fines and ultimately not being able to utilize a property as a flex living space.
“Property owners need to determine if there are any restrictions against short-term rentals in their area, plan on how they will minimize any negative impacts to their neighbors, plan on having documented protocols as it relates to cleaning and safety and make sure to remit any taxes or other fees to the jurisdictions in an accurate and timely fashion,” said Pam Knudsen, senior director of compliance at Avalara.
“This is a complicated space with a wide variety of local regulatory challenges, as well as liability issues and risks with different business models. Do your due diligence,” Haughey added.
Renters will continue to turn to flexible living as travel begins to open back up. That said, to ensure success within this space, owners and operators need to make sure they provide a service that cannot be found elsewhere and that can be done by working with a third-party service.
It is better to partner with groups that are investing millions in resources than to try to stand up your own furnished rental program in a traditional fashion, Hu said. “The cost structure to acquire customers and the ability to manage large operating expenses for furnished inventory favor those with a diverse set of experiences and resources in this space,” he concluded.
Read the April 2021 issue of MHN.
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