When Brian Chesky predicted a permanent shift in travel, I don’t think anybody truly took him seriously. Sure, Airbnb was in a hole and he had to talk his own book, but just as many of us didn’t quite realize, 18 months on, that COVID's specter would still be haunting us, none of us quite realized the Belle Époque of hospitality might never come back.
The blockbuster Airbnb IPO was foretold in these pages, but recently Chesky has doubled down and talked about the future of travel that entailed far more nights booked, but in a very different form. Workcations, staycations and weekends that start on a Wednesday are the trend. And then on the other side, there is the mainstay of the city center hotelier – the business trip. From investor roadshows to "on-site" consultants - this is a world that is never coming back.
The realized and expected IPOs of Vacasa, HomeToGo and Sonder are well documented, but the fragmentation of this industry is astonishing. Vacasa has 30,000 homes under management. AirDNA counts 6,000,000 active listings around the world and 0.5% of the market for a mooted $4 billion valuation. Just for managing the properties - they don’t own anything.
Just let these stats sink in. Of course, Vacasa has slightly higher-end properties largely in wealthier countries ($350 average daily rate [ADR] vs. $150 ADR globally), so if we discount that accordingly, managing short-term rentals is a $350 billion industry.
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The top 50 property managers in the world control just 5% of total supply. The little guy manages the rest and owns 99% of the properties. If we rate the six million properties at an average value of $200,000, that is a knee-trembling $1.2 trillion of assets.
Short-term rentals are rapidly becoming an asset class that is attracting massive institutional money - ReAlpha just raised $1.5 billion to do just this. But it is a tiny drop in a massive ocean with so much room for everyone else to play.
The main driving force of this huge change to travel is the modern phenomenon of travel: the micro-hospitality firm. Small-time investors who are crowding in on the outsized returns the industry can offer compared to almost any other asset class.
Customers on AirDNA's website have gone parabolic lately (see chart below), and the growth speaks for itself.
The dam has broken on short-term rentals becoming an asset class with fantastic returns available to all.
As Airbnb and Vrbo are doing everything possible to bring on new supply, those investing can see a trinity of benefits: their own place to call home when they want to get away; terrific yields; and an appreciating asset that goes beyond house prices, and can be realized based on income rather than the intrinsic value of a home.
The other incredible trend we have seen is what is selling on these platforms. Gone are cookie-cutter apartments in tower blocks. The "unique stay" has gone wild. U.S. revenue for them is up 73% compared with 2019. Unique stays is a broad church, but the one we can never get over is glamping tents that cost possibly $5,000 like this one, which earned $80,000 in the last year. You don’t need to buy a five-bed beach house to help build out the supply.
The forces that Airbnb unleashed in 2008 when it launched have not eaten hotels like some feared at the time, it’s just that hotels are not suiting a flexible post-pandemic future.
And that makes the rise of short-term rentals inexorable.