Hotel owners have reason to worry about the continued growth of services such as AirBNB and VRBO. Short-term vacation rentals will remain popular in 2020, with the trend further expanding in suburban, rural and resort markets, according to a new report from CBRE.
And that could mean more competition for hotel operators this year.
CBRE predicts that the short-term rental industry will expand to about 650,000 actively rented units in the United States this year. That is equal to 12.2 percent of the U.S. hotel room supply, according to CBRE.
Short-term rentals typically are houses, condominium units and unoccupied apartments that are rented out for short vacation stays on platforms such as AirBNB or VRBO. These short-term rentals are direct competitors to hotels, and can have a significant impact on the strength of the hospitality market.
As CBRE says, when there is a high penetration of short-term rentals in a market, it limits the ability of hotels in that same market to raise their rates. That’s because more short-term rentals hit the market during periods of high demand and low vacancies, the same periods in which hotels usually boost their rates. This, of course, directly impacts a hotel’s profits. And, as CBRE says, a high concentration of short-term rentals can dissuade developers from building hotels in certain markets.
CBRE officials say that the growth of short-term rentals, then, is something that hotel operators need to watch closely.
“The industry used to essentially ignore the impact of short-term rentals when assessing a hotel’s value, but not anymore,” said Tommy Crozier, the executive vice president leading CBRE’s National Hotel Advisory Practice. “It’s clear that these rentals can have a direct and meaningful impact on hotel performance and asset values. The impact might be more pronounced in some submarkets than in others, contingent on conditions, but it is a legitimate impact nonetheless.”
According to CBRE, a market reaches its saturation point when its short-term rental supply equals 10 percent to 20 percent of its supply of hotel rooms. Of the 30 largest hotel markets in the United States, 14 have short-term rental ratios of 10 percent or more, CBRE said.
In the Midwest, Minneapolis is a good example of how popular short-term rentals have become. CBRE said that through 2019, Minneapolis saw its supply of short-term rentals grow to 2,320 out of 44,432 hotel-room units. That brings its short-term rental ratio to 5.2 percent, an increase of just less than 0.5 percent when compared to a year earlier.
Minneapolis’ short-term rental ratio is the 24th highest in the country, CBRE reported.
“While Minneapolis’ true short-term rental ranking is low compared to other larger cities, it did see positive growth with a small uptick in its supply unlike many of the markets currently ranked ahead,” said Mark VanStekelenburg, managing director of CBRE Hotels. “Its short-term rental penetration is quite low at 5.2 percent, offering substantial opportunity to expand its short-term rental market in the future.”