STRs: The upside to a pending recession....

[Account Closed]

More and more I'm hearing that STRs are going to be the alternative to hotels as it looks like a recession may be eminent.  Curious to hear from the forum if you are seeing the same trends in terms of your bookings.  Especially if you are in a vacation destination where hotels/resorts tend to capture the marketshare of the vacation traveler, ie. Hawaii, Orlando?

https://finance.yahoo.com/news/summer-vacation-rentals-144442710.htm

[Dave Stokley]

Second post like this this week (at least), and I think people looking at STRs as the magic bullet need to be extremely careful. Recent data suggests that increased supply (ie more people offering STRs) has resulted in lower occupancy this year. Equilibrium in many markets is not far off. Moreover, the regulatory landscape is changing constantly and rapidly.

“Going to be an alternative to hotels”? They have been for some time. I seriously doubt that STRs are going to make hotels extinct. They still fulfill valuable and desirable needs for many people.  Heck I’m all-in on STRs and I still stay in hotels for a significant portion of my travel. 

[John Underwood]

I have a SC lake house and a Pigeon Forge Cabin. Both are doing very well with no slowdown. 

[Eric Hobbs]

@John Underwood

Do you recommend a Realtor in Pigeon Forge/Smokies area? I am looking around Sevierville, TN for a STR. Thanks!

[Harvey Deutsch]

Quote from @Eric Hobbs:

@John Underwood

Do you recommend a Realtor in Pigeon Forge/Smokies area? I am looking around Sevierville, TN for a STR. Thanks!

 Avery Carl https://theshorttermshop.com/

[Christian Ehlers]

Both Airbnb's and hotels have their places in the market, though I do agree that I've seen more people shift their travel towards Airbnb as bigger groups can often make travel much cheaper by renting bigger houses while having separate bedrooms, being able to cook is often a huge plus as well. 

From what I've seen more and more people are getting into AirBnb, especially in vacation destination markets because it's sometimes the only way to make a property cashflow. As far as equilibrium/oversaturation goes it will certainly happen in some markets, but my philosophy is so long as you are in the top 20% of hosts/properties in the area you should continue to do fine. Use dynamic pricing, proactively try to fill your empty dates, and keep the place clean!

I run a short term rental in Jacksonville Beach florida, and occupancy rates across the board have been slightly lower since inflation has hit so hard the past few months, but by staying proactive I've been booked almost all summer even with a 4 Bedroom property without having to drastically drop prices. 

[Alex Talcott]

I'm getting a few STRs going in my home state of New Hampshire.

And I'm eyeing San Antonio too.

[Bruce Woodruff]

I don't think it's so recession related.....people with a little money that like to travel (most Americans) are still going to travel whether the dollar gets tighter or not. Any slight slowdown in the travel market now, I expect will go away once people get used to the new reality and reapportion their disposable income....

[John Underwood]

Quote from @Eric Hobbs:

@John Underwood

Do you recommend a Realtor in Pigeon Forge/Smokies area? I am looking around Sevierville, TN for a STR. Thanks!

Yes I recommend you get a realtor to help you.

[Nathan Gesner]

Quote from @Account Closed:

More and more I'm hearing that STRs are going to be the alternative to hotels as it looks like a recession may be eminent.  Curious to hear from the forum if you are seeing the same trends in terms of your bookings.  Especially if you are in a vacation destination where hotels/resorts tend to capture the marketshare of the vacation traveler, ie. Hawaii, Orlando?

https://finance.yahoo.com/news/summer-vacation-rentals-144442710.htm

 Vacation rentals are primarily owned by mom-and-pop investors. Hotels are typically run by wealthier mom-and-pop investors or corporations. Who do you think is going to win this fight?

Short-term won't go away, but I can see regulations and fees making it more difficult to be successful. I also don't believe the success people saw in 2020 or 2021 will continue forever.

[Carlos Ptriawan]

Most hotel investments nowadays went south since covid times as the cost expense to income doesn't make sense. Operating hotels has their own problem also and much more difficult to operate than STR. It seems hotels (and perhaps offices too) will face the same challenge as the retail industry against Amazon.

With Gen Z/Millenial traveling, their obvious choice is STR.

[Jon Martin]

Quote from @Carlos Ptriawan:

Most hotel investments nowadays went south since covid times as the cost expense to income doesn't make sense. Operating hotels has their own problem also and much more difficult to operate than STR. It seems hotels (and perhaps offices too) will face the same challenge as the retail industry against Amazon.

With Gen Z/Millenial traveling, their obvious choice is STR.

Agreed. The hotel industry is built on cheap/poorly treated labor and uniformity, both of which are frowned on by younger generations. STRs have the ability to offer a more unique and customized experience that can provide amenities that would require a complete overhaul for hotels to offer (kitchens, private outdoor space, common space for large parties, etc). You are starting to see some corporate hotels update their decor, and some look very impressive, but at the end of the day it is still just a room with a bathroom with none of the other benefits that an STR can provide. 

IMO maintaining a 24/7 labor force will be a worsening challenge for hotels, especially once those maids realize that they can make far more money with their own STR cleaning business. 

[Steve K.]

@Twila Fortner the most recent Airdna report finds that occupancy rates are down from 70% last year to 60% average so far this year across the US: “Occupancy rates are falling as available listings start outpacing travel demand and bookings return to normal seasonality patterns.” It seems like the Covid effect is ending and new supply is outpacing new demand (on a macro/national level at least, individual markets will vary obviously). New available listings were up 25% YOY while new demand was up 18%.

[Dan Maciejewski]

Quote from @Nathan Gesner:

Quote from @Account Closed:

More and more I'm hearing that STRs are going to be the alternative to hotels as it looks like a recession may be eminent.  Curious to hear from the forum if you are seeing the same trends in terms of your bookings.  Especially if you are in a vacation destination where hotels/resorts tend to capture the marketshare of the vacation traveler, ie. Hawaii, Orlando?

https://finance.yahoo.com/news/summer-vacation-rentals-144442710.htm

 Vacation rentals are primarily owned by mom-and-pop investors. Hotels are typically run by wealthier mom-and-pop investors or corporations. Who do you think is going to win this fight?

Short-term won't go away, but I can see regulations and fees making it more difficult to be successful. I also don't believe the success people saw in 2020 or 2021 will continue forever.

 Wellllll . . Marriott is entering the STR / vacation rental space! They definitely see value and want to recapture that business that strayed away. And they are allowing you to use reward points to book! But you are definitely right. The cap rates / ROI will shrink and many places are regulating more and more as homeowners get all NIMBY even as they stay in STRs when they vacation. The past 2 years were a historical fluke that I don't think we'll ever see again. The travel to the states that were open driving ADR and occupancy and the lowest interest rates in history were huge drivers for people to buy and make money hand over fist.

I poll everyone I talk to and there is a decent mix of people that love resorts and hotels and people that will never stay in a hotel unless they can't help it.  I see both continuing to thrive in the future.  Like Uber and taxis!  Hotels are definitely not going away, though.

For the OP: I am in a Tier 2 destination/vacation market. Hotel and STR occupancy and rates have been off the charts, and will probably continue to remain high through the recession. When hotels were hit hard here, STR actually gained. We were the only market that maintained over 50% hotel occupancy through the worst of the paddleboat, though. Transient travel will generally keep occupancy rates in hotels and STRs linked to some extent.  Hotels nationwide aren't projecting a "full" recover until 2024.  That's mainly because business travel is still down.  

So, to answer your question, I would say that hotel vs STR will depend on the mix of your transient travelers. Is the market driven by business or tourist travelers, and how much of each. Business travelers tend to just book hotels and tourists look for value and location.

[Jon Martin]

Quote from @Dan Maciejewski:

Quote from @Nathan Gesner:

Quote from @Account Closed:

More and more I'm hearing that STRs are going to be the alternative to hotels as it looks like a recession may be eminent.  Curious to hear from the forum if you are seeing the same trends in terms of your bookings.  Especially if you are in a vacation destination where hotels/resorts tend to capture the marketshare of the vacation traveler, ie. Hawaii, Orlando?

https://finance.yahoo.com/news/summer-vacation-rentals-144442710.htm

Not a surprise . . . . Of course the hotel giants are going to hedge their bets with SFH rentals as well. Same reason why Coca Cola invests in bottled water, iced tea, fruit juice, etc. No matter which way the market swings they come up.

Overall I agree with your post- there will always be a contingent that likes the "Resort" or business hotel feel and it will always have a place. 

[Mike Dymski]

Quote from @Jon Martin:

Quote from @Carlos Ptriawan:

Most hotel investments nowadays went south since covid times as the cost expense to income doesn't make sense. Operating hotels has their own problem also and much more difficult to operate than STR. It seems hotels (and perhaps offices too) will face the same challenge as the retail industry against Amazon.

With Gen Z/Millenial traveling, their obvious choice is STR.

Agreed. The hotel industry is built on cheap/poorly treated labor and uniformity, both of which are frowned on by younger generations. STRs have the ability to offer a more unique and customized experience that can provide amenities that would require a complete overhaul for hotels to offer (kitchens, private outdoor space, common space for large parties, etc). You are starting to see some corporate hotels update their decor, and some look very impressive, but at the end of the day it is still just a room with a bathroom with none of the other benefits that an STR can provide. 

IMO maintaining a 24/7 labor force will be a worsening challenge for hotels, especially once those maids realize that they can make far more money with their own STR cleaning business. 

I am in the site selection phase of building hybrid apartment/hotel communities that tackle all the challenges mentioned here and avoids the zoning enforcement that is coming to residential neighborhoods across the country whether we like it or not.  Separate bedroom and living area, full kitchen, pool, gym, secure outdoor courtyard with grill station and fire pit, limited efficient staffing, automated room access, guest communication, and check in/out.  It's not a four bedroom house but it meets a big need in the market for short and medium terms stays for traveling workers, medical, military, construction, corporate, transitional housing, and vacationers.

[Bruce Woodruff]

@Mike Dymski Will you be able to keep the nightly rates close to an average STR? One of mine is in a popular downtown area, with 2 BR, 2BA, and I can run it at $139 night most of the yr, with increases during busy holiday times to $189. $60 cleaning fee, so pretty affordable I think. Can you invest the $$ you will have to and still keep your rates in that range?

Good luck with your project BTW!

[Mike Dymski]

Quote from @Bruce Woodruff:

@Mike Dymski Will you be able to keep the nightly rates close to an average STR? One of mine is in a popular downtown area, with 2 BR, 2BA, and I can run it at $139 night most of the yr, with increases during busy holiday times to $189. $60 cleaning fee, so pretty affordable I think. Can you invest the $$ you will have to and still keep your rates in that range?

Good luck with your project BTW!

$2,700+ per month net effective rent with a $150k all-in cost per unit to build for 75+ units...very similar to hospitality but a much lower operating cost structure due to automation and average length of stay.  Thanks for the kind words.  Now, I need to put my money where my mouth is and execute.  FYI...I'm building in your market PHX.  There is a great site in Avondale near Gateway Pavilions and the intersection I-10 and 101 but I can't get the city of Avondale to approve an extended stay property.  There will be other sites...meeting with the land broker next Wednesday. 

[Eric Bilderback]

If I had to guess I think STRs would be more effected during a recession then LTRs.  STRs will be harmed when the stimy money dries up and consumers balance sheets normalizes.  

[Bruce Woodruff]

Quote from @Mike Dymski:

Quote from @Bruce Woodruff:

@Mike Dymski Will you be able to keep the nightly rates close to an average STR? One of mine is in a popular downtown area, with 2 BR, 2BA, and I can run it at $139 night most of the yr, with increases during busy holiday times to $189. $60 cleaning fee, so pretty affordable I think. Can you invest the $$ you will have to and still keep your rates in that range?

Good luck with your project BTW!

$2,700+ per month net effective rent with a $150k all-in cost per unit to build for 75+ units...very similar to hospitality but a much lower operating cost structure due to automation and average length of stay.  Thanks for the kind words.  Now, I need to put my money where my mouth is and execute.  FYI...I'm building in your market PHX.  There is a great site in Avondale near Gateway Pavilions and the intersection I-10 and 101 but I can't get the city of Avondale to approve an extended stay property.  There will be other sites...meeting with the land broker next Wednesday. 

 Phx is full of opportunity. By following you on the forum, I'm guessing you will do fine :-)

[Bruce Woodruff]

Quote from @Eric Bilderback:

If I had to guess I think STRs would be more effected during a recession then LTRs.  STRs will be harmed when the stimy money dries up and consumers balance sheets normalizes.  

I think you're probably right about STRs being more affected than LTRs...however in my experience, most STR travelers have much higher disposable income than your typical LTR folks. So I wonder if the economic changes will really hurt them much? Plus people need to get away and relax more when times are bad, that's why alcohol sales always go way up during tough times.....

[Nancy Bachety]

Quote from @John Underwood:

I have a SC lake house and a Pigeon Forge Cabin. Both are doing very well with no slowdown. 

 Congratulations @John Underwood! Glad you made it happen in PF.

[John Underwood]

Quote from @Nancy Bachety:

Quote from @John Underwood:

I have a SC lake house and a Pigeon Forge Cabin. Both are doing very well with no slowdown. 

Thanks!

 Congratulations @John Underwood! Glad you made it happen in PF.

[Jon Martin]

@Mike Dymski Sounds like an awesome project!

[Matt Splittgerber]

What’s everyone’s opinion on, in a recessionary environment, would buying one nice luxury unit be better or worse than two mid market units? 

[Rodney Sums]

 @Dan MaciejewskiWellllll . . Marriott is entering the STR / vacation rental space!  They definitely see value and want to recapture that business that strayed away. And they are allowing you to use reward points to book!  But you are definitely right.  T

 That's Ironic.  I commented in another thread how interesting it would be if hotels decided to compete by buying homes, MFs or even neighborhoods.  Imagine competing with a house having the Mariott logo on it.