Trend 5: Extended stay and short-term rental (STR) sector powers ahead despite regulatory challenges

The STR sector is thriving despite some regulatory challenges. This growth is due to the increasing demand for short-term rentals as well as the popularity of vacation rentals. The combination of business and leisure activities, as well as longer stays in general, have helped this sector significantly.

Hostaway reports that many travellers – business travellers, digital nomads and families – choose longer stays. The average number of nights per booking has increased on Airbnb to over 4 nights in 2021, and bookings of 28 days or longer are capturing overall market share. On VRBO, stays between 21 and 30 days have increased by 68%, with families in particular staying longer in holiday accommodation. 59% say they’re more likely to take a two-week holiday, while 30% are more likely to take a sabbatical.

However, the sector also faces many challenges, including high fees and limited availability. STR has a competitive market with a growing number of players, including hotels and other rental companies, with the number of properties increasing by around 4% each year. The sector faces regulatory challenges that can make it difficult for developers to obtain funding.

Another area is the direct comparison of STR with hotels. According to a 2019 survey commissioned by Airbnb, “functionality” (like a working coffee machine) was more important to most travellers than “thoughtfulness” (like a handwritten welcome sign). But it’s precisely when it comes to functionality that holiday accommodations lose out compared to hotels.

The extended stay hotel market is estimated at USD 48.60 billion in 2022 and is expected to reach USD 132.40 billion by 2032, at a CAGR of 19.60% between 2022 and 2032.

No wonder there is still a flurry of activity still happening in STR and the extended stay hotel sector.

Buoy does pricing for STR and Beyond does something similar. Placemakr aims to become one of the largest owners of mixed-use apartment and hotel assets in the US and has raised a total of $127.1 million in funding. Lodgify, which offers a PMS, website builder, channel manager, booking engine and payment service, recently raised $30m. Sonder is probably the best-known company in this space, having raised nearly $840m.

The growth of the sector continues in 2023. French luxury holiday rental brand Le Collectionist has raised €60 million in a growth funding round to accelerate the company’s expansion through acquisitions. Global corporate accommodation platform AltoVita has announced that it has secured $9.5 million. Wander, which was founded in 2021 with the aim of creating the travel experience of the future, reflecting new consumer behaviours where people increasingly combine travel, family time, work and leisure, has announced that it has secured a $100m credit facility from Credit Suisse to accelerate the growth of its portfolio in the US.

But don’t expect it to be plain sailing either – Sonder had to go through a painful period in which 21 per cent of its head office staff and 7 per cent of its frontline staff were made redundant as part of a restructuring to boost cash flow.

For a more comprehensive analysis on STR performance, read more here.

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Tags: Distribution Trends 2023

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