Short term rental owners are facing an economic calamity!
Occupancy rates are plummeting, costs are rising, and post pandemic revenge travel is over. Short-term rentals ruin neighborhoods! They negatively affect the community for residents and families and destroy the neighborhood’s sense of community.
The fast money investor rushed into the short-term rental craze during the pandemic. Now they are facing reduced cash flow and falling occupancy.
According to data from AirDNA, which tracks the statistical data from AirBnB, the average occupancy rate AirBNB listings from March 2023 to February 2024, was 55.1%. The average occupancy rate for all or 2023 was 55.4%. (1)
To put this in perspective, a property strictly for use as a short-term rental can take 12 years or more, just to recover the initial investment. Of the 10 best cities or areas for short term rentals worldwide, only 1 is in the US. That’s Fairbanks Alaska of all places! (2)
People thinking of short-term rentals as a quick path to riches, should think again. Look at it this way. If you operate a hotel, could you sustain the property as a viable business with barely over 50% occupancy? It’s not possible. The economics just don’t work!
According to the American Hotel and Logging Association, the average hotel occupancy rate in the US was 68.3% for 2023(3). The nightly rate for the room is only one of the revenue streams of a hotel or resort property. Food and beverage, amenities, and activities, as well as conventions and business meetings are critical revenue streams for a hotel.
An AirBnB can’t generate those ancillary revenue streams. Why do you think “hosts” are charging outrageous cleaning fees, access fees, booking fees and anything else they can get away with? Simple, to raise revenue. For a short-term rental “host” this is not a sustainable business model.
Maybe “hosts” are just playing the property appreciation game. They’re going to be in for rude awakening. When the “hosts” hit the exits en masse, valuations will fall as the rush to recoup investment becomes a stampede. Just wait! It will be great to see the “get rich quick” investor get taken to the cleaners when they hit the exits at the same time. It’s happened before. History tends to repeat itself.
Real estate has never been a liquid investment. When you sell a property, it takes time. Time is money. Also, there are significant costs involved. Taxes, real estate commissions, freshening up the property for sale, marketing costs and more, all must be taken into consideration.
So, I ask this question: Why would anyone on vacation want to stay in some ubiquitous residential location in a metro with little to no activity or points of interest nearby. Factor in the need for transportation, driving time, and cleaning just to name a few, and you can calculate costs in time and money above the rental cost. These added costs in money and time take away from the reason you go on vacation in the first place. Personally, I go on vacation to relax in a nice setting, see the sights, enjoy the local cuisine and local points of interest. I certainly don’t want to spend my last day cleaning up some house or apartment before going home. Convenience and service is high on my priority list while on vacation. My time is valuable.
Whether your neighborhood is affected or not, know that AirBnB and short-term rental investors don’t care. Short-term rentals sabotage the quality of life of full-time residents, create a nuisance to everyone who lives there and just destroy neighborhoods!
1: AirDNA 11/10/2024
2: AirDna 6/14/2024
3: AHLA’s 2023 State of the Hotel Industry