The hotel and short-term rental markets have converged: You can leverage data to bridge the gap

There are clear signs that the hospitality landscape has shifted. You now find yourself in a situation where potential guests are comparing both short-term rental accommodation and hotels before they book.

It’s a transformational change - you have an entirely new competitor, no matter which side of the coin you are on.

The accommodation landscape is taking a similar progression to that of modern day retail that you are all familiar with. How so? Well, let us explain.

Consider the difference that two generations, and the expansion of supermarkets and online shopping, has made to the simple task of buying food.

In the past, we knew exactly which shops to go to for the precise meals we’d planned, and we were limited in choice. Now, we can get whatever takes our fancy under one roof – or URL – and might come away with something completely different from what we planned.

And so it is in the hospitality sector. It’s not just that we use the internet to book the majority of rooms, (which has been with us for a couple of decades). It’s that, in recent years, Airbnb has become an almost equal counterweight in the minds of travelers when searching for accommodation. So much so, that online booking channels have started to display short-term rental properties alongside hotels.

Historical hospitality business models have had to evolve, as have the industries that support them. As the sector transitions through its greatest reckoning, and new trends in the hospitality industry begin to emerge, the convergence of short-term rentals and hotel accommodation looks set to stay.

This phenomenon raises some crucial questions:

• What does this blurring of lines between two traditionally separate types of accommodation mean for the hospitality sector?

• Why is it happening?

• And what sort of data, tech and methodologies can hoteliers and short-term rental property owners deploy to stay ahead of the game in this highly competitive space?

In this blog post, we address those questions.

Consumer choice and decision-making in hospitality: threats, opportunities and capitalizing on this trend

With this continuing trend which sees guests search and compare short-term rentals on the same websites and distribution channels as hotel rooms, they no longer need a clear idea of the exact shape of their accommodation. All they need is a broad set of parameters, and they let the internet guide them to an acceptable offering, whatever form it takes.

What factors lead a potential guest to choose a hotel or a short-term rental? And how are they now intertwined with one another? Below we’ve taken a look at some of the key ones

• Price - In the initial stages of the short-term rental industry, Airbnb properties were perceived as a more affordable alternative to traditional hotels. However, the landscape has since evolved, and the playing field for average daily rates (ADRs) has become more balanced. This is particularly evident when one factors in the additional booking and service fees typically associated with short-term rental listings.

• Guest experience - On occasion, guests may seek a distinctive stay that only an independent boutique hotel can offer, yet the complete experience is often best delivered by a short-term rental property. Conversely, guests might desire the comprehensive services that have become synonymous with hotels, such as room cleaning, room service, and access to spa and fitness facilities, all conveniently located under one roof.
  
  However, it's noteworthy that some property managers are now enriching their vacation rentals by incorporating more professional services and many hotels are expanding the experiences they offer. Thus, blurring the lines between traditional and alternative accommodations.

• Location: The availability of both hotels and short-term rentals fluctuates based on location, which can significantly influence a consumer's search behavior. For instance, in a city like Las Vegas, the search results are likely to be dominated by an extensive array of hotel options, with short-term rentals being less prevalent.
  
  In general, hotels might hold an advantage in urban areas, particularly in cities where regulations on short-term rentals have been implemented. In more rural or remote locations where the supply of hotels are limited, short-term rentals are likely to emerge as the preferred choice for potential guests, offering a unique blend of comfort and local experience.

• Accommodation size and length-of-stay: Short-term rental properties offer the unique advantage of booking an entire home, making them an ideal choice for large groups of travelers. Additionally, they cater well to specific traveler demographics, such as remote workers, who may need extended stays.
  
  Conversely, hotel rooms often serve as the perfect setting for shorter, more transient stays, such as a weekend getaway for couples or solo travelers.
  
  Recognizing these trends, hoteliers have started to diversify their offerings. They are now providing serviced apartment stays, which combine the comforts of home with the conveniences of a hotel. Additionally, they are incorporating co-working spaces into their facilities to accommodate the needs of digital nomads, thereby broadening their market reach.
  
  However, the demand for smaller one bedroom and studio rentals in towns and cities, is on the rise within the rental market. This trend suggests an increasing preference among travelers for more intimate and cost-effective accommodation alternatives, possibly driven by factors such as solo travel, budget constraints, or the desire for a more localized experience.

• Caliber of accommodation: Hotels are often perceived as more reputable and trustworthy compared to rentals, largely due to their global brand recognition and a reputation for upholding high standards of customer service.
  
  On the other hand, short-term rentals have historically been associated with considerable variations in the quality of accommodation. While some properties deliver on the standards they advertise on hosting sites, others may not.
  
  However, initiatives like Airbnb's Superhost and Guest Favorite badges have been instrumental in bridging this gap. These badges provide a measure of quality assurance, helping to build trust with prospective guests by highlighting properties that consistently receive high ratings for their service and accommodations.
  
  On top of this, short-term rental sites like Airbnb have a comprehensive guest review system which provides peace of mind for prospective renters.

Having become aware of this phenomenon, many revenue managers demanded that the rate shopping tools they use incorporate rates for short-term rental properties alongside those of the more obvious like-for-like rivals in their competitive set, and Lighthouse responded.

But it works both ways. Now that it’s so easy for consumers to view the whole picture before deciding which avenue to go down, hotels are as much a threat to short-term rental property owners as short-term rentals are to hotels.

Clearly, as a short-term rental property owner, you need to be keeping an eye on hotel prices as well. It’s become the same industry, with the same target demographics and customer buying habits.

The fight is on to win bookings from guests who have little in the way of brand loyalty and no fixed view on the type of accommodation they want.

Looking at the numbers behind this blurring of boundaries

But this is no less true for the hoteliers who are late to the party. Short-term rental demand is a reliable indicator of likely wider demand in the accommodation sector, the ADR gap across the board is closing, and the biggest single giant in the short-term rental sector is already second only to Marriott in the battle for market share.

But it’s a highly competitive and crowded space, as shown in this snapshot of the market in 2024:

• Short-term rentals are growing in numbers, with Airbnb having over 7.7 million active listings and an estimated 265 million users. At the end of 2023, short-term rental supply in key hotel markets was up 24% compared to 2022.

• Competing for the same guest: 45% of travelers compare short-term rental options and hotels when deciding where to book a stay.

• The industry is professionalizing rapidly: Airbnb continues to report record revenue growth and profits, and a large percentage of accommodations are managed by property management companies who take care of operational tasks and revenue management.

• Meanwhile, in H2 2023, short-term rental prices outpaced hotel rates in several regions, with much higher rates of average pricing growth in Africa (22% for STRs vs. 4%), Asia (33% vs. 7%) Europe (26% vs. 10%) and the Middle East (16% vs. -6%).

Why you need better data and technology for commercial decision-making

But before we review them, why the urgency, particularly for short-term rental?

Well, while the short-term rental market is by going from strength to strength, it’s not without its challenges.

Speaking to PhocusWire in April this year, Marcus Rader, CEO of Hostaway, said “We raised $175 million last year, but it seemed like suddenly there was no money or money was gone and nobody else was raising capital. There has been a change, speaking mostly on the technology side, where suddenly profitability is very sexy. It turns out that if you’re running a startup, it's incredibly hard to get profitable. We're very active in the [mergers and acquisitions] space. So there's not a lot of profitable, fast-growing, solid companies out there.”

Rader’s observations are seen through a startup lens, something that won’t directly apply to all readers. But the experiences of those getting into or seeking to expand in a particular industry can provide the best bellwether for the shape of the market and the challenges it faces.

Which is to say that, despite the buoyancy illustrated by the stats above, it’s not all plain sailing. There's still a great deal of uncertainty that short-term rental owners and property managers have to navigate.

So what’s the solution to these problems? As is so often the case, it boils down to strategy and the technology you’re using to support that.

Enhancing your revenue strategy with the right tools

A holistic commercial strategy needs to be based on actionable data sets that provide granular insights into the rapidly evolving accommodation landscape.

It’s clear that the pre-established foundations and assumptions that supported the hospitality industry no longer apply. In a highly competitive market, revenue and property managers need to be able to make smarter business decisions based on consumer options to optimize the revenue of their listing.

With data from both the hotel and vacation rental space, there is a greater opportunity for revenue managers to understand better the competitive landscape in which they are operating. Hospitality providers will be able to draw insights from a much bigger data pool, enabling them to decipher the demand patterns of the ‘post-pandemic traveler’, and benchmark themselves against their true compsets.

To cater to this methodology, enter Rate Insight, which helps you:

• Gain competitor pricing insights

• Identify local events to set rates

• Analyze rate evolution trends

• Spot parity issues

Seeing the entire picture means that you can make better commercial decisions (backed by data) and become more dynamic with your rate strategies.

Data-driven strategies are the only way to stay competitive. By having a real-time overview of the complete market, you will be able to maximize your profitability across your entire business.

With greater insights into your compsets, and the competitive landscape, you can capably benchmark your property, enabling you to make the right decisions, at the right time.

You can also optimize your distribution strategies, monitoring which of your offerings generates the most revenue, and on which channel. And, by measuring their performance, they can track where they are making gains, and where they can improve, and then respond with agility.

Addressing this way of thinking is where Lighthouse’s Short-Term Rental Data Solutions come into their own. With more than 19 million active short-term rentals tracked every day and data that looks up to 265 days into the future, it helps you:

• Accelerate your company growth

• Inform your strategic decisions

• Maximize your short-term rental revenue

• Invest and outperform competitors

Location-specific, segmented demand insights serving both hotel and short-term rental industries, mean that revenue managers will be better placed to capture demand in the pre-booking stage, from a much wider pool. You will be able to see booking trends, and stay patterns across the market and be able to optimize your strategies ahead of your competitors.

Empowered with supply visibility you will have a better understanding of your compset and distribution behavior, while rate comparison and demand insights will be able to uncover new opportunities to optimize your revenue, and grow your bottom line. In short, data adopters stand to make more.

This way of thinking is the domain of Destination Insight, which guides you in:

• Measuring and map short-term rental supply

• Comparing data across multiple destinations

• Tracking occupancy, ADR and revenue

• Analyzing traveler profiles

Taking a deeper dive

For a deeper dive into some of this convergence, and the trends and stats that both hoteliers and short-term rental owners should be familiar with, take a look at our ultimate guide to the short-term rental industry for hoteliers.

Ready to talk to an expert? Reach out to us for a demo that we will tailor to your business whether you’re a hotel revenue manager or a short-term rental property manager.