Post on 10-Jul-2020
CBRE RESEARCH
SHORT-TERM RENTALSA Maturing U.S. Market & Its Impact on Traditional Hotels
2 © 2020 CBRE, Inc.
EXECUTIVE SUMMARY
• Thesupplypenetrationrateofshort-term
rental(STR)unitstotraditionalhotelunits
reached10.4%in2019andisexpectedtohit
12.2%thisyearwiththeadditionofmore
than100,000netnewunits.
• STRsupplygrewby26%in2019,down
from39%in2018andaftersevenyearsof
exponentialgrowth(100%to500%)since
2009.Growthratesareexpectedtoslow
furtherto19%in2020.
• RecentgrowthforSTRshasbeenprimarily
insuburbanandruralareas.Unitsinurban
areasmakeuponly21%oftotalsupply,
downfrommorethan45%in2014.
• LosAngelesremainedthelargestSTRsupply
marketin2019afterovertakingNewYorkin
2018.LosAngeles,NewYorkandOrlando
togetheraccountedforabout12%oftotal
STRsupplyintheU.S.lastyear.
• Guestsconsistentlycitepriceandlocation
astheirtopreasonsforchoosingalternative
accommodations.
• Brandedapartment/hotelmodelssuchas
Sonder,StayAlfred,LyricandDomiodepend
onthepricingarbitragebetweenmonthly
apartmentrentandnightlySTRrates.
Manycompanieshaveenteredthemarket,
primarilyinU.S.urbanareas.
• Giventheundeniablechangeunderwayin
thelodgingsector,historicalhotelvaluation
underwritingpracticeswillnolongersuffice.
Areasonableunderstandingoftheshort-
termrentalmarketisrequiredforproperly
valuinghotels.
A MATURING MARKET | CBRE Research 3
4 © 2020 CBRE, Inc.
Therenolongerisanyquestionthatthe
sharingeconomy—andtheshort-termrental
marketspecifically—isheretostay.Once
dismissedasarelativelyinconsequentialniche
productandadistantcousintotraditional
hotels,STRshavebecomeawidelyaccepted,
mainstreamformofnightlyaccommodation.
STRstotalmorethan10%ofthesizeof
thetraditionalU.S.hotelroomsupplyand,
accordingtoSkiftTravel,havebecomean
estimated$115billionindustryasof2019.
Thisalternativelodgingmarkethasevolved
fromcateringtotheadventurous,millennial
leisuretravelertotargetingcorehotelguests
likethebusinesstraveler,alaAirbnbPlus.
Giventheundeniablechangeunderwayin
thelodgingsector,historicalhotelvaluation
underwritingpracticeswillnolongersuffice.
Areasonableunderstandingoftheshort-
termrentalmarketisrequiredforproperly
valuinghotels.
Intermsofsizeandproductofferings,STRs
nowdemandtheattentionofhotelowners,
operatorsandindustryprofessionalsalike.
Professionaloperators,buoyedbyhundreds
ofmillionsofdollarsinprivateequity
investment,havetakenanarguablyinferior
productandhelpedtransformSTRsintoa
mainstreamalternativeforthoseseeking
temporaryaccommodations.
Increasingly,venturecapitalistsand
traditionalrealestateinvestorsarefueling
theSTRmarketeitherthroughproperties,
brands,managementcompaniesorvendors
thatprovideservicestothegrowingnumber
ofSTRoperators.
Asthehotelindustrycontinuestoenjoyhigh
occupancylevels,thescarcityofavailable
traditionalhotelroomsduringpeakperiods
causestravelerstolookforalternativeoptions
likeSTRs.Inadditiontoavailability,guests
aresearchingforaffordability,locationand
localexperiences.
AsSTRsnowcompetedirectlywithhotels,the
platformsusedtobookthemhaveevolved
aswell.Airbnb,Booking.comandExpedia
(HomeAway/VRBO)remainthelargest
distributionplatformsandmanyproperty
managerslisttheirunitsacrossmultiplesites.
ThisreportdetailsthecurrentsizeoftheSTR
marketintheU.S.,howandwherethesectoris
growing,andhowindustryparticipantsshould
viewthismaturingsectorwhenanalyzingthe
performanceofexistingandnewhotels.
INTRODUCTION
A MATURING MARKET | CBRE Research 5
6 © 2020 CBRE, Inc.
SHORT-TERM RENTAL GROWTH IN THE U.S.
DeterminingthetotalsupplyofSTRunitsis
difficult,butthemostwidelyavailableand
reportedestimateisthetotalnumberofunits
listedoneachplatform.Thereweremore
than1.5millionSTRunitsonvariouslisting
platformsin2019—atleastseventimesthe
amountin2014.However,notalltheseunits
wereactiveoravailableforbookingyear-round.
A MATURING MARKET | CBRE Research 7
FIGURE 1TOTAL UNITS & ACTIVE/AVAILABLE AVERAGE DAILY SUPPLY OF SHORT-TERM RENTALS
Source: AirDNA, CBRE Hotels Research, Q4 2019. Note: Data from 2014 to 2019 provided by AirDNA, forecasts generated by CBRE.
1,800,000
1,000,000
1,400,000
600,000
1,600,000
800,000
1,200,000
400,000
0
200,000
2014 2015 20182016 2019E2017 2020F
Total Units Active/Available Average Daily Supply ForecastUnits
8 © 2020 CBRE, Inc.
Thepenetrationrateofshort-termunitsto
traditionalhotelunitsreached10.4%in2019.
Forcontext,CBREestimatesU.S.flexoffice
space(i.e.,WeWork,Regus,Spaces)hasa
penetrationrateofonly2.0%.
DespitetheimpressivegrowthofSTRsover
thepastdecade,thedaysoftotalSTRunits
doublingeveryyeararelonggone.Thatdoesn’t
meanthenumberofunitsaddedperyearhas
slowed;2018wasarecordyearfortheabsolute
numberofunitsenteringthemarket.
DataproviderAirDNAreportsthattherewere,
onaverage,approximately123,000moreunits
intheU.S.in2018,upfromroughly114,000
addedinboth2017and2016.In2019,unit
growthslowedto115,000andisexpectedto
slowfurtherin2020.
Despitetheslowergrowthrate,newunitshave
averagedover100,000peryearsince2016,with
2020markingthefifthconsecutiveyearthat
thisthresholdhasbeenmet.BasedonCBRE’s
projections,thepenetrationrateofSTRsto
hotelsupplywillriseto12.2%in2020.
A MATURING MARKET | CBRE Research 9
FIGURE 2SHORT-TERM RENTAL ACTIVE/AVAILABLE AVERAGE DAILY SUPPLY GROWTH
Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.Note: Data from 2014 to 2019 provided by AirDNA, forecasts generated by CBRE.
700,000
12
300,000
4
500,000
8
100,000
600,000
10
200,000
2
400,000
6
0 0
0.7%
2015 20182016 201920172014 2020
Existing Supply (L) New Supply (L) Supply Penetration (R)
Units (%)
1.8%
4.1%
6.2%
8.4%
10.4%
12.2%
10 © 2020 CBRE, Inc.
FIGURE 3SHARE OF SHORT-TERM RENTAL SUPPLY BY LOCATION TYPE
Source: AirDNA, CBRE Hotels Research, Q4 2019.
50
10
30
40
0
20
2015 20182016 201920172014
Urban Suburban/Airport Resort Small Metro/InterstateShare of Total Supply (%)
FIGURE 4SHORT-TERM RENTAL PENETRATION BY LOCATION TYPE
Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.
20
4
12
16
0
8
2015 20182016 201920172014
Urban Suburban/Airport Resort Small Metro/InterstateSupply Penetration (%)
A MATURING MARKET | CBRE Research 11
WithabiggerbaseofSTRunits,year-over-
yearpercentagegrowthratesforSTRsupply
intheU.S.willcontinuetodecline.STRunit
supplygrewby26%in2019,downfrom
39%in2018andaftersevenpreviousyears
ofexponentialgrowth(100%to500%)since
2009.Growthratesareexpectedtoslow
furtherin2020to19%.
RecentgrowthofSTRshasprimarilyoccurred
insuburbanandruralareas.Unitsinurban
areasdroppedto21%oftotalSTRsupply
in2019from46%in2014.Asof2019,57%
ofunitswerelocatedoutsideoflargecities
(urbanandsuburban/airportlocations).
Mostofthechangeinshareresultedfrom
largeincreasesinresortandrurallocations
thatprimarilyservedestination-vacation
travel.Unitsforrentalongthebeach,atlakes
andatski/mountainresortsaccountfor42%
ofunitsoutsideofurbanareas.
SlowingSTRsupplygrowthcanbeattributed
tomanyareasreachingmarketsaturationand
othersseeingincreasedregulation.
Thegrowthstoryoutsideofthemetroareas
isalsosupportedbythehighergrowthrates
inhomerentalscomparedwithapartment,
condoorloftrentals.Withtheincreased
growthoutsideofcities,thepenetrationrate
ofSTRunitstohotelroomshasincreasedthe
mostinthoseareasaswell.
In2019,supplyofunitsinurbanlocations
grewby17%,wellbelowthe30%+growthrates
forallotherlocationtypes.Hotelsupplyis
growingby3%intheseurbanareasonayear-
over-yearbasiscomparedwith2%nationwide.
Lookingatjustthetop30traditionallodging
markets,thesetrendsholdaswell.In2019,
40%ofSTRunitsinthosemarketswerein
urbanareas,downfrom60%in2014.All
otherlocationareashavegainedshareduring
thisperiod.
12 © 2020 CBRE, Inc.
A REVIEW OF STR PROPERTY TYPES
Note: The balance of this report will focus on
an analysis of the top 30 U.S. hotel markets to
isolate the trends impacting areas where most of
the hotel investment takes place.
Housesandapartment/condo/loftunitsmake
upabout96%ofallthepropertiesavailablefor
rentintheU.S.onSTRdistributionchannels.
Theother4%includesuniqueunits(like
lighthouses,boatsandtents),B&Bs,hotels
andhostels.Thesenationalpercentageshave
stayedrelativelyconsistentovertime.Butin
thetop30markets,thenumbershavevaried.
Whileapartment/condo/loftscomprised
morethan60%ofrentalunitsinthesetop
30marketsin2014,theynowmakeuponly
42%.Housesinthetop30havegrownata
significantlyhigherrateandnowaccountfor
about54%ofthetotal.
It’sclearthathome/apartmentunits
dominatethesupplyofavailableunits,
accountingforabouttwo-thirdsofthetotal.
Sharedspaces(privateandsharedrooms)
representonlyabout30%ofsupplyinthetop
30hotelmarkets.
13A MATURING MARKET | CBRE Research
14 © 2020 CBRE, Inc.
STR PROPERTY TYPES
House
ThelargestpropertytypeavailableforSTRbookingintheU.S.Thisincludes
single-familyhomes,townhouses,vacationhomes,cabinsandvillas.
Other
Uniqueunitsincludingboats,lighthouses,planes,tents,treehousesandyurts.
Apartment/Condo/Loft
ThesecondlargestgroupintheU.S.Thisgroupprimarilyincludesmultifamily
properties.
Bed & Breakfast
Traditionalbed&breakfastlistings.
Hotel/Hostel
Hotels,resorts,boutiquehotels,naturelodgesandhostels.Anyanalysisofthese
unitscanbeskewedsinceasinglelistingcanrepresentmultipleunitsavailable
forbooking.
Note: For the analysis and statistics in this report, all bed & breakfast, hotel, and hostel
units are removed.
A MATURING MARKET | CBRE Research 15
Thereisastrongcorrelationbetweenthe
highprevalenceofprivate-roomdemandand
marketswithelevatedhotelaveragedailyrates
(ADRs).Thissupportsthenotionthatpriceisa
significantfactorforguestswhenchoosingto
stayinanSTRunit.Inhigh-ADRmarketslike
NewYork,SanFranciscoandBoston,private
roomsrepresentbetween40%and50%of
totaldemandforSTRunits.Anotherfactor
mayberegulation,asthesemarketsgrew
quicklyattheonsetoftheSTRtrendandhave
sinceseenstringentregulationonhomeand
apartmentrentalsforlessthan30dayswhen
theownerisnotpresent.
FIGURE 52019 PERCENT OF SHORT-TERM RENTAL SUPPLY BY PROPERTY & LISTING TYPE
Source: AirDNA, CBRE Hotels Research, Q4 2019.
Property Type House Apt./Condo/Loft Other Listing Type Total
Entire Home/Apartment 34.4% 32.2% 1.3% 67.9%
Private Room 19.1% 8.9% 0.2% 28.3%
Shared Room 1.0% 0.6% 0.0% 1.6%
Hotel/Hostel - - 1.6% 1.6%
Bed & Breakfast - - 0.5% 0.5%
Property Type Total 54.5% 41.8% 3.7% 100.0%
16 © 2020 CBRE, Inc.
MARKET LEVEL FINDINGS
ThemostpenetratedmarketsforSTRsareLos
AngelesandMiami,with22.3%and19.2%of
theirhotelroomcount,respectively,allocated
toSTRs—roughlydoublethenationalaverage
of10.4%—duetotheirbeinghigh-occupancy,
high-ADRmarketsthatcatertoalargevolume
ofleisuretravelers.
OncethevolumeofSTRunitsreaches
approximately10%ofthetotalhotelsupplyin
urban/suburbanmarkets,growthratesstartto
slowsignificantly(Figure6).Onlythoseurban/
suburbanmarketswithalargedestination/
resortdemandorientationlikelyhavethe
potentialtoreachanSTRpenetrationrateof
15%ormore.Theseexamplesshowthat15%
to20%penetrationratesmaybetheceiling
inlargeurbanandsuburbanmarkets,while
marketswitharesortcomponentmaybeable
toreachasmuchas25%penetration.
ManymarketshadflattodecliningSTR
penetrationratesin2019.Onaverage,the
30largestlodgingmarketsincreasedtheir
penetrationby1.6%comparedwitha2.0%
nationalaverage.
Fivemarketshadpenetrationincreasesofless
than0.5%(NewYork,Minneapolis,Seattle,
DenverandBoston),whileNewYorkhada
decreaseforthefirsttimewithacombination
ofslowgainsinunits(1.9%)andaverystrong
supplyincreasefortraditionalhotels(3.7%).
A MATURING MARKET | CBRE Research 17
18 © 2020 CBRE, Inc.
A MATURING MARKET | CBRE Research 19
FIGURE 62019 SHORT-TERM RENTAL UNIT PENETRATION TO HOTEL SUPPLY IN 30 LARGEST HOTEL MARKETS
Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.
Los Angeles, CA
Atlanta, GA
22.3%
19.2%
Orlando, FL
Norfolk/Virginia Beach, VA
Tampa, FL
Minneapolis, MN
Austin, TX
Anaheim, CA
Seattle, WA
Baltimore, MD
Nashville, TN
Houston, TX
Phoenix, AZ
Fort Worth, TX
Miami, FL
Philadelphia, PA
San Diego, CA
San Antonio, TX
San Jose/Santa Cruz, CA
Charlotte, NC
San Francisco, CA
St. Louis, MO
New York, NY
Washington, D.C.
New Orleans, LA
Chicago, IL
Boston, MA
Dallas, TX
Denver, CO
Detroit, MI
18.0%
16.8%
16.2%
15.9%
14.9%
14.2%
13.8%
13.7%
13.2%
12.7%
12.4%
10.4%
9.8%
9.6%
8.8%
8.1%
7.5%
6.3%
6.3%
6.0%
5.3%
5.2%
5.0%
4.8%
4.4%
3.8%
3.7%
3.1%
20 © 2020 CBRE, Inc.
MARKETS WITH THE GREATEST SUPPLY OF SHORT-TERM RENTALS
LosAngelesremainedthelargestmarketfor
STRsupplyin2019afterovertakingNewYork
in2018.LosAngeles,NewYorkandOrlando
togetheraccountedforabout12%oftotalSTR
supplyintheU.S.lastyear.
TheexpansioninSTRsupplyfromSuperBowl
LIIIpropelledAtlantatothefastestgrowing
marketin2019withanannualizedgrowthrate
of68%.TotalunitsinAtlantaincreasedby
113%duringthemonthoftheevent.
In2014,the10largestmarketsforSTRsinthe
U.S.were,inorder,NewYork,LosAngeles,San
Francisco,Miami,Washington,D.C.,Chicago,
SanDiego,Austin,Boston,Seattleand
Portland.These10citiesrepresentedabout
55%ofSTRsupplyintheU.S.
Sincethen,mostofthegrowthhasbeen
outsideofthesemajormarkets.Today,those
sametop10MSAsmakeuponlyabout25%of
totalsupplyintheU.S.,adeclineof30%.New
regulationshavecurtailedgrowthinmanyof
thelargestMSAs.
Leisure/destination/resortareashave
dominatedthelistoffastestgrowingmarkets
overthepastfiveyears,whichconfirmsthat
theseplatformsarebeingusedmorebyowners
andpropertymanagersforvacationrentals.
Whiletheseunitsarenewtotheplatforms
trackedbyAirDNA,theymaynotbenewSTR
competition,havingbeenrentedinotherways
bytheirhostsorpropertymanagers.
TheavailabilityofSTRsallowsmarketsto
capturemoreovernightguestdemandthan
everbefore.Forexample,byaddingtheaverage
nightlydemandforSTRsinNewYorkCityto
itsaveragenightlyhoteldemandduringpeak
monthsandthencalculatingoccupancyusing
onlythecity’savailablehotelsupplyresultsin
anoccupancyrateof104%—wellabovewhat
traditionalhotelsalonecanaccommodate.
A MATURING MARKET | CBRE Research 21
FIGURE 7LARGEST SHORT-TERM RENTAL MARKETS, 2018 & 2019 SUPPLY & YEAR-OVER-YEAR CHANGE
Source: AirDNA, CBRE Hotels Research, Q4 2019.
Los Angeles, CA 9.0%
0 5,000 10,000 15,000 20,000 25,000
San Diego, CA
Austin, TX
Orlando, FL
Washington, D.C.
Phoenix, AZ
Chicago, IL
New York, NY
Atlanta, GA
Seattle, WA
San Francisco, CA
Miami, FL
Boston, MA
Tampa/St. Petersburg, FL
Nashville, TN
As of 2018 As of 2019 Year-over-Year Change (%)Units
1.8%
31.2%
22.9%
18.6%
68.1%
13.1%
7.5%
17.4%
7.6%
44.4%
36.0%
14.2%
14.9%
26.6%
22 © 2020 CBRE, Inc.
WHY GUESTS CHOOSE SHORT-TERM RENTALS
Manyfactorsmotivateconsumerstochoose
STRaccommodations,includinglocal
interaction,home-likeamenities,more
spaceand/oranunusualexperience.Price
andlocation,however,remaintheprimary
motivators.
Accordingtoanannualsurveyoftravelers
byMorganStanley,morethanhalfsaidthat
priceisthemostimportantfactorforSTR
use.Indeed,STRscanprovideaffordable
optionstotouristsvisitingcitiesinwhich
hotelsaredisproportionatelyhigh-priced.
Moreover,thetypicalhomeorapartment
unitoffersuniquealternativebenefits(e.g.,
kitchenandlaundryfacilities)andmore
A MATURING MARKET | CBRE Research 23
local,authenticdestinationexperiencesand
intimatesocialinteraction.
Figure8showstheaverageroomrate
differencebetweenhotelsandSTRs.To
determinearelativelycomparablerate,CBRE
filteredtheSTRunitstojustonebedroom
orstudiounitsinapartment,condoor
loftbuildings.Onaverage,STRsoffereda
discountofabout5%acrossthe30markets
studied,whileinthemoreurbanU.S.cities
thediscountwasashighas20%to30%.
24 © 2020 CBRE, Inc.
FIGURE 82019 HOTEL & SHORT-TERM RENTAL ADR COMPARISON BY MARKET WITH PREMIUM/DISCOUNT
Norfolk/V
irginia
Beach
, VA
Houston
, TX
Detroit
, MI
Grand
Total
Fort W
orth, TX
New Orleans,
LA
Dallas,
TX
San Die
go, CA
Nashville
, TN
Tampa,
FL
Charlot
te, NC
Minneap
olis, M
N
Atlanta
, GA
Austin,
TX
San An
tonio,
TX
Anahei
m, CA
$0
$100
$200
$50
$150
$250
$300
2019 Average Daily Rate (ADR)
- 6.5%-5.7%-4.5%
-4.0%
-3.7%-2.1%
1.9%0.1%
2.4%4.8%
12.8%
16.6%18.0%
24.4%
-5.3%
A MATURING MARKET | CBRE Research 25
FIGURE 82019 HOTEL & SHORT-TERM RENTAL ADR COMPARISON BY MARKET WITH PREMIUM/DISCOUNT
Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.
Boston
, MA
San Jos
e/Sant
a Cruz,
CA
Denver,
CO
Los An
geles,
CA
Seattle
, WA
Washing
ton, D.
C.
Orlando,
FL
San Die
go, CA
New York, N
Y
Philad
elphia
, PA
Chicag
o, IL
Phoeni
x, AZ
San Fra
ncisco,
CA
Baltim
ore, M
D
Miami, F
L
St. Lou
is, MO
Anahei
m, CA
-40
0
-20
20
40
1 Bedroom, Entire Apartment/Condo/Loft Unit (L) Hotel (L) Discount/Premium (R)
(%)
-32.6%
-25.3%-25.1%
-19.5%-19.3%-16.8%
-15.0%-12.9%-12.8%-12.7%-12.4%
-10.6%-8.0%
- 6.5%
-12.7%-14.9%
-13.9%
26 © 2020 CBRE, Inc.
LOCATION
Afterprice,locationgenerallyisthemost
likelyreasontravelerschooseSTRs.One-
thirdofMorganStanleysurveyrespondents
saidthatlocationwasthebiggestreasonfor
choosinganSTRunit.
ACBREanalysisofhotelandSTRunit
locationdatashowsthatmorethan35%
ofSTRpropertiesarelocatedmorethana
milefromtheclosesthotel(Figure9).That
increasesto57%forrurallocations(small
town/metro&interstate).
Combinedwithrecord-highhoteloccupancy
levels,itisunderstandablewhySTRshaveseen
suchstrongadoptionoverthepastfewyears.
A MATURING MARKET | CBRE Research 27
17.8%
11.5%
3.8%1.5%
0-1 Miles 2-5 Miles1-2 Miles 5-10 Miles 10+ Miles
FIGURE 9 PERCENT OF SHORT-TERM RENTAL PROPERTIES LOCATED MORE THAN 1, 2, 5 & 10 MILES FROM CLOSEST HOTEL
65.4%
Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.
28 © 2020 CBRE, Inc.
IS ADR GROWTH OVER?
InmostmarketswithhighSTRsupply
growth,ADRincreaseshavebeenbelow
inflationarylevelsand/orrecenthistorical
trends.Thisislogicalgiventheelasticityof
STRsupply,whichcanbedeliveredduring
timesofdemandspikeslikepeakseasons,
fillnightsorduringmajoreventsandthen
removedafterward.This,inturn,limitsthe
pricingpowerthattraditionalhoteloperators
havehistoricallyreliedontooptimizerates
duringthesehigh-compressionperiods.
TheU.S.traditionalhotelindustryhasnot
experiencedrealADRgrowth(inflation-
adjusted)since2016(Figure10).RealADRs
reachedtheirpre-recessionpeakin2015.
Despiterecordhoteloccupancylevels
sincethen,theinfluxofSTRunitsandan
expandingsupplyoftraditionalhotelrooms
hascurtailedhotelmanagers’abilityto
furtherraiseADRs.
A MATURING MARKET | CBRE Research 29
30 © 2020 CBRE, Inc.
FIGURE 10REAL ADR CHANGE FOR HOTELS
-12
-10
-8
-6
2
0
-4
4
-2
6
8
Y-o-Y Change (%)
2000 200820042002 201020062001 200920052003 2007
A MATURING MARKET | CBRE Research 31
FIGURE 10REAL ADR CHANGE FOR HOTELS
Source: STR, CBRE Hotels Research, Q4 2019.
52
60
56
54
66
62
58
68
64
Real ADR (L) Occupancy - 4 Quarter Moving Average (R) Forecast
Occupancy (%)
2012 20172010 2014 2019E2013 20182011 20162015 2020F
32 © 2020 CBRE, Inc.
A MATURING MARKET | CBRE Research 33
Historyclearlyrevealsthatwhenconditions
(drivenbystrongrealADRgrowth)makenew
developmentattractiveagain,newsupplywill
comeintothemarket.Inthecurrentcycle,
however,withtheevolutionofthesharing
economy,additionalcapacityhascometo
marketmuchmorequickly(andefficiently)
thaninpreviouslodgingcycles.
FIGURE 11AVERAGE MONTHLY NEW UNIT GROWTH FOR HOTEL ROOMS & SHORT-TERM RENTAL UNITS
Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.
25,000
5,000
15,000
20,000
0
10,000
2019200919991989 201420041994
Hotel Rooms Short-Term Rental Units Hotel Rooms & Short-Term Rental UnitsSTR Units/Hotel Rooms
Asperformanceacrosstheindustryrecovered
in2015,sodidtotalsupplygrowth,butthis
timeitwasacombinationofbothtraditional
andnon-traditionalunits.However,the
numberoftraditionalhotelunitsbuilthas
notbeenatnearlythesamelevelasinpast
cycles.Takentogether,though,newsupply
hasexpandedtomeettherisingdemandfor
overnightaccommodation.
34 © 2020 CBRE, Inc.
QUANTIFYING THE IMPACT
AstudybyBramGallagherofCBREHotels
confirmswhatotherresearchers(Zervas
2017,Dogru2019)haveshown:Newsupply
bothfromtraditionalhotelsandSTRs
hasasignificantandnegativeimpacton
hotelrevenueperavailableroom(RevPAR),
primarilybyimpedingmanagement’sability
toraiseratesatexistinghotels.
Inanalyzinghistoricalsupply-and-demand
dynamicsofhotels,theseresearchers
isolatedtheimpactofrisingSTRsupplyon
traditionalhotelRevPARandconfirmedthe
anecdotalevidencewehaveheardfrommany
ofourclients.
Thisresearchsuggeststhatbecauseofthe
fluidnatureofSTRsupply,pricepremiums
realizedduringpeakdemandperiods—both
cyclicalandseasonal—willremainmitigated
overtime.Additionally,ouranalysisshows
thatdecliningrealADRlevelscouldbe
restrainingnewhotelconstruction.
Itisdifficulttoshowadirectimpactat
themetrolevelasSTRsarejustoneof
manyfactorsthatareimpactingdailyhotel
performance.Inurban/suburbanlocations,
STRunitsmaycompetemuchmoredirectly
withhotels,astheyaremorecomparable
productsandtypicallyofferasignificant
pricediscount.Thiscouldbeacontributing
factortourbanandsuburbanlocations’
underperforminghotelssince2016(Figure12).
Resort/rurallocations,ontheotherhand,
continuetooutperformthenationalaverage
evenwithhighconcentrationsofSTRunits.
Potentialreasonsinclude:
• STRsaremorecomplementaryinthese
locationsanddon’tcompeteascloselyasin
themajorMSAs.
• Thereisamoredifferentiatedproduct
(entirehomewithmultipleroomsvs.hotel
room)intheseareas.
• Ahigherpercentageofhomerentalscan
leadtoSTRshavinghigherrentalrates
thantraditionalhotels,whichnegatesany
potentialcostsavings.
• AlargepercentageofSTRs(57%)donot
haveahotelwithinonemileoftheir
location.
• Manyoftheserentalpropertieshave
beenavailablefordecades.Thegrowthin
penetrationisaresultoftheseunitsonly
nowmakingthemselvesavailableinthe
onlinebookingplatforms.
A MATURING MARKET | CBRE Research 35
FIGURE 12 INDEXED HOTEL REAL ADR GROWTH BY LOCATION TYPE
Source: STR, CBRE Hotels Research, Q4 2019.
110
85
100
105
80
90
95
20152009 20182012 20162010 20192013 20172011 201420082007
Urban Suburban/Airport Resort Small Metro/InterstateADR Index (2007 = 100)
36 © 2020 CBRE, Inc.
A MATURING MARKET | CBRE Research 37
Inanalyzingareaswithlowvs.highlevels
ofSTRpenetration,thereisnosignificant
differenceinhotelmanagement’sabilityto
raiserates.Hotelswithahighnumberof
STRunitsnearbyactuallyaredoingbetter
thanareaswithalowernumberofSTR
units,especiallyinlargeMSAs(urbanand
suburbanlocations).
Thiscouldreasonablybeexplainedbythe
factthathighlypenetratedsubmarketsare
nearmajordemandgeneratorsandinareas
wherehotelsarefullyoccupiedduringpeak
periods.Theremaybeaconsiderablenumber
ofguestswhowouldhaveotherwisestayed
outsideofthecoretradearea,orperhaps
wouldnothavemadethetripatall,but
becauseofSTRoptionsarenowabletostay
closertotheiroptimallydesiredlocation.
Inthesetypesofsituations,weexpectthat
suburbanhotelswouldbenegativelyimpacted
astheynolongerbenefitfromthesamelevel
ofdemandgivenanincreaseinSTRunitsin
theurbansubmarkets.
38 © 2020 CBRE, Inc.
THE NEXT WAVE: BRANDED APARTMENT UNITS
Distinctbusinessmodelshaveevolvedin
recentyearsacrosstheSTRuniverse,notto
mentionthelargenumberofcompaniesthat
havestartedtoassistthesecompanieson
operations,hardware,guestsupportservices,
revenuemanagement,pricing,etc.
39A MATURING MARKET | CBRE Research
MODELS
DESCRIPTION
ADVANTAGES
DISADVANTAGES
EXAMPLES
FIGURE 13SHORT-TERM RENTAL BUSINESS MODELS
ONLINE PLATFORMSBRANDED STR APARTMENTS
APARTMENT COMMUNITIES
POP-UP HOTELS
An online marketplace where individual properties can be
listed as short-term rentals
Commissions paid to the company,
regulations restricting the use of short-term
rentals in major cities, issues of safety
Airbnb, Vrbo and HomeAway
Allows a property to rent a subset of units to a property manager who then sells the units as
short-term rentals
Logistics, safety concerns from other building residents
Sonder, Lyric, Stay Alfred, Domio
Designed for residents to rent out their units on short-term rental plaforms, in which
profits are shared with the landlord
Logistics, safety concerns from other building residents
Niido, Airbnb friendly buildings
Takes a large number of units and runs
them as short-term rentals during ramp-
up period for new apartment buildings
Short investment period per property
for STR management company
whyHotel
Property owners can increase their exposure, which can lead to more
bookings; allows for an increase in travel and tourism across
markets and locations
Increased occupancy, decreased liability to owner, premium rent
Property owners can increase their
revenue by collecting monthly rent as well
as a commission from STRs; residents are able to reduce
their monthly cost by renting their unit
Improved internal rate of return for building
owner, reduced absorption risk and increased economic
efficiency of property
Source: CBRE Hotels Research, Q4 2019.
40 © 2020 CBRE, Inc.
Theprogressiveriseofprofessionaloperators
since2017isevolvingfurtherwiththe
adventofnewbusinessesfocusedentirely
onmanagingandmarketingshort-term
rentalunits.Thisbusinessmodelcanbetter
competewithindividualoperatorsinthe
followingways:
• Consolidatingmultipleunitsinthesame
building,allowingtheoperatortomore
efficientlycleanandmanagemultipleunits.
FIGURE 14SHORT-TERM RENTAL BRANDED MANAGEMENT COMPANIES
Source: CBRE Hotels Research, AirDNA, company websites and press releases, Q4 2019.*Includes units under contract but not available to rent yet.
DOMIO LYRIC MINT HOUSE NIIDO STAY ALFRED SONDER THE GUILD WHYHOTEL
Year Founded 2016 2014 2017 2016 2011 2012 2016 2017
Location of Headquarters New York, NY
San Francisco, CA
New York, NY
San Francisco, CA
Spokane, WA
San Francisco, CA
Austin, TX
Washington, D.C.
Number of Markets 12 13 10 2 33 28 6 4
Number of Bookable Units 500 475 400 80 2,500 4,500 535 400
Number of Signed Units* 1,966 - - - - 10,000 800 -
Funding (US$) 117M 185M 15M 200M 62M 400M 31.5M 34M
• Brandingtheunits,signalinga
differentiated,consistentandtrusted
productandserviceforconsumers.
• Leveragingtechnologyandventurecapital
toscalequicklyandbuildbrandawareness.
• Focusingonpurpose-builtorconverted
apartmentbuildings,whicharethen
convertedtoSTRs.
A MATURING MARKET | CBRE Research 41
42 © 2020 CBRE, Inc.
A MATURING MARKET | CBRE Research 43
Brandedapartmentbusinessmodelsdepend
onthepricingarbitragebetweenmonthly
apartmentrentandnightlySTRrates.STRs
havebenefitedfromanexcesssupplyofluxury
apartmentsinsomemarketsinrecentyears
andcouldseefurthersupplymadeavailablein
theeventofarecessionorsomeotherimpact
todemandforapartment/condospace.
Otherfactorsthatcouldimpactthehotel/STR
supply-and-demanddynamicsinarecession:
• STRs increase their share of available
demand.Intheeventofarecession,price
becomesanevenbiggerconsideration
andcouldcausebothleisureandbusiness
travelerstoshifttheirchoiceoflodging
towardthemoreeconomicaloption.
• Hosts remove their units from STR
inventory. OverallhotelADRscontract
significantlyenoughthatSTRhosts/
operatorsnolongerhaveastrongrevenue
incentivetobringtheirpropertyintotheSTR
marketplace.Evidenceshowsthathostsadd/
removetheirunitsduringpeak/lowseasons
basedonavailabledemandandthepotential
toearnrevenue.
• More hosts rent their available units.If
thereisasignificantamountofjob/income
lossthroughoutthecountry,itcreatesa
strongincentiveforpeopletolisttheirextra
bed,roomorhouseonanSTRplatform.
Givenalowornon-existentcostbasisand
thesunkcostnatureoftheirhousingunit,
hostsmaychoosetolisttheirspacewithout
regardtolowerachievablerates,which
causesmorepressureonhotelstolower
theirratestoremaincompetitive.
• Apartment owners shift supply into the
STR market. Inanattempttomakeupfor
lostdemandduringarecession,apartment
ownersmakemoreoftheirunitsavailable
fornightlybookingseitherthroughrenting
theirunitsdirectly,signinglong-termleases
withbranded/STRoperatorsorentering
intoamanagementagreementwithanSTR
operatortorentvacantunits.
44 © 2020 CBRE, Inc.
STRs’ IMPACT ON HOTEL VALUATIONS
Hotelvaluationtechniquestodatehave
largelyentailedanalyzingADR,occupancy
(OCC)andRevPARtrendsfromthird-party
reportsandreviewingpipelinereportsand
county-sourceddatatoassessfuturesupply
shiftsintraditionalhotels.Itiscommon
amongpractitionerstoignoretheSTR
marketaltogether,ornotgiveitadequate
considerationinvaluationunderwriting.
Traditionalmarketforceslikeshiftsin
competitivehotelsupply,consumerspending
patterns,demandgeneratorsandnon-
recurringeventsareusedtoexplainhistorical
fluctuationsinADR,OCCandRevPAR,and
areemployedasthebasisforcriticalvalue
assumptions.
Withsomeexceptions,negativeimpactof
newsupplyisoftenaccountedforonthe
occupancysideoftheequation—atemporary
declineuntilnewsupplyisabsorbed
andreturnstohistoricnorms.Moreover,
beneficiariesofRevPARupsidepotential
wouldbeconsideredsolelythroughthelens
ofahotel-centriccompetitivemarket,without
acknowledgementofpotentialrestrictions
fromlodgingalternatives.
Whilethesevaluationtechniquesaresound,
theymustnowbeexpandedtogivedue
considerationtotheimpactoftheSTRmarket,
particularlyinlocationswheresupplyis
sizableenoughtoinfluencetraditionalhotel
performance.Aminimumcursoryreviewand
understandingofthequantityandquality
productofferingsiswarrantedinmarkets
whereSTRsupplyislow,whilemarketswith
morethan10%ofSTRsupplymayrequire
moredetailedanalyses.
Outsideresearchanddatapresentedinthis
reportindicatethatprimarymarketswith
largeurbancoresorpopulardestination
marketshaveexperiencedthehighestlevelof
growthinSTRs.Further,STRsareprevalentin
A MATURING MARKET | CBRE Research 45
marketswithmanyfillnightsthathavehigh
occupancylevelsandasignificantvolume
ofdisplacedand/orunder-accommodated
demand.MostofthetopSTRgrowth
markets,whileexperiencingnegativeRevPAR
pressures,havenotexperiencedsharp
occupancydeclines.
Newsupplyfrombothtraditionaland
alternativeunitshavesatisfiedmuchof
thedemandthathadhistoricallybeen
displacedandhaveinducednewdemand
andbroadenedthelodgingconsumerbase
inthemarket.However,thereiscompelling
datatosuggestthenegativeimpactofSTR
supplyonhotelRevPARcanbemeaningful
anddisproportionatelyaffectsADRgrowth
overoccupancy.
TheimpactonhotelADRisparticularly
importantasitrelatestohotelvaluationssince
thereisastrongrelationshipbetweenADR
anditsflowthroughtoprofitability(NOI),and
thereforeassetvalue.Assuch,itisimperative
torecognizethenatureofhistoricalRevPAR
fluctuationsinacompetitivesetandidentify
thestageoftheSTRlifecycleinordertomake
informeddecisionsonforecasts,particularlyin
marketswith10%+STRsupply.Forexample,
itmaybereasonabletoforecasttemporary,
negativerealADRgrowthinlaggingmarkets
thatarejustnowhittingtheirgrowthstride.
46 © 2020 CBRE, Inc.
A MATURING MARKET | CBRE Research 47
Conversely,extrapolatingweakADRgrowth
basedonrecenthistoricaltrendsinsaturated
marketswheretheSTRproducthasalready
beenintroducedandlargelyabsorbedcould
beconsideredpunitive.Further,limited
opportunityforhoteloperatorstooptimize
ratesduringpeakperiodscanreducethe
probabilityorprolongtheconstructionof
plannednewhotelsupplythatmayalreadybe
marginallyfeasible.
Finally,therecouldbeopportunityfor
hoteloperatorstocapitalizeonancillary
revenuesourcesbyprovidingserviceslike
food&beverage,meetingroomrentalsand
dailyhousekeepingtoguestsofnearbySTR
units.Intheseinstances,rategrowthand
revenueprojectionsandvaluationsmaybe
underestimatedifnotproperlyanalyzed.
ManyofthelargestSTRmarketshavebegun
toexperiencesignificantdeclinesinsupply
growthoverthepasttwoyears.Itappearsthat
thesemarketsareatornearsaturation.
CBREresearchindicatesthatsaturation
pointsforthetop30marketsgenerally
rangefrom10%to20%,withmature
marketsinprimarylocationsattheupper
endoftherange.Mostoftheremaining
marketsareinvariousstagesofthegrowth
lifecycle,includingsomebelow10%,but
areconsideredmaturemarketsbased
onhistoricalgrowthtrendsandmarket
characteristics.
Formarketsatornearsaturation,whether
theSTRsupplyceilingis10%or20%,we
anticipateaneasingofdownwardrate
pressureasthenewSTRsupplyisabsorbed.
Moreover,mountingeffortstoexpandand
enforceregulationsonSTRhoststolevelthe
playingfieldwithtraditionalhotelslikelywill
suppressfutureSTRgrowthandmayeven
resultinsupplyreductionsinsomemarkets.
Overall,traditionalhotelvaluation
underwritinghasforeverchanged.Whilethe
STRmarketisstillveryfluid,practitionersare
nowequippedwithenoughhistoryanddata
toprovideforbetter-informedassumptions
whendevelopingvalueopinions.Thejury
isstilloutonhowmodernhotelvaluation
practiceswillevolve,butataminimumitis
certaintoincludearespectfulconsideration
ofshort-termrentals.
48 © 2020 CBRE, Inc.
APPENDIX 12019 SHORT-TERM RENTAL PENETRATION TO HOTEL SUPPLY FOR TOP 30 LODGING MARKETS
Source: AirDNA, CBRE Hotels Research, STR, Q4 2019.
Rank Market
Hotel Rooms Supply
Short-Term Rental Units
Supply Penetration
16 Atlanta, GA 100,320 9,583 9.6%
17 Philadelphia, PA 49,800 4,391 8.8%
18 Anaheim, CA 57,931 4,674 8.1%
19 Washington, D.C. 115,240 8,691 7.5%
20 Norfolk/Virginia Beach, VA 36,633 2,303 6.3%
21 San Antonio, TX 47,725 2,987 6.3%
22 Baltimore, MD 35,476 2,128 6.0%
23 Chicago, IL 119,033 6,319 5.3%
24 Minneapolis, MN 44,432 2,320 5.2%
25 Charlotte, NC 37,716 1,904 5.0%
26 Houston, TX 92,872 4,493 4.8%
27 Dallas, TX 91,538 4,070 4.4%
28 St. Louis, MO 39,885 1,517 3.8%
29 Fort Worth, TX 34,523 1,272 3.7%
30 Detroit, MI 44,471 1,361 3.1%
30 Market Total 1,919,308 208,525 10.9%
U.S. Total 5,308,519 552,773 10.4%
Rank Market
Hotel RoomsSupply
Short-TermRental Units
SupplyPenetration
1 Los Angeles, CA 105,038 23,413 22.3%
2 Miami, FL 57,787 11,069 19.2%
3 Austin, TX 41,325 7,422 18.0%
4 New York, NY 124,981 20,972 16.8%
5 Orlando, FL 128,531 20,768 16.2%
6 San Diego, CA 63,234 10,044 15.9%
7 Seattle, WA 49,404 7,375 14.9%
8 New Orleans, LA 41,317 5,847 14.2%
9 Tampa, FL 47,918 6,617 13.8%
10 San Jose/Santa Cruz, CA 36,523 4,943 13.5%
11 Nashville, TN 46,015 6,059 13.2%
12 Boston, MA 58,748 7,441 12.7%
13 San Francisco, CA 53,214 6,615 12.4%
14 Phoenix, AZ 66,133 6,882 10.4%
15 Denver, CO 51,544 5,045 9.8%
A MATURING MARKET | CBRE Research 49
50 © 2020 CBRE, Inc.
METHODOLOGY
Todeterminethenumberofunitsavailable
forrentonagivennight,wecalculatethe
averageavailabledailysupply.Wefirstremove
inactive(nobookingactivityinthepast
month)andunavailableunits(delistedfrom
thebookingplatform).Next,wesubtract
nightswhenaunitmaybeunavailablefor
rentalsorblocked.
Therearemanyreasonswhyunitsmaybe
blocked,includingowneruse,restrictions
ondaysavailableforrentandscheduled
cleanings,amongothers.Inourmeasure
oftheactiveavailableaveragedailysupply,
orjustsupply,theblockednightsare
removedfromtheestimatedsupplyfigureby
calculatingtheaveragedailyavailablesupply
thatonlyincludesunitsthatareeitherbooked
oravailableforbooking.Toestimateasupply
numbercomparablewithtraditionalhotel
data,thisisthemostrelevantmetric.
Afterthisfurtheranalysisandremoving
unavailableandinactivelistings,theaverage
dailynumberofunitswasroughly566,000in
2019,upfrom35,000in2014.
MEASURING SHORT-TERM RENTAL SUPPLY
Whilemeasuringthesizeofthetraditional
hoteluniversehasbeenrelativelyeasywith
brandedpurpose-builtproperties,commercial
licensesanddedicatedsalesteams,itis
muchmoredifficulttoassessthesizeofnon-
traditionallodgingunits.Thisstemsfromthe
factthatSTRplatformsarecontrolledbyjust
afewcompanieswithlimitedtransparency
intotheirinventory.Addingtothecomplexity,
manyunitsarelistedinmultipleplatforms
andmanyapartmentorcondominiumunits
arelistedunderthesameaddress.
Inourreviewoftheavailablesourcesto
analyzethesizeandscopeofthenon-
traditionallodgingspaceintheU.S.,we
havefoundAirDNAhasthemostcomplete
datasetandlongesttimeseriesofSTRdata.
Itgeneratesestimatesofthenumberof
properties,bookingsandrevenueofSTRunits.
A MATURING MARKET | CBRE Research 51
MEASURES OF STR SUPPLY
Total Units:Totalnumberofunitsavailabletorentthatmonthatanypreviouspoint
intime(usuallythepast12months);matchesupmostcloselywithdatareportedby
thelistingplatforms.
Active Available Average Daily Unit Supply (Supply):Averagedailysupply(nights
availableforbookingorbooked)ofunitsavailableforrentandactive(i.e.,withat
leastonebookinginthatmonth).
LOCATION ANALYSIS
Tofurtherunderstandhowandwheresupply
isgrowing,wecategorizedeveryU.S.property
bylocationtypeasdeterminedbyhoteldata
providerSTR(formerlyknownasSmithTravel
Research).Eachunitwasgiventhelocation
typeofthenearesthotelproperty.Thisallows
foradirectcomparisonofthesetwolodging
segments(traditionalhotelsandSTRs).
Therearesixhotellocationcategories;
however,forthisanalysis,wecombined
AirportandSuburbanaswellasSmallMetro/
TownandInterstatebecausetheycover
similargeographicareasandhaveexhibited
similarperformancetrendsovertime.
• Urban:Denselypopulatedlocationina
largemetropolitanarea.
• Suburban:Suburbsofmetropolitanmarkets.
• Airport:Hotelclosetoanairportthat
primarilyservesdemandfromairport
relatedactivity.
• Interstate:Propertyclosetoamajor
highwaywiththeprimarysourceof
businessviapasserbytravel.Hotelslocated
nearamajorhighwayinasuburbanarea
havethesuburbanclassification.
• Resort:Propertyinaresortareaormarket
whereasignificantsourceofbusinessis
derivedfromleisure/destinationtravel.
• Small Metro/Town:Areawitheithera
smallerpopulationorremotelocations
withlimitedservices.Sizevariesbymarket
orientation.Suburbanlocationsdonotexist
inproximitytotheseareas.
Source:https://www.STR.com
CONTACTS
TolearnmoreaboutCBREResearch,ortoaccessadditionalresearchreports,pleasevisitwww.cbre.com/research-and-reports.AdditionalU.S.ResearchfromCBREcanbefoundhere.
Jamie Lane SeniorManagingEconomistCBREHotelsResearch|CBREEconometricAdvisors+14048125045jamie.lane@cbre.comFollowJamieonTwitter:@Jamie_Lane
Tommy Crozier ExecutiveVicePresidentValuation&Advisory,Hotels&Leisure+17043311283tommy.crozier@cbre.com
Mark Woodworth SeniorManagingDirectorCBREHotelsResearch|CBREEconometricAdvisors+14048125085mark.woodworth@cbre.com
Will Webster ResearchAnalystCBREHotelsResearch+14048125151will.webster@cbre.com
Richard Barkham, Ph.D., MRICS GlobalChiefEconomist&HeadofAmericasResearch+16179125215richard.barkham@cbre.comFollowRichardonTwitter:@RichardJBarkham
Spencer G. Levy ChairmanofAmericasResearch&SeniorEconomicAdvisor+16179125236spencer.levy@cbre.comFollowSpenceronTwitter:@SpencerGLevy
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