Short-term rental accommodation is not a new phenomenon. It began in the 1950s and has steadily evolved in the ensuing decades. What has changed everything and revolutionised the sector, as it has with so many industries, is the web. It has led to an explosion in technology. Existing businesses have had to adapt to grow, as much as protect their revenues, while new innovative businesses have sprouted up and flourished.
It’s impossible to talk about the rise of short-term rental without mentioning Airbnb. Formed in 2008, it led development both in shaping consumer views towards short-term rental and triggering an awakening among millions of people that here was a way they could earn a little extra income when they needed it. Airbnb wasn’t the first web-based platform to offer short-term rental, that was HomeAway, but it was the first company to focus on short-term rental of a spare mattress or room and the first company to have more of a city focus. In response more established players, such as TripAdvisor, Expedia and Booking.com acquired or developed their own short-term rental offerings, but they were more often part of a mix of accommodation choices open to consumers, with hotels remaining the main focus.
Airbnb’s strength was the focus of its offering, its growing choice of properties, more competitive price points than traditional hotel accommodation, as well as its early adopter advantage. The company helped short-term rental grow as a sector and millennials and other innovators, eager to experiment and stay in unconventional locations or properties, underpinned a growing appetite among consumers to enjoy a different kind of experience.
Fast forward a decade and the short-term rental sector has transformed in terms of scale, reaching $107 Billion industry globally according to Skift as consumers’ attitudes have matured.
In the UK, the sector is growing at nearly 30% year-on-year and is expected to be a £52billion industry by 2015, and that’s compared to 7% growth per annum in the hotel sector. But what does this growth mean for consumers? Put simply it means more choice, more flexibility and lower costs.
One illustration of the impact of short-term rental on hotels is the decline in ‘compression nights’. These are nights when 95% of all hotel rooms are occupied in particular a town, city or locality. According to the bank UBS, on these nights’ hotels record between 35%-70% more revenue per available room.
The growth of short-term rental has reduced the number of compression nights as consumers now have more choice to choose from outside of traditional hotels, which historically would not have been the case in many urban and suburban locations. Hoteliers complain that they are losing business to short-term rental but as another bank Morgan Stanley explained in 2018, hotel compression nights in Europe may have fallen by 3% but room rate premium for high demand nights was up 26%, demonstrating that there was easily room for hotels and short-term rental to coexist alongside each other and operate effectively.
According to STR over the same period in London, compression nights went up from 74 nights in 2008 in the last peak to 114 in 2018, while short-term rentals went from almost nothing in 2008 to 13% of visitor stays in 2018. Quite simply, if the short-term let industry didn’t exist, cities wouldn’t be able to benefit from the growth in tourism, or they would need to build more hotels (at the expense of potential housing stock).
Beyond the impact that short-term rental may have on other types of established accommodation, the sector has a critical role to play at spurring on UK growth, which is especially important given the current political environment. As the third largest service export in the UK, tourism is important to the economy and with around 40m visitors expected to travel to the UK this year, many will stay in short-term rental accommodation, and will distribute spend more widely through the local economy helping boost local businesses and services in communities up and down country. For example, between July 2017-July 2018, hosts and guests using Airbnb contributed £3.5billion to the UK economy.
The success of short-term rental is reflected in not only its growth but its appeal with so many different people, from guests who stay in homes, to homeowners who earn extra income, local businesses who benefit from tourism spend, as well as technology providers and the taxman who benefits from increased tax receipts. We all have a stake in its success and its responsible growth.
At the STAA, we understand that the growth of short-term rental throws up challenges as well as opportunities for many stakeholders, and it is our responsibility to show leadership in finding solutions to the challenges and enabling the benefits to be spread as widely as possible, so that we can all be proud in the growth story which is short-term rental in the UK.