The State of the STR Sector After the “Big Boom”
The pandemic provided an opportune moment for STRs to accelerate growth and increase market share, but by 2021 this created a false impetus for sustained growth. Many investors are beginning to grow weary of the sector’s future and are tightening their wallets. While it’s true that the “gold rush” is over, as noted by Jessica Gillingham of Abode Worldwide, the outlook is still bright for STRs and the proof is in the data.
What we are seeing now is the normalization of travel demand and the return of hotels. Despite heightened competition and stabilizing occupancy rates, STRs continue to hold a 50% RevPAR premium over hotels. Even with a looming recession, the worst-case scenario points to a 6% growth over the next year. In addition, AirDNA is forecasting that STR revenue will reach nearly $80B by 2024. While the growth will be variable and tempered, it’s important to understand that the demand is course-correcting, not collapsing.
Professionalization & Generative AI to Determine Future Success
The number of professional STR management companies has increased from 100 to 250 since the pandemic. Nonetheless, the sector is still primarily operated and managed by individual hosts, which poses a threat to the sustainability and growth of these businesses. Hotels present a major advantage to STRs in this regard. The top reasons why consumers prefer hotels to rentals are customer services and reliability, and standardized services. Professional PMs have proven to increase revenue premiums and offer many benefits such as cost efficiency, quality of service, tenant management and regulatory compliance. With or without the help of management companies, the task is clear - STRs must raise the bar for their products and services. As emphasized by Laurence Tosi, Co-founder and CEO of WestCap, STRs must be well-rounded across real estate, hospitality and marketing to survive the market correction.
Another major contributing factor to operational excellence is technology and automation. The rapid adoption of technology over the last few years has allowed some STR providers to become more efficient and establish an edge over competitors. But the biggest topic as of late has been integration of Generative AI, such as ChatGPT, into the tech stack. Priceline has already announced the rollout of “Personal Concierge” via Google AI to expedite marketing to trending destinations, Vacasa is using AI to streamline customer service, and Vrbo is incorporating ChatGPT for trip recommendations. It is clear that AI adoption will change the business landscape. Doron Meyassed, Founder & CEO of Plum Guide, whose training and implementation of AI has resulted in measurable results, made a compelling point regarding its mass adoption. Once AI becomes mainstream within the travel industry and chat-based searches become the new gold standard, mediocre STR providers will struggle to keep up and succeed.
The Power of Storytelling
Among the many challenges that arose as STRs quickly gained popularity were regulatory compliance, evolving consumer needs and demographics, and sustainability. Additionally, STRs have unjustly developed a bad reputation. They’ve become a scapegoat for the housing crisis and overtourism; and are perceived to have a negative impact on residential communities. On the other hand, hotels have superiority over STRs in this respect. Most hotel brands are well established and recognized around the world, hold a wealth of first party data to help adapt to consumer trends, and have deep connections with lobbyists and politicians.
To combat these issues, STRs need to shift the perception of their communities and government officials. They need to take ownership of the narrative and communicate the positive local economic impact of STRs, the plethora of trip options to satisfy most consumer needs, and new technology and standards of service. The key to success will be in the stories they tell and how they deliver them.
Through all the summit sessions and in-person conversations with industry experts, it became clear that a staggering number of brands in the STR space are lacking in awareness and consideration strategies. Omni-channel, multi-screen video advertising to targeted audiences is one impactful tactic that STR brands can employ to further their message and increase recognition. Interactive video lends itself best to cohesive story-telling, capturing viewer attention and generating engagement which, in turn, will bring more visibility, traffic and revenue for the brand.