Will Short-Term Rentals Have a Good Year? It Depends—Here’s What You Need to Know
How is 2024 looking for investors in the short-term rental (STR) market?
Many economic factors affect the STR market, from occupancy rates in specific markets to ever-changing rules and regulations of the short-term rental sector. As part of our State of Real Estate Investing Report, we dive deeper into all of these factors one by one.
Daily Rate Outlook
Every STR investor bases the profitability of an STR on how much they can get for their rental per night. According to the report, the average daily rate prognosis for 2024 is, at the very least, flat but likely trending toward growth.
This is because the economy overall is showing signs of stabilizing. Macroeconomic factors play into this, too: With oil prices and currency exchange rates showing signs of evening out, STR investors can look forward to greater predictability in daily rates.
Julie Brinkman, CEO of STR management platform Beyond, predicts, ‘‘If the vacation rental property manager and host are systematically staying on top of demand, they will […] see flat to higher average daily rates (ADRs) year over year.’’
This brings us to the next major factor in STR investment success: vacancy rates. Gauging demand correctly is crucial for any STR investor; unexpectedly high vacancy rates can spell disaster. What can investors expect on this front in 2024?
Brinkman believes that increased occupancy is ‘‘certain’’ for hosts and landlords who have properties in in-demand areas. However, other experts are advising STR investors to temper their expectations. Beyond’s director of revenue management, Jeffrey Breece, predicts an ‘‘incredibly average’’ year in terms of STR demand.
In a sense, though, this averageness may well be the most valuable thing about 2024: It will help landlords reestablish what normal vacancy rates look like post-pandemic. Breece believes that 2024 will be ‘‘the new baseline year,’’ replacing 2019, as pent-up demand for travel from the pandemic finally dissipates. Therefore, investors new to the STR market should use 2024 as a blueprint for what they can expect in the coming years.
One thing STR investors don’t need to worry about so much is any further decline in occupancy rates. David Kelso, co-founder and CTO of Beyond, believes that the 2023 situation in which supply outstripped demand for vacation rentals was ‘‘an anomaly’’ and won’t be repeated in 2024. Even if demand for STRs doesn’t grow massively next year, the supply-demand balance will likely stabilize.
The best STR markets, as ever, are markets that offer a healthy cap rate—that is, the annualized rate of return on the current property value as related to all the expenses associated with the investment. Investors should look for locations that are a little off the beaten track—that is, outside of major cities that already offer a ton of accommodation options.
In the U.S., the current best STR markets that offer great cap rates are located in Virginia and Florida. Classy small beach towns and villages like Sandbridge, Virginia, and Okaloosa Island, Florida, have affordable properties that translate into high average daily rates.
Artificial intelligence (AI) is an unstoppable trend in the STR market. AI tools can be very useful to STR investors because AI algorithms are capable of processing and analyzing vital data, including the performance of different property types in different locations and location-specific guest preferences. With the help of AI-powered data management, hosts can get a better idea of what guests are looking for, down to details like bed preferences.
The other area where AI tools will become even more useful is marketing. Caitlin Cassady, vice president of marketing at Beyond, explains that new data-driven tools can help hosts make their STRs more attractive by promoting events in their area or by ‘‘highlighting their 5-star reviews to increase booking conversion.’’
On Airbnb and VRBO, new AI tools can use algorithm-generated data to suggest personalized options to guests searching for their next vacation rental.
Laws and Regulations
Will cities continue to crack down on STRs?
?The short answer is yes. The tightening of rules and regulations in the STR sector is a known issue, and experts agree that it’s not going away in 2024. Maria Flores Portillo, Beyond’s managing director of EMEA, predicts that ‘‘regulations will continue to throw challenges, especially (but not exclusively) in urban markets.’’
Portillo is cautiously optimistic for the longer term, explaining that ‘‘Whilst regulation is unavoidable, it is possible to create a sustainable framework that legitimizes the short-term rental industry as the beneficial economic sector for society that it has become.’’ This will require robust legislative action, however, and a reining in of lobbyism by the hotel industry.
Beyond’s CEO Brinkman shares this optimism for the longer-term possibilities of STR investors coming together ‘‘to tell the right story—about the economic benefit STRs bring to communities.’’ In the shorter term, however, urban areas will continue to ‘‘come under regulation pressure.’’
The Airbnb roadmap is a new tool introduced by Airbnb this summer, designed to address a long-term issue Airbnb customers have had with the platform: inaccurate listing descriptions. The roadmap expands existing property types to seven, offering customers a better idea of what they can expect from a booking.
The company is also overhauling its review system. Airbnb CEO Brian Chesky said in an interview with TechCrunch that Airbnb homes ‘‘are one of a kind—that’s a strength [for us], but their reliability is the big question. We can’t inspect every home, and we don’t want to try to inspect every home. So we’re just going to be investing a lot more into a review and reputation system.’’
Properties that score especially highly will get a Guest Favorite badge. Guest Favorite badges will be reviewed on a weekly basis, rather than the Superhost badges that are reviewed quarterly. The idea is to make hosts more accountable.
Will this new system hurt or harm investors? Because Airbnb is simultaneously updating its features for hosts, allowing them to add more and better detail about their listings, the new roadmap is ultimately an opportunity to better market an Airbnb property, increasing occupancy and revenue.
More from BiggerPockets: 2024 State of Real Estate Investing Report
After more than a decade of clearly favorable investing conditions, market dynamics have shifted. Conditions for investment are now more nuanced, and more uncertain. Download the 2024 State of Real Estate Investing report written by Dave Meyer, to find out which strategies and tactics are best suited to win in 2024.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.