There’s no question that COVID-19 has affected everybody in one way or another. While some industries and businesses have benefited from the response to the pandemic, many others have been crippled. Whether or not the state of emergency will continue or fade away is not for me to say. However, there are some interesting trends that one should pay close attention to if they are in the short-term rental (STR) space.
Since the COVID-19 panic began, STR bookings have been below average. Many people were canceling their vacation plans and opting to stay at home.
Although it looked like the STR and hotel industries were going to take a dramatic hit permanently, they have recently sprung back to life with a vengeance. In January of this year, STR bookings skyrocketed to 22% above average. Many of these bookings have been for the summer months ahead, which is a good sign as we move forward into 2021.
The majority of the bookings that have been made so far, at least on Airbnb, are for rural areas, mountain regions, beaches, and lakefront properties. These account for 64% of total bookings, which is 12% higher than in 2017-2020 in similar destinations. In addition, the number of bookings to urban areas continues to drop as lockdowns and restrictions dissuade travel to those areas.
The top markets booked this January include the following cities, according to AirDNA:
- Sarasota, Florida
- Cape Coral/Fort Myers, Florida
- St. Petersburg, Florida
- Phoenix/Scottsdale, Arizona
- Oahu, Hawaii
- Big Bear, California
- Gatlinburg/Pigeon Forge, Tennessee
- Lake Tahoe, California
What else is happening?
In addition to destination trends, the type of property that people are booking is also changing. Since the beginning of COVID-19, there has been a lot of fluctuation in bookings for various different property types. As things got worse, there were more bookings for larger homes with three to four bedrooms and full amenities. This is likely due to the greater number of larger homes in suburban and rural communities. It also may be indicative of people trying to get more space for each of their guests or considering a longer stay.
In addition to these trends, we’ve also seen a growing number of remote employment options. People may begin traveling more to destination locations and rural areas far away from the high costs of living and restrictions found in large urban cities. With more opportunities to work from home, people may end up moving to these locations permanently.
What does this mean?
As the emergency response to COVID-19 hopefully begins to wane, people will likely feel more comfortable making travel plans. Up until now, many people have felt trapped in their homes and urban environments, which has created an increased demand for short-term travel. This is probably one of the main reasons for the recent boom in STR bookings.
The data has shown that people want to get away from urban markets. If you view this trend from a psychological standpoint, we can estimate this is partially an emotional response to the feeling of being trapped in a big city. If the emergency response and restrictions continue, then this trend will likely continue and probably rise. Many people have already packed up and left the big cities for rural areas permanently.
If the emergency response and restrictions do in fact dissipate and go away, then things may return to the way they were before 2020. There may continue to be a residual, slightly increased demand for rural destinations if this is the case. Although we would all probably prefer this option, it stands to reason that it is unlikely.
So what should I do?
If you still hold STRs in a large city then you are probably either very lucky or your current properties are in high demand. If this weren’t the case and you were relying solely on your STR income, then your portfolio likely wouldn’t have made it through the last year.
If this is the case, keep the properties but maybe limit your future potential downside by having more cash on hand. If you have the capital, you may want to start exploring other markets that include rural, beach, mountain, and lake destinations. That being said, don’t go out and buy a bunch of property, as this may only be a short-term trend.
Find markets that meet these characteristics but also have a secondary and tertiary supply of potential booking sources in addition to vacationers. This could include areas with anchored industries that are not likely to go out of business from prolonged emergency situations, such as large warehouse and logistics companies like Amazon, medical facilities, and large military bases. In addition to vacationers, you can also capitalize on professionals who are traveling for work or to visit family and build risk management into your overall investment strategy. Relying on any one market at this uncertain point in time is careless and could prove to be extremely costly in the future.
By following this strategy, you can stay in the game while mitigating your downside. Often in bad times people don’t do anything, and while this may be safe from a capital preservation standpoint, it’s also dangerous when you take opportunity cost into account. If you have the right mindset and strategy you will be able to invest in both good times and bad. You just need to understand which one you’re in and how to personally update your overall investment plan to stay in business for the long term.
Real estate is a game of multiplication—as long as you don’t get put out of business. Right now everyone needs to be looking for creative strategies to both grow their business and preserve what they’ve already built.