The Case for Short-Term Rentals Leading the Return of Travelers to Cities

While there’s been much talk of traveler diffusion out of cities and into nature, tourists will soon be pining for the amenities that only cities can offer.

That’s the view of two short-term rental brands, which believe they’re flexible enough — and funded enough — to cater to a “richer spectrum” of guests than before across their urban playgrounds.

They also argue the pandemic hasn’t dented business too much, either.

“We’re at 75 to 80 percent occupancy in our portfolio. We’ve not seen a demand compression,” said Sanjay Banker, chief financial officer at Sonder. “Even in a world where individuals move out, it means people will want to enjoy the amenities of a city for their holidays. They’ve enjoyed them for thousands of years.”

The figure is in contrast to the lure of beaches and nature parks seen over the past four months. However, while business has remained relatively healthy, the makeup of the guests has changed.

“We know cities have been hit, but we’re at 80 percent,” said Maricarmen Herrerias, co-founder, of Casai, at Wednesday’s Skift Short-Term Rental & Outdoor Summit. “Our guests have changed a lot in the past few months. We used to have two thirds international travelers; now it’s two thirds domestic.”

At the start of the pandemic, Sonder’s properties housed hospital staff, stranded students and other Covid-specific guests. In the summer, digital nomads checked in for longer stays.

Would Sonder expand into offering more of those long-term stays, asked Skift senior research analyst Seth Borko.

“The spectrum has gotten a lot richer. Perhaps they were always there, the pandemic just opened our eyes … we found all these new use cases, and they aren’t going away” Banker replied.

In the past, Sonder targeted shorter-term stays because that’s where it saw demand, he said. But now bookings are growing up to 20 days and beyond. “There’s a convergence between long-term and short-term, and remote work plays into that,” he said,

It was a similar story for Casai, Herrerias added: “In Mexico City, we’re adapted to leisure, and digital nomads. We’re attracting those travelers.”

Looking at Leases

Part of the challenge going into 2021 will be how short-term rental providers manage their property portfolios. Borko argued that Sonday is one of the largest master lease companies, where entire floors can often be locked into long-term agreements.

Could it lose its edge if more guests don’t return?

“Our model has been to go after the biggest profit pool. Even pre-pandemic, we had attributes that were beneficial,” Banker said. “In the early days, we worked with landlords to get concessions, or exit completely. We had flexibility.”

He also argued that following a recent $200 million investment, its larger size means it has more credibility, so it can negotiate more flexible structures and variable deals. “Now’s the time you want to sign leases, to go long,” he added.

Casai has also shifted to include variable rent alongside master leases to help preserve cash, Herrerias noted.

And it too benefits from pandemic-era investment. In October it raised $23 million in equity funding from Andreessen Horowitz, a venture-capital firm that was an early backer of Airbnb.

“There was nervousness,” Herrerias said, “but we believe in our business model, and that tourism will come back. Our investors thought the same. They are still bullish about the hospitality industry.”

The funding will help the pair invest in technology, and target those “digitally native customers” who they expect to soon return to cities. “Urban travel is going to bounce back in a big way, there’s been so much pent-up demand and the kettle’s about to boil over. People are ready to get out there,” Banker said. “The demise of the city argument is highly overrated.”