Hotels and Short-Term Rentals Blur Lines in New U.S. Accommodation Market

In our Skift Research Global Travel Outlook 2022 report, we presented that 2020 was the most challenging year for the travel industry till date while 2021 will be remembered as the inflection point of the pandemic, with the industry edging up to 70 percent of the pre-pandemic activity. Looking ahead into 2022 and beyond, we are optimistic in our latest report “U.S. Accommodation Sector Market Estimates 2022” for a short-term and long-term travel recovery with forecasts for all major travel sectors to grow this year.

The hotel industry, in line with the overall industry, registered an unprecedented decline in revenue in 2020. But Skift Research estimated that the global hotel industry witnessed a significant hike in performance with year-over-year growth of 35 percent in 2021 and is expected to grow at 55 percent in 2022, reaching $450 billion. 

Short-term rentals came through 2020 better than hotels, registering a decline of 33 percent compared to a decline of 60 percent for hotels. We estimate that in 2021 the sector registered 42 percent growth, moving towards bookings returning to pre-pandemic levels by 2022. 

At a country level, our December 2021 Skift Travel Health Index, which is a real-time and holistic measure of the performance of the travel industry, showed that the U.S. travel industry benefited from strong domestic demand, and was increasingly insulated from spikes in new Covid cases in 2021. Taking an average of all monthly index numbers for the U.S. in 2021, the Travel Health Index showed that the U.S. travel industry had recovered around 80.5 percent and the lodging sector in particular had recovered around 93 percent as compared to 2019 levels. For short-term rentals, instead of a recovery, the market actually grew to surpass the pre-pandemic level of 2019 in 2021. 

We published our latest Skift Research report on April 6. Below, we share a snippet of the report.

U.S. Accommodation Sector Estimates

We estimate that total accommodation sector revenue in the U.S. was down by 39.3 percent in 2020 before it increased by 66.3 percent year-over-year to reach the 2019 level in 2021. In 2022, we estimate the revenue to be up by 12.8 percent.

U.S. Accommodation Sector Revenue, 2018-2022 ($billions and percent of change)

	2018	2019	2020	2021	2022e
Total Revenue	$298.87	$317.56	$192.76	$319.94	$360.85
% of Change		6.3%	-39.3%	66.0%	12.8%

Note: Comprises establishments engaged in providing short-term lodging in facilities, such as hotels, motels, casino hotels, and bed-and-breakfast inns, or in private homes or apartments.

Source: Skift Research, U.S. Economic Census, U.S. Census Service Annual Survey (SAS) and Quarterly Services Survey (QSS), U.S. Bureau of Economic Analysis Travel and Company Filings

Was the Pandemic a Watershed Moment for Short-Term Rentals?

The short-term rental business has been encroaching on the hotel industry for over a decade now, and nobody can afford to ignore the sector for its increasing market share and the changing consumer expectations that it has helped to usher in.

The prominence of short-term rentals increased even more during the pandemic as it was the exact kind of accommodation model consumers preferred. Many travelers shied away from hotels during the pandemic and instead escaped to short-term rentals, where they could hunker down, avoid crowds, prepare their own meals and essentially use it as a quarantine bubble. 

We estimate that while the hotel sector revenue was down 41.2 percent in 2020, short-term rental sector revenue was down by only 26 percent. In 2021, the trend continued with hotel revenue up by 60.4 percent year-over-year while short-term rental revenue was up by 96.8 percent year-over-year.

In 2022, we believe that the growth rate of short-term rentals will decrease significantly, resulting from a bigger base, but will still register about 16 percent year-over-year growth. We also estimate that hotels will grow at 12 percent over 2021, with total revenue increasing $15.8 billion from 2019. 

U.S. Accommodation Sector Revenue by Category, 2018-2022 ($billions, percent of change and percent of total)

	2018	2019	2020	2021	2022e
Hotels	$267.46	$277.94	$163.44	$262.23	$293.70
% of Change		3.9%	-41.2%	60.4%	12.0%
% of Total	89.5%	87.5%	84.8%	82.0%	81.4%
Short-Term Rentals	$31.41	$39.63	$29.32	$57.71	$67.15
% of change		26.2%	-26.0%	96.8%	16.4%
% of Total	10.5%	12.5%	15.2%	18.0%	18.6%
Total	$298.87	$317.56	$192.76	$319.94	$360.85

Note: Comprises establishments engaged in providing short-term lodging in facilities, such as hotels, motels, casino hotels, and bed-and-breakfast inns, or in private homes or apartments.

Source: Skift Research, U.S. Economic Census, U.S. Census Service Annual Survey (SAS) and Quarterly Services Survey (QSS), U.S. Bureau of Economic Analysis Travel and Company Filings

However, the situation remains fluid, and it will take some time for the pandemic induced consumer behavior to reset in the post-pandemic world. Short-term rentals have surely become a more popular concept and they have graduated from being an alternative accommodation option to a core accommodation option. For example, Google announcing the new combined hotels and vacation rental search product in 2021 is yet one of the recent testaments that the boundaries between hotels and short-term rentals are blurring and it is still to be seen how the two segments will compete to define the market landscape.