Short-term rentals now
By: J. David Chapman/March 17, 2022
Do you call tissues Kleenex? Do you call short-term rentals Airbnb’s? First-to-market companies sometimes get the unique advantage to have their brand name define the entire industry space. Just as Kleenex managed to define the tissue business, Airbnb managed to define the STR market. If you watched the commercials on the Super Bowl this year you saw the commitment of Vrbo (another STR brand) to gain market share and redefine the STR landscape.
My company has been in the short-term-rental, or STR, business for over 20 years – long before Vrbo and Airbnb existed. We migrated our portfolio to these national/international platforms several years ago and have become fans of the concept. It is a small, but strategic part of our overall portfolio and business. We are able to use these properties in ways we are unable to utilize long-term rentals – specifically to affect the value of other property types. We own and manage commercial property in the area in which we own STRs. These STRs have a positive impact on the retail business sales, thus increasing the commercial property values, rental rates, and occupancies. The guests renting the shorter-term-rentals have significantly more disposable income and research shows they spend a greater amount in the local community.
I am a member of a local STR community group. We meet quarterly for happy hour and about 40 of us STR property owners discuss the business and how we can positively affect our community. STRs have drawbacks and we are sensitive to the impact on the community. The most significant negative consequence is that it can remove some “affordable housing” from certain areas of town. Typically, we take run-down, under-rented, sometimes boarded-up homes and remodel them for our STR portfolio. This will, by nature of the capital invested, make the rent significantly higher and because they are reserved for shorter-term rental customers, removes them from the longer-term rental pool.
Obviously, I believe the positive impact to our community outweigh the drawbacks and we continue to serve this important constituency of people. I also believe we are going to see STR homes play a more important role in our communities locally and nationally. Airbnb reported a $55 million profit for the fourth quarter as revenue soared above pre-pandemic levels. On your next travel, give a STR a try!
J. David Chapman is professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).