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Spencer Levy
Short term rentals are an innovation in evolution in both hotels and housing. On this episode, we dig into the operational side of short term rentals and how this relatively new industry evolved from a competitor into a potential complement to traditional types of lodging.
Scott Shatford
There's 3 million plus people operating and 7 million properties around the world.
Spencer Levy
That's Scott Shatford, a former short term rental owner who in 2014 founded AirDNA, a data provider for owners and hosts before selling the company earlier this year. Scott served as CEO and he remains a board member of a company that in less than a decade became an international business with more than 30,000 operator-clients who they call “Prosumers”. Scott joins us from Denver, where the company is based.
Jamie Lane
Demand grew in 2020. It grew again really strongly in 2021. And then so far in 2022, demand growth has been up another 20%.
Spencer Levy
And that's Jamie Lane, AirDNA’s Vice President of Research based in Atlanta. Jamie previously worked at CBRE’s Hotel Research Group, where he used data from AirDNA, among others, to analyze the industry for operators and investors. And that brings us to our third guest.
Rachael Rothman
How does AirDNA or short term rentals fit into the landscape? Obviously, they can be both symbiotic products to the traditional hotel industry.
Spencer Levy
Rachael Rothman spent 20 years as a hotel industry executive and now serves as CBRE’s head of Hotels Research and Data Analytics. Rachael will help us understand the nuances of the short term rental sector's relationship with the traditional side of the business today. Coming up, how the business of staying really works and where it's going in the future. I'm Spencer Levy and that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take. And this week we are going to be talking about a terrific innovation in the hospitality slash home rental information space. We're going to be talking about AirDNA. And we are privileged to have its founder, Scott Shatford, as one of our guests. Scott, thanks for joining the show.
Scott Shatford
Great to be here, Spencer. Thanks for inviting me.
Spencer Levy
And then Jamie Lane. Jamie, thanks to have you back and see your release for the show. Terrific guy. Thank you, Jamie.
Jamie Lane
Thanks, Spence.
Spencer Levy
And then my friend and colleague, Rachael Rothman. Rachael, thanks for joining the show.
Rachael Rothman
Thank you for having me. Spencer. Honored to be here.
Spencer Levy
Scott, as co-founder of AirDNA, why don't you tell us who you are, what you do, and a little bit about AirDNA.
Scott Shatford
Great. Yeah. I have to tell you about the AirDNAorigins story. Prior to AirDNA, I was working at a consulting firm working on business intelligence analytics for almost a decade. I left there and I started with a side hustle with Airbnb, really sort of a budding entrepreneur renting corporate rentals and then renting them on Airbnb. So early on I just realized this little arbitrage opportunity that existed, you know, that I could rent a one bedroom apartment in Santa Monica for 2,500 bucks a month and I could turn it around and sell it on Airbnb for $7,500 a month. That's how I got started with AirDNA and I wrote a little e-book called the Airbnb Expert’s Playbook back in 2014, I believe, and that's where I started gathering, aggregating all of my thoughts and analysis and A/B test. I like what works for Airbnb properties. I realized there was no facts to what I was viewing in that e-book, and so I started gathering the data, which ended up becoming AirDNA eventually, just with some facts behind my debates on how to run successful vacation rentals.
Spencer Levy
Jamie, let's go dig in a little bit to what the AirDNA product looks like. So let's assume I meet Prosumer. I've got a half dozen units in a nice vacation spot. I’ve got to figure out how to run these things. What am I getting from you?
Jamie Lane
Yeah, you're going to get a few different things where people generally get their introduction to AirDNA is our Rentalizer product, and that's where you can put in an address of any home around the world. And we're going to find relevant comps to that home and show you what that could earn as a rental on Airbnb and VRBO. So that's going to give you what your occupancy, what your ADR, what your annual revenue potential would be as an operating vacation rental. Then we take you as a subscription prosumer. You then get detailed history on your occupancy and 80 hours in your market. We're actually going to show you how to price your unit on a day by day basis going out into the future. It's called our Smart Rates product, so all that is incorporated into one. You can track, you can benchmark your competitors in your market. So we're going to show you what are the 20-30 homes that look most like you, compete with you for guests, and then you can track on a real time basis how your bookings look like compared to them. So over the next six months, how does your occupancy look? How is your rates? How is your revenue that you're earning compared to your competitors? So you can get much more smart about how you're adjusting your prices going forward. If you're not booked, everyone else is. Maybe you need to lower your rates to increase bookings in your unit.
Scott Shatford
We get people really early in the journey, which is exciting. So these are people pre even buying a property opt in or the first time they are entering, uploading their photos on to Airbnb. And so a lot of time we're getting people early on a brand new property and so it's pretty hard to benchmark prior performance. You know, what was their revenue last year or their next year? We have been able to look at people that join our platform. Jamie I mean, you might have the exact marketing number that we put together, but it was something around 20% uptick in revenue. As people upload their property, we can give them customized insights on, like, who are their competitors, how to price on weekends versus their Tuesdays and Wednesdays? What are their competitors doing? They're smarter about their photos or copy your instant booking or whatever it may be. And so we do see a nice uptick as people are really able to learn from like what are the best operators in this market doing it? Put that into their own listings and revenue management strategies.
Spencer Levy
Jamie, anything to add to that?
Jamie Lane
Typically like when someone goes from and let's say using Airbnbs rates that they suggest are performing their own sort of revenue management strategy and then move to an automated strategy like Eridanus where we're going to look at real time demand in that market, how competitors are pricing in how they're pricing, how their demand looks like relative to their competitors. And we're going to be able to help them increase their revenue by about 20 per. Over what they were doing prior.
Scott Shatford
These aren't hoteliers, right? These are moms that are trying this for the first time or people that have, you know, in selling cars for a living and trying to get into the vacation rental space. Right. So there's just a lot to learn as you get into this space to understand even what ADR is, something that we have to coach people on, what that even means. And so we are catching people that are pretty unsophisticated early in their journey, and we're trying to create real hospitality experts out of them in a quick timeframe. And so that's a fun part about our platform is really trying to get people up to speed as quickly as possible.
Spencer Levy
So, Rachael, why don't we turn to you now? I'd like to get your point of view of how AirDNA fits into the greater ecosystem of hospitality.
Rachael Rothman
How does AirDNA or short term rentals fit into the landscape? Obviously they can be both symbiotic products to the traditional hotel industry. For example, Marriott's relationship with Vacasa and their Marriott homes and villas or one fine stay and a core so they can be a product line that helps to breed loyalty in a traditional lodging environment. And they can also be a competitor for a certain type of lodging demand.
Spencer Levy
Rachael, you use all of the – what I would call the traditional data sources for hotel: STR and otherwise. Tell us about some of these other data sources you use and how AirDNA fits into that puzzle.
Rachael Rothman
No client issue, whether they're internal or external, is the same, right? Everybody's has differing challenges and it's important to bring the tool that they need to solve that challenge. It could be somebody trying to identify incremental leisure demand in a market where there isn't an appropriate amount of traditional hotel lodging. It could be somebody trying to identify extended state markets where there isn't enough extended stay supply. We use AirDNA to help forecast where you can identify pockets of excess demand that can be capitalized in the market. We also, as you said, do use Costar and Kalibri and STR and Hotel Compete. There are just a tremendous number of great data providers out there and we use them all to bring together the mosaic and try to help each client solve their unique challenges.
Spencer Levy
One of the things I've always liked about the hotel business versus some of our other forms of commercial real estate is that it's transparent, I mean, really transparent when it comes to rates, ADR, Rev Par, all these traditional metrics. But I guess that transparency was contrasted with the lack of transparency for single family rentals on a short term basis. Is that essentially the problem you were trying to solve, Scott?
Scott Shatford
Yeah. The problem really is just fragmentation. Right. Prior to maybe the last five years and still today, right. There's 3 million plus people operating 7 million properties around the world. So how do you aggregate that, that data from 3 million people? You know, impossible. So you've got to get pretty creative about, like, where does this data live, what's accessible, what slivers of data can get here? And how do I inform that with other data over there? Right. Of short term rentals, there's tens of thousands disappearing today and tens of thousands that are appearing today. Right. And so you just get this supply headache, which is a big pain in the butt, too, which is like, wait, it was there yesterday. Is it gone? Is he gone for good? Is it taking a pause and then, oh, when to open up next door. I got to start tracking that one. So a little bit of whack a mole on like just supply. Where is it? You know, I'm trying to figure that out. So it definitely creates a bunch of complications on how you're tracking, like what is real active supply, how you calculate occupancy for things that haven't been rented in two years and they're still in the platform. So there was a bunch of news for the problems that we had to solve, trying to track short term rentals and a new lot of new definitions I had to come up with. And then Jamie has refined over the years.
Spencer Levy
Jamie, let's talk about the pandemic, how it changed AirDNA, how you collect data, the type of data and some new ideas that may have come out of it.
Jamie Lane
Yeah, didn't necessarily change how we collected the data, but it did change. And I think the broader hospitality industry had to change how it looked at the data. Since assets weren't really fixed in the hotel space, we saw a lot of permanent closures or at least temporary closures and in hotels. And how do you calculate supply for traditional hotel occupancy when a property's temporarily closed? And that was a lot of the solutions that we had to come up with at AirDNA from the beginning. If you think about a typical seasonal market like Cape Cod, where you've got maybe 20,000 listings that are active during the summer and then maybe only 1000 that are active during the winter, and you don't necessarily want to count properties as competitive when they're not actively listing. So we monitor every property globally on a real time basis and have a way to pull properties in and out of supply during the months when they're actively trying to rent their properties. And then if we detect that they're blocking out their calendar for months at a time, we're going to remove them, supply their supply so we can get a true count of what's actually competitive in that market when it's available for rent. And that was really important during the pandemic as we saw a lot of supply pull out and it wasn't just supply in cities where people weren't traveling to, which was maybe predictable supply loss, but it was also supply in traditional vacation rental markets. Like we actually saw the supply of listings in the lower Hudson Valley drop substantially. And what it was is people that had second homes all of a sudden had the flexibility to use those second homes to work remotely from, and maybe they were renting them out as a short term rental prior to the pandemic and all of a sudden one to use a full time and pulled it out. So we actually saw supply drop for short term rentals across just about every single location type really around the country.
Scott Shatford
And now that they're you is one of the products sort of we know who to call a pivot for changes of strategy that we did in pandemic was everybody was looking for that light at the end of the tunnel as we got a lot more interested in, you know, what was pacing look like, how we forecast when people were starting to make bookings again because, you know, we are trying to give people hope, but we're also trying to show in our product, hey, where's this stuff going to pick up? Where are people going to start booking again? What time periods are they booking for and how is that pacing versus last year or the year before? And so we looked a lot into kind of all right, let's look at out the front windshield and now the rearview mirror and like, how do we get really accurate about what's happening real time in the future in the products?
Spencer Levy
So let me go back to that term you just used a moment ago, Scott, light at the end of the tunnel. Are there less rental properties on the market today than there were pre-pandemic? Because more people are using these second homes for permanent residence?
Scott Shatford
We found that people are using their second homes more often. People are fleeing the cities to go stay in different properties. People were taking a lot more road trips and people were choosing hotels for a long time. Right, because of COVID and, you know, proximity to people and elevators and whatnot, everything being closed and the pools and all the amenities that people really chose, single family homes. So it came back and it came back really quickly, stronger than ever. Summer of 2020, we had never seen so much demand and vacation rentals, so we've been very insulated. I think for us it's like, when is it going to go back to normal in a negative way? Because it's been over indexed to demand for short term rentals and supply has gone up by 25%. Jamie, correct me if I'm wrong since pre-COVID levels.
Jamie Lane
So 25% year over year growth, but we're only about 8% higher than pre-COVID levels now. For an industry that was growing supply 20 or 30% a year prior to the onset of COVID, and just 8% supply growth over a three year period is pretty muted growth. But it's really come on, in the past year, as Scott said, 25% year over year growth is it's just been a surge recently.
Spencer Levy
Would you consider that a positive sign for the office market about people going back to normal housing patterns? Or they’re too unrelated?
Jamie Lane
I think you can see some correlated trends there. One of people that had second homes that were using them to work remote are now bringing that supply back online. And we're seeing that in droves of markets that have lost supply in areas that have seen really strong demand over the past three years, that's really come back. And just about all of those markets are now well above pre-pandemic levels. And now we're really actually starting to see both supply and demand come back strongly in the major cities as well.
Spencer Levy
Rachael, as you mentioned, in some cases there's a symbiotic relationship with Airbnb and AirDNA and traditional deals. Sometimes there's a competitive relationship between the two. So why don't you talk a little bit about that and how hotels, traditional hotels, may have adapted to AirDNA or Airbnb products?
Rachael Rothman
To answer your question, Spencer. I think one thing that hotels learned and they need to be very front footed about is one of the key competitive advantages are the shared amenities. People want the services of a hotel. They want food and beverage. They want multiple outlets. They want the pools. They want the spa. They want the cabana. You can see that if a full service lodging product closes its amenities and behaves like a limited service lodging product, it can be hard to justify and generate those rate premiums. So I think during the pandemic, everyone upgraded their home. If you look at what happened to Home Depot and Lowe's stock, everybody was at home and now they want to go someplace that is as nice as their home and that has the amenities and services that they want that take away some of the burden that they experience at home. I'm a mom of two kids, and I love the idea of a short term rental, but I don't want to cook and clean anymore. I do it every single night at home. And so I think hotels really need to be cautious of their design and of having all the amenities open and of having good service levels and good staffing. We see those properties that have performed the best in terms of their review. Scores have the highest rev par growth coming out of the pandemic. And I think you just really want to learn from some of these other facilities that people really do want. Nice design, nice services, nice amenities, and it's a competitive field out there.
Spencer Levy
And so, Jamie, to that point, or Scott, to that point, there was a period of time during the pandemic where you had a significant competitive advantage over traditional hotels because you had the security of being just with your family. You had all the amenities in the house. Have you noticed a falloff since the pandemic is now – you know, knock on wood – towards the tail end of people going back more to traditional hotels? And if so, how are people adapting to that?
Jamie Lane
Yeah, overall, there's been no falloff. Demand has only accelerated even in the years subsequent. So demand grew in 2020. It grew again really strongly in 2021. And then so far in 2022, demand growth has been up another 20%. What we have seen a fall off, though, is in occupancy. So if you think back and how we were talking about 2020 and 2021 being a reduction in overall supply, but really strong demand that pushed occupancies to all time highs and levels that will never be reached again for the industry. More than likely now we're seeing a pullback off of those as high as for occupancy. But if you think about the types of demand people are still choosing short term rentals for. So it is traveling with your family. Are groups of families together where you want more space, you want a kitchen, you want a living room, you want to be able to have communal areas where everyone can, can meet and get together. It's for stays that are happening longer than four or five days. So we've seen a big push both in traditional hotels and short term rentals of more longer term stays. And once again, we know once when people are looking to travel for longer, they want more of the comforts of home, and that's been really beneficial for short term rentals. Airbnb's reported it the past eight quarters that more than 20% of their stays are for 30 days or longer. So you think about that shift in how people are using the short term rental product has been substantial. And then also the other type of amenities that homes can offer. So whether it's pools or tubs, access to national parks and beaches, the additional things that short term rentals offer have been really popular. And we've – and that's one of the most surprising things I've seen over the past year. It’s I expected to see a drop off in the really strong demand in small-town, rural, destination markets that had seen really strong performance during the pandemic. And that once we started to see a reversion of going back to cities, that that demand would lessen. And we haven't seen that at all.
Spencer Levy
Well, Jamie, I'm glad you mentioned hot tubs in your answer, because I've lived in my house now for 18 years and I have a hot tub and I've been in it twice in those 18 years. On one of those two times was to wash my dog, so maybe I'd get more use out of it if I were to to rent out that amenity as well.
Scott Shatford
And what we've also seen is that people just want something unique and more memorable. And so people are looking for the cabins and the really weird places that you can stay on Airbnb, like treehouses. And so what we see is still a lot of strength around that. Obviously Airbnb's marketing heavily around these more unique types of stays, which is just something that the hotels can offer. And Airbnb is leaning heavy into things that are more experiential and harder to replicate in a more traditional lodging. Spot.
Spencer Levy
So given what I said about my hot tub, if I were just to rent the hot tub, do you think I'd get any takers for just that?
Scott Shatford
I mean, maybe a little tree house next to it will be all set.
Spencer Levy
All right. There you go. Got to build the treehouse. The issue we hear about all the time, we're here about short term rentals, which is regulation and regulation. Some people don't like it. They talk about it increasing the cost. I talk about this in the multifamily space as well. In the multifamily sector, there was a shortage of affordable housing. Rent control comes up, things like that. So just being direct about the issue. Scott, what's your point of view on that? Have you seen that increase?
Scott Shatford
You know, regulation has been coming around for a long time and this is nothing new. My rentals were in Santa monica, the first place to ban short term rentals six years ago. So I've been tracking this for a long time and try to figure out how people are adapting to it, ignoring it, trying to get on board with it, trying to figure out how they're adjusting. You know, regulation comes in many different formats, and so regulation sometimes is great and it gives some people the certainty and stability that like, okay, cool, there's a permanent price, here's the license, here's how many rentals you can have. This gives me a lot more confidence to get into this market and know it's going to be around for five, ten years and other times it's so restrictive that everybody abandons ship and gets out of it. Right. But it just comes in a lot of different flavors. So what we would say generally is that we've seen regulation be a little bit less of a knee jerk reaction of like fear and panic about short-term rentals coming to market and using our data, talking to individual stakeholders there like chambers of commerce and restaurant owners and other people in that marketplace. And coming up with something that makes sense, right? Putting caps on the days and the number of houses over, making sure they're getting their appropriate taxes. And so it's hard to paint regulation with a broad stroke because it really comes in so many shapes and sizes. I think generally we all want a level playing field. We all want to know what the rules of that playing field are. Airbnb is happy to collect those taxes for you. Its regulation has been sort of set in stone in the market. There's no doubt there's going to be more regulation and more rules as time goes on and there's more tax money to collect. And generally we think that's good. It gives us a lot more credibility as a real asset class that's going to be around for a long time, and less of this ‘we are operating in some gray area’ and as legal operators in the market.
Spencer Levy
Rachael, talking about the regulatory issue from a hotel perspective. Again, sometimes you’re competitors, sometimes you’re complimentary. How does a hotel business look at the short term home rental business?
Rachael Rothman
I wouldn't want to speak for the entire hotel industry, but I will second what Scott said, which is that a level playing field and transparency are probably two things that most businesses would support. Understanding that your short term rental is held to the same fire and life safety standards as a hotel room, that it is taxed as a business, that it is put through the same paces, that insurance is needed in the same way. I think that those are all things that individuals and many companies can get behind. That said, I don't represent the industry as a whole. Those are just a few easy things that I can imagine. Every insurer, every neighborhood association would be behind rate. Even the local fire department would want to know that that the houses that are being rented are safe for that use case.
Scott Shatford
I think generally short term rentals are on board. I mean, I think there are some things about the safety components which are practical that create whatever it is, eight foot wide hallways and your two bedroom apartment. And so there's some things that make sense and some things are just really hard to implement on the short term rental side. But I think generally we all want to be playing the same game and competing for the same customer and have to abide by the same rules where it makes sense.
Spencer Levy
Are you seeing some big investors getting into this sector in terms of getting houses? Not for the purpose of renting them for a year, but renting them on a weekly basis?
Scott Shatford
Yeah, I mean, absolutely we are. And even those that are the typical SFR investors want to have optionality to or want to look through their portfolio and say, hey, maybe that makes more sense over here. Now that our cap rates have dwindled down to these levels, you know, hey, there are other options for us to monetize the existing portfolio that we have, but we are seeing a lot of money coming in in the short term rental space because there are such attractive returns on it. But a lot like the hotels, there's a lot of risk associated with those returns. And how sustainable are there? I think it's been great that over the last five years and through the pandemic that we've been able to prove out this is growing, it's not going anywhere. These returns are happening. You're after a year, but I don't think we've been through a traditional recession yet. And so there's still a lot of people waiting on the sidelines, seeing how it fares in that environment. But we are seeing a lot of excitement from institutional people for the first time, maybe in the last 12 months that are starting to make moves in the in the short term rentals first.
Jamie Lane
I think what we're seeing is short term rentals look much closer to traditional hotels as the industry evolves of there's the big national brands, there's management companies popping up that are building operational efficiencies in operating properties for large institutional clients. And then you've got whether it's individual ownership or institutional ownership, that can then leverage the layered structure to then operate and brand those units efficiently.
Spencer Levy
Scott, as a co-founder, a board member, and a soon to be former CEO, what's the future of AirDNAand what's the future of Scott? I mean, you've been a tremendous success as an entrepreneur here. I'd love to know what's on your mind.
Scott Shatford
Yes, it's all very new as a stepping away from CEOs. I've been pretty obsessed with AirDNA for eight years and still looking to take a step back and see what else I'm reading and doing and getting obsessed about in the future. So, not sure about next steps right now. For AirDNA, we are still in whenever inning want to callit – second or third inning of this game. We got the data. The data is getting really, really accurate. And I think in this digital world, what we're trying to get to is, you know, giving data to people, giving them market intelligence reports, showing them with the scoreboard looks like it's all great. It's all interesting. But a lot of people don't know how to interpret that information. What do I do with it? What action should be taking? I might change my revenue management. Where am I going next? Where should I be really spending my time and the operational problem that I have? The big next step is, hey, we're going to send recommendations. We're going to recommend you change this. You change that. You do that. You know, here you're like your punch list of things that are wrong with your properties that you need to attend to immediately. So getting a lot more predictive on how we can analyze your portfolio, understand where it's going well and where, understand where it's not going well. At the end of the day, this stuff all becomes automated, right? We have the best data and the best recommendations and now you can just put your properties on autopilot. Here, we'll call your cleaner for you. We'll send a service person for you. We’re going to update your pricing for you. And so we just see the world is a very automated place in the future. And if we have the best data, we can tell you how to do things and even better we can just do all that stuff for you and just give you your report card every week on how great we're doing for you. So I think we're somewhere early in that continuum of having the best data. And how do we create the best operating tool that automates everything possible from a data perspective is kind of where we think about ourselves long term.
Spencer Levy
Rachael, final thoughts, big picture on what you think about the future of AirDNA, Airbnb and how it fits into the broader hospitality ecosystem.
Rachael Rothman
I mean, I guess I'll just say I remember back in 2016 when I was a stock analyst for a living and Jamie, you know, we interacted often then. And I remember many of the investors were concerned that short term rentals would somehow mean the end of traditional hospitality or traditional lodging. And I think it's just amazing to see how here we sit today with record rent PA in hotels and as Jamie saying record performance for the short term rentals. And it really does show that there is a use-case and a need-state for all of these asset types and that they can live harmoniously together. If I had one takeaway, it would just be, look how interested the consumer is in traveling like we see it everywhere.
Spencer Levy
With that, I want to thank our guests, starting with Scott Chagford, the former CEO Curve, current board member, co-founder of Air DNA. Scott, thank you so much for joining the show.
Scott Shatford
It's been a pleasure. Thanks, everybody.
Spencer Levy
I want to thank my former colleague, friend, Jamie Lane from AirDNA, vice president of research. Jamie, thanks for joining the show. Thanks.
Jamie Lane
Thanks for the opportunity.
Spencer Levy
And Rachael Rothman, CBRE, head of Hotel Research. Rachael, great job again on the show.
Rachael Rothman
Thank you so much. An honor to be here.
Spencer Levy
For more on short term rentals and more on our show, please visit our website, CBRE.com/TheWeekly Tke. After this brief stopover, we have more new programming in the weeks to come, including a visit to New York City for our debut on Broadway. That is, for a show on the real estate side of the business of theater. So stay tuned. Meanwhile, don't forget to share the show and to subscribe, rate and review us wherever you listen. Thanks for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.
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