The importance of tech equity in short-term rental recovery

Merilee Karr, CEO of UnderTheDoormat Group, explores the impact tech equity can be in the short-term rental sector in Locale's 'Tech Equity in Real Estate'. The Short-Term Rental (STR) sector has bounced back strongly since Covid – travel has bounced back and the return of the megatrend of travellers preferring
apartment/home-style accommodation over hotels. At the same time, the cost of the average long-term rental has increased significantly, as have mortgage rates, contributing to the cost-of-living crisis.

It’s tempting to see the rise of short-term rentals as nothing more than individual “Airbnb-ers,” amateurs who can’t manage the potential impact on other residents and communities. As a result, some building managers and operators think the best route is to try to ban the practice. This misses two important messages from the market.

Firstly, the sector has matured and professionalised to such a degree that the industry platform TrustedStays recently launched short-term rental inventory on the Global Distribution System in a global deal with Amadeus – the first-ever tie-up of this kind. Where once shorter-term rentals were synonymous with Airbnb anxiety, they’re now forming part of government and corporate travel programmes.

And secondly, short-term accommodation is popular precisely because it meets the needs of individuals and residents. Those looking for somewhere to stay increasingly want flexibility in their rentals – to be able to stay for 1, 3 or 6 months at a time when landlords often want 18- or 24-month contracts. And existing residents want the opportunity to travel or work remotely for longer periods of time without having to pay rent for an empty home.

There is an increasing gap between individual property owners who can let their homes out when they are away and residents in build-to-rent and other multi-unit buildings who are often banned from doing so. To stop this growing disparity between individual home dwellers and apartment dwellers, the real estate industry should embrace the technology that levels the playing field. Flexible rentals technology captures the future for residential real estate. Existing residential real estate technologies are built to rent for longer tenancies (6+ months), and their architecture is not equipped to handle flexible rentals (especially for less than 1 month).

Newer generation technology in the short-term rental space can solve this and offer a number of benefits:
• Existing residents are able to monetise their property when they travel, helping cover the cost of increasing rent/mortgage and offering a
 tangible resident benefit
• New residents have more options for flexible stays, better meeting their needs
• Property owners/operators can reduce void periods between tenancies or while awaiting sale or offer current residents a way to travel
for longer within their contract

The breakout of Airbnb gave a great opportunity to individual owners but no visibility to building operators.

Newer technology systems – such as distribution software like Hospiria – enable residents to manage their availability and for building operators to see all guest stays in their buildings. Increasing transparency in this way will enable all types of renter/owner to gain the resident benefit from short stays while building owners and operators have full visibility to ensure all risks are mitigated.

But there is still progress to be made. The short-term rental technology landscape is fragmented, with many different platforms and software. Operators often complain of ‘death by Chrome tab’ with no one technology having the ability to aggregate the functionalities into one place. However, new STR property management systems, like Hospiria, are amalgamating all the functions required to operate flexible rentals natively into one place vs a marketplace solution which many other technologies provide. For residential real estate, these native systems provide a full end-to-end service for customers with everything they need to operate flexible rentals in one place.

STRs have the benefit of capturing incremental value from ADRs (average daily rates), which have risen in comparison to the residential market, where there is reliance on annual or monthly numbers which are often static and not set up to consider inflationary rates. Bottom lines will increase, but their revenues will be stagnant as they are locked into long-term contracts in contrast to the flexibility the STR market brings. Blackstone has stated this as an opportunity for the residential real estate market.

This presents an opportunity for technology investment in the short-term rental space. With the right investment in the STR sector, there are real opportunities to partner with or disrupt the residential real estate market by providing vehicles to offer and manage flexible rentals and support the wider needs in the rental market, which residential real estate technology currently cannot do.