STR industry is contracting but remains ripe for business opportunity

The short-term rental industry is contracting – and evolving.

Barcelona introduced an impending ban on apartment rentals last month. New York City tightened the reins on STRs, implementing new regulations last year. The European Union has been exploring how to regulate the industry’s data.

“I think, paradoxically, it’s a little bit of a challenge,” said Peter O’Connor, senior market analyst for Europe for Phocuswright, pointing to rising interest rates and the increased regulations, among other factors.

O’Connor’s comments came weeks before Barcelona’s ban announcement as he led a Center Stage discussion entitled “Short Term Rentals at a Crossroads?” at Phocuswright Europe featuring Sylvia Epaillard, co-CEO and chief commercial and digital officer of Interhome, Niko Karstikko, co-founder and CEO of Bob W., Henrik Kjellberg, group CEO of Awaze, and Vered Raviv-Schwarz, president and chief operations officer of Guesty.

Despite constraints, STR operators believe there are plenty of business opportunities still in the rapidly evolving and growing space.

Epaillard’s Interhome, which seeks to address management for more rural properties, sees room for growth when it comes to assisting independent STR operators.

“I think what is missing in the industry at the moment is really this owner consulting,” she said. “Airbnb doesn’t do that well. [We’ve] spoken to owners who are actually just working with Airbnb, [and] so much [is] lacking still in terms of tools and technology and transparency of how to manage a property well so that it works for the guests. So I think that there’s really room for improvement … and other ways to actually be close to the owner and help them identify the opportunities for growth, for more revenue, for happier guests.”

Karstikko’s Bob W., which operates hotels and short stay rentals, does operate in cities but operates from a “legislation perspective” – in the expanding market.

“Behaviors are changing and technologies [are] enabling us so that this area – that is not a hotel or long-term rental stay in which you base your life – and this gray area is massively growing as a market,” said Karstikko.

He continued: “If we take the flaps off and say this is what a three star hotel [does] and actually solve customer problems and fit and create a service and a proposition to a target audience that we’re addressing, this space is massively growing and there’s amazing opportunity there. And Airbnb was one catalyst toward that. But this is going to be the massive opportunity in the industry for the decades to come.”

The desire for uniqueness is also an area of opportunity – and one to be navigated as some consumers are accustomed to and crave consistency provided by legacy hotel brands. Panelists didn’t necessarily agree on how to maneuver in that space as some seek “professionalization,” as O’Connor put it.

Raviv-Schwarz said Guesty, which provides property management software, saw how technology helped the STR sector advance in years past as hotels weren’t as quick to pick up features such as virtual check-in. But now, STRs are seeking a higher level of professionalization as the sector continues to evolve.

“Now hotels are starting to move toward a more technology or contactless experience for their guests,” said Raviv-Schwarz. “And on the other hand, short-term rentals are trying to mitigate that by treating more hotel-like amenities and experience, professionalism and branding that they didn’t need in the past because it was a totally different experience.”

“[A] big part of the success of the hotel industry has been built over the last decades is massive amount of standardization,” said Karstikko.

But no matter whether what’s offered is unique or made to a standard, quality is the bottom line for hotels and STRs.

Kjellberg of Awaze, which manages vacation rentals and holiday resorts in Europe, said there’s no getting away with a bad quality stay today at a hotel.

“I predict the same trends are happening in vacation rentals as well,” said Kjelberg. “Few years ago you can have outdated pictures in a brochure … there was no way for the consumer to sort of say like ‘Actually, you know, the toilet worked poorly’ or like ‘You didn’t clean the property right.’ Well guess what? Today there is a way for people to do that. And if you don’t have a great quality for the guests, you will get penalized as an owner, so overall the quality will go up.”

The wide-ranging conversation also touched on the consumer journey and existing friction, existing certifications for STRs, bridging the gap between the STR and hotel worlds and more. Watch the full discussion below.