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Short-Term Rental Market Analysis for 2021 — Is It a Good Time for Vacation Rentals?

There's no denying that 2020 has been one of the toughest times to be in the short-term rental market. The industry was projected to experience exponential growth at the beginning of the year but ended up going through unprecedented uncertainty instead.

    At the same time, however, 2020 has also seen a record in staycation bookings and an unexpected boost in the domestic tourism industry. This is a trend that's continuing through 2021 and prompting more and more people to invest in their very first vacation rental.

    Luxury House

    If Covid-19 couldn't stop the stellar growth of the short-term rental industry, then what could?

    In this article, we'll take a look at the current state of the vacation rental market, including the projected occupancy rates and demand trends following the pandemic. We will also guide you through the best choices property managers can make when investing in a new vacation rental property.

    Is there a market for short-term rentals?

    First things first, let's answer the most burning question new real estate investors might want to ask in 2021: Is there even a market for short-term rentals when the world is at a standstill?

    While back in early 2020 the pandemic did definitely put a dent in many investors' business goals, figures show that travelers (and especially domestic travelers) are more eager to go out and explore new destinations than ever. 

    Airbnb accommodations or other short-term rental properties, for example,  have been shown to be much safer than hotels when it comes to isolating and avoiding close contact with other travelers. 

    Uncontested industry giant Airbnb reached a market cap of $130 billion earlier this year--it just makes sense that newly vaccinated, conscious tourists would choose short-term rentals as their accommodation of choice this summer.

    But what other types of properties could you expect to be in demand? 

    According to the National Multifamily Housing Council, around 65% of all Airbnb rentals can be found in multifamily buildings, suggesting that the bulk of the market resides in urban apartments.

    That said, as travelers continue to avoid busy urban centers and prefer heading out to more secluded and quiet destinations, the supremacy of multifamily buildings is starting to waver. 

    Therefore, it's fair to assume that property managers might fare better looking at more remote, beauty spot properties instead, or even consider smaller, on-the-rise tourist hotspots.

    The biggest short-term rental trends of 2021

    As demand for these types of short-term rentals continues to rise, investors have to adapt to the rapidly changing trends in the industry and use them to their advantage. They need to provide the ultimate vacation rental experience their guests are looking for and lock in the high returns this industry is so well-known for the offering.

    Following the impact the Covid-19 pandemic has had on the tourism sector as a whole, here are some of the biggest trends you can expect in the vacation rental market going forward.

    Increased focus on frictionless stays

    One of the biggest trends to come out of the pandemic is that guests are now preferring tech-facilitated, contactless stays over more personal human experiences.

    In order to meet the demand for a more frictionless stay, short-term rental owners are now embracing the benefits of technology by providing keyless entry, comprehensive guide books on arrival, and constant digital communication opportunities to interact with their guests and answer their questions.  If social media was important before, it is now considered absolutely essential to make sure your guests are feeling well cared for, without in-person contact.

    More long-term opportunities

    The drop in demand and occupancy rates following the very start of the pandemic means that many short-term rental owners have had to find more creative ways to adapt and continue to make profits.

    As a result, encouraging long-term stays or even longer short-term stays has become one of the leading strategies across Airbnb and other short-term rental listings. In addition to that, some property owners have started to enter flexible partnerships with traditional real estate agencies and professionals, allowing them to take over the property during the low season and rent out to long-term tenants or "work-from-home" travelers.

    Search for a hotel-like experience

    Following the increased need for a frictionless, tech-driven, and more impersonal stay, travelers are also increasingly looking for a more hotel-like experience. This means that a solid social media presence, sleek branding, and exceptional service standards are slowly becoming the norm.

    This might be due to the desire to truly switch off and enjoy a hotel-like experience without the contact risks associated with staying at a hotel. It might also just be an organic trend stemming from the growth of the short-term rental market and its increasing popularity.

    Whatever the reason might be, it's worth reviewing your current social media strategy and branding to make sure you can capture this growing audience. You should revise your service options or even property design to ensure your short-term rental can keep up with these new expectations.

    How do you analyze short-term rentals?

    So, how can you make sure to capitalize on these trends for your advantage this year? Knowing what to deliver is only the first part of the process, the rest will be learning how to evaluate a great market opportunity from the get-go.

    While current trends seem to have left bustling urban centers and internationally-renowned destinations behind, there are many more factors that go into analyzing the viability of the location, neighborhood, and accommodation style you've been eyeing.

    Sunset and woman

    Consider your target market

    The first thing you should evaluate is your target market and how your desired guests will fit into the location and type of home you want to invest in.

    Millennials, for example, are known to prefer unusual accommodation and vacation rentals with a personality, whether they're in the heart of the big city or staying in a remote cabin.

    Millennials are unlikely to prefer a hotel-like experience but rather the small-scale feel of an independently-owned business. They will often look for plenty of Instagram photo opportunities when staying somewhere new.

    Beach lovers of an older demographic, on the other hand, might prefer luxury-style accommodation and hotel-like convenience when looking for their next getaway. They might be looking for beautiful, quiet accommodation close to the beach and be prepared to pay top dollar for a convenient location. Whatever target market you're trying to attract with your investment choices and marketing, make sure it's something you keep in mind when making  your final decision!

    Understand the local economy

    After figuring out what kind of demographic you're trying to reach with your investment, your next step will be to get in touch with an experienced, local realtor. They’ll be able to give you all the insights you need to understand the local economy.

    This will include getting familiar with the average cost of living, the amenities available, the best neighborhoods, and the projected state of the local economy for the years ahead. This is also where you'll evaluate the viability of your chosen location in terms of tourist appeal, not only checking the figures to see just how many people visit the area during high and low seasons, but also making sure that your property ticks all the boxes tourists will be looking for. 

    You'll also want to ensure your new property is conveniently located close to public transport and popular attractions, including beauty spots, restaurants, and shops.

    Dive into the analytics

    Consulting local realtors and making an educated guess on the state of the real estate market in your chosen location can only go so far the most accurate way of analyzing the market you're interested in is to dive deep into the numbers and come up with your own conclusions.

    The best way to access the analytics you're looking for is to head over to websites like AirDNA, which are designed to give you an objective overview of just how profitable your next investment might be. They provide all of the insightful data on vacation rentals you might need to price and market your property right. The data provided includes average occupancy rates, average daily rates, and yearly revenue, allowing you to take a close look at just how well (or how poorly) your competitors are doing.

    Where is the best short-term rental market?

    It's clear that location will be the biggest deciding factor in making your next short-term rental investment either a success or a flop. So, where in the country should you focus your attention to make sure you can make the most out of your investment?

    While the exact answer will depend on your specific target market and budget, here are some of the largest short-term rental markets you should keep an eye on in 2021.

    Sevierville, Tennessee

    Overlooking the majestic Smoky Mountains, Dolly Parton's hometown can offer travelers the break of a lifetime. It’s also wildly popular all year-round among great-outdoors enthusiasts.

    Annual revenue potential: $61,961

    Revenue growth rating: 65

    Rental demand rating: 71

    Investability rating: 100

    Investor score: 83.9

    Gatlinburg, Tennessee

    The Great Smokies are a sight to behold all year-round, and getting a secluded cabin right on their doorstep will always guarantee great occupancy rates.

    Annual revenue potential: $55,439

    Revenue growth rating: 56

    Rental demand rating: 70

    Investability rating: 100

    Investor score: 81.6

    Pigeon Forge, Tennessee

    Pigeon Forge is another popular destination for outdoor lovers looking for easy access to the Great Smoky Mountains, along with plenty of amenities and entertainment facilities.

    Annual revenue potential: $51,857

    Revenue growth rating: 70

    Rental demand rating: 42

    Investability rating: 99

    Investor score: 77.1

    Gulf Shores, Alabama

    As one of the most popular, yet definitely up-and-coming beach destinations in the South, Gulf Shores is a dream investment for owners looking to attract families and golf-loving couples.

    Annual revenue potential: $99,095

    Revenue growth rating: 74

    Rental demand rating: 19

    Investability rating: 100

    Investor score: 73.2

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    Your one-stop destination for understanding the vacation rental market

    So, are you ready to dive into the short-term rental industry and invest in your new (or next) property?

    There's no point in denying that the tourism and short-term rental industry has felt the full impact of the pandemic, but as travel resumes and the world starts to open up more, the already incredible investment opportunities you can take advantage of now will quickly become even more profitable.

    In short, there's never been a better time to get in early and turn your next investment property into a successful short-term rental.

    If you're looking for the best place to start evaluating your options and understanding what making it in this industry is all about, you should look no further than our handy directory. In it you will discover all the best investment opportunities available on the market, plus all the insights you may need for making smart choices as a vacation rental owner. Get in touch today to get the journey started!

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