Winter 2022-2023 Outlook & Airbnb Earnings Discussion

Hello hosts!

If you followed Airbnb’s most recent earnings statement, you’ll know that Airbnb just posted its most successful quarter to date. But, as an owner, you might be looking at your booking calendar and seeing it has really cooled down. Perhaps you’re wondering if the momentum is actually going to continue or if the so called ‘Airbnbust’ is here? Let’s take a deep dive into the data, review things from a macroeconomic level, and make some predictions on the next 6 months of travel. 

Let’s get started.

Data

First, let’s quickly review what Airbnb’s earning statement told us. 

AirBNB increased their revenue by 29% year-over-year topping US$2.9 billion for Q3. The revenue increase was driven by growth in both the nights and experiences booked, as well as an increase in the average daily rate, or ADR. Their Q4 guidance is between $1.8 and $1.88 billion. This is to be expected, as winter season is usually a bit cooler for tourism than it is in summer in most markets. Due to the winter, people don’t tend to travel as much, and school is back in session and it’s harder for families to vacation. When they do, they tend to stay local. The main exception to this would be the ‘warm weather destinations’ like Florida, the Caribbean, etc which tend to see higher travel in winter, when the weather is not blisteringly hot.

Many of us experienced, and maybe even participated, in this summer’s red-hot travel season. By most metrics, it was historic. Occupancy levels were back to pre-pandemic levels, ADRs were high, and all indications were that travel was back after the pandemic. People were ready to head out of their houses again, and hopefully as a host you were able to take advantage of it as well. But there were also some things boiling under the surface that we need to look at, so let’s take a deeper dive into some other things that are going on and affecting the market.

The Economy

As we all know, war has been raging between Russia and Ukraine, driving up fuel prices, which has affected the price of just about everything. You may have experienced higher costs yourself, whether it’s drycleaning, utilities, the cost of your cleaners, etc. It is affecting everyone. 

By midsummer, inflation had hit a multi-decade high, closing in on 10% in some markets. This has forced governments to increase interest rates to ramp down inflation, and has also had a negative impact on real estate markets and the cost of borrowing money.

We all know one of the buzzwords of the past few months have been ‘recession’. Most governments have been warning that their economies would slow down as we enter the winter. Between the issues of inflation and recession fears, it has created fears in the accommodation services sector. 

But it’s not just a demand issue that’s going on, there’s also a supply issue. So let’s take a closer look at that side.

Many people have been looking at STRs as a great way to make income, and historically it has been. However, we’ve been experiencing a huge growth in supply. Take a look at this chart, comparing 2021 to 2022 data. 

The orange lines show the percentage increase in listings in six major Canadian markets, you can see that there has been an increase across the board, and around a 35% increase in listings across Canada. This trend is similar in other geographies as well. 

People want in on the success of vacation rentals. You can hardly blame them — you’re investing in the traditionally stable real estate market and have the ability to make some extra income? Seems like a win-win situation. You have long-term potential while earning short-term income to help cover costs such as your mortgage.

Putting it all together 

There’s so much going on. To recap, Inflation and interest rates at multi-decade highs, we are entering winter which is a quieter travel season for most of us, people are calling for a recession, with which we should expect lower demand. There’s increased competition for STRs, so supply has gone up. So right now, it seems like the system is out of equilibrium. 

So what will that do your rentals and how do you set reasonable expectations to help get you through winter?

I think we can make some pretty safe assumptions for this winter season

#1. ADR and occupancy will decrease a little bit this winter

• Excluding the traditionally warm weather destinations that I mentioned earlier, the rest of us should expect lower average daily rates from summer and last winter.
• There are more units in the market now, so people can shop around and can look for a better deal.
• In winter destinations, like Florida, I do expect lower overall occupancy rates when you compare a normal year with lower ADR as well.

#2: A shorter booking window

• In times of uncertainty, we usually expect the booking window to compress a bit. People traditionally wait for hosts & hotels  to lower their rates to get the best deal possible. With lower demand and higher supply, people can afford to wait, and don’t have to worry too much about not being able to find a place to stay.

#3. Expect some owners (but not very many) to change to a long-term rental model

• Some people may be doing their own economic assessment and seeing that there are too many units on in their local area that they’re in, and can do better with a more traditional homeowner-tenant agreement and change to long-term rental. I do think that this will be limited and more of a long term game.
• You also have lots of people who are joining the market, who are transitioning to short-term rentals, which exacerbates the supply side.

So what are some things you can do to stay ahead in this time of economic uncertainty and beat your competition?

#1. Get professional help.

• Finding a consultant or advisor with hospitality experience that you can trust, to help you ride through this wave of uncertainty, can go a long way towards achieving your goals for your vacation rental. There are lots of advantages to having someone help you with your STR and you can usually see a greater return on your investment than if you just go it alone.
• There are lots of advantages to having a professional advise you with your short-term rental. They can help create a gameplan, monitor rates, etc, and have lots of tricks to help you find your path to success. The benefit of having a professional on your side will usually far outweigh the cost. 

#2. Expand your reach

• If you are only listing on one OTA like Airbnb, you should consider expanding your reach to be seen by as many people as possible. Listing on other non-traditional vacation rental websites like Booking.com or Expedia are really healthy ways to get seen by as many people as possible and ensure you are in a healthy place with your vacation rental. You may also want to consider developing a marketing strategy to be seen by even more people.

#3. If you can handle it, right now is a great time for renovations

• Have you been putting off a renovation project that you’ve had planned for a while? Well, this is a great time to do that project. I usually look at quieter times like this as an opportunity to get ahead, so that when things restabilize, or become more predictable, you’ll have something that sets you apart from the competition. And this is especially important in an age where we’re going to be seeing more units on the market, increased supply, and you’ll need something to differentiate yourself from the rest.

I hope that this helps you with what to expect over the next few months and has given you something to think about with your STR. What are your thoughts? Have you been experiencing a slow down? What do you think the next year will bring you? Let me know in the comments below, and, as always, happy hosting.