Our Chicago multifamily team takes a national look at this growing trend in our new report, Short-term Rentals: The Next Evolving Asset Class. The concept has existed in a limited format for decades – with small local operations and corporate housing outfits dotting the nation. Homeshare platforms like Airbnb and VRBO then revolutionized the market, steadily becoming a primary means of travel lodging for the common consumer – attaining over 500,000 average stays per night by 2018. At the same time, the 2010s real estate cycle saw a wave of new Class-A apartment buildings delivered largely around downtown submarkets nationwide. Given the valuable locations and amenity sets of these apartment buildings, an underground market emerged on homeshare platforms for these units. A new crop of startups arose to legitimize and streamline this market, with the most successful among them creating independent national platforms with hundreds of branded, furnished apartments.
Many of these platforms first began by partnering with existing multifamily properties to deploy a small sample set of units. For example, WhyHotel targeted newly delivered multifamily assets in lease-up – offering to fill the rooms until full term leases could be signed for 90%+ units. Several other platforms decided to begin on a smaller scale, ownership-based model. These operators focused on purchasing smaller three-flat and garden-style apartments, converting them to short-term rentals as proof of concept.
In 2019, many of these operators now exist on a national scale, master leasing entire buildings for short-term rentals. Stay Alfred has established operations providing over 2,500 units in 33 cities across the country. Lyric has received funding from Airbnb for its portfolio of assets across 13 markets. WhyHotel has announced a new subdivision called Hospitality Living that will be dedicated to building ground-up short-term rental developments.
What Makes Short-term Rentals Different from Hotels?
- Units are furnished with complete apartment-grade in-unit amenities – often including full kitchen, full bath and in-unit washer/dryer
- An operational platform that is streamlined to provide a frictionless interface for guest booking, access, customer nurture and event planning
How are Short-term Rentals Different from Traditional Multifamily?
- Guests pay on a nightly basis, often staying for only a few nights
- All apartments come fully furnished with furniture, kitchenware and necessities
How Does Incorporating Short-term Rentals Improve a Multifamily Asset?
- Reduces vacancy by diversifying customer base to fill empty units
- Boost NOI through multi-year leases with guaranteed market rents
- Provide additional amenities to full-time residents, including discounts and event planning
Over the past decade, several demographic factors have primed U.S. markets for the short-term rental surge.
- Apartment-grade expectations: Travelers increasingly want to stay in places that have the complete set of amenities they’ve come to expect from the apartments they live in.
- Destigmitization of short-term rentals: The National Multifamily Housing Council has conducted annual surveys showing that over 60% of renters either have a positive or neutral view of sharing their building with short-term renters, with the highest approving age group skewing towards those under 25.
- Short-term rentals for the business traveler: Business travelers made up 15% of Airbnb bookings, with the homeshare platform looking to expand to 30% by the end of 2020. The global business travel industry is estimated to be over $1T. Over 700,000 companies have already utilized Airbnb for employee travel lodging. Short-term platforms that can provide consistent, guaranteed accommodations with high proximity to downtown offices will be the premier choice for business travelers.
Chicago is among major U.S. cities experiencing a short-term rental boom.
- According to AirDNA, there are over 7,500 short-term rental units currently on homeshare platforms in Chicago.
- Short-term rental concepts such as Stay Alfred, Lyric and Sonder already provide over 300 units for Chicago visitors. Chicago is the number one destination request for Stay Alfred— both for families traveling on vacation and business travelers alike.
- Arrival of Hyatt House, the extended stay arm of Hyatt, in Fulton Market is expected to provide 67 residences to attendees of McDonald’s famed Hamburger University.
- Corporate short-term rentals have also grown in prevalence, with firms like Oakwood and Onni Group scaling corporate housing operations to full floors of newly delivered downtown Class-A apartments.
The short-term rental space has evolved tremendously over the past decade. What began as small-time owners sharing space in their homes has morphed into a global industry where Airbnb alone is worth an estimated $31B. Travelers initially were drawn to homeshares for price discounts and the added authenticity & community these offered over traditional hotels. Now, travelers have reevaluated what they’re looking for in travel accommodations entirely – seeking more of a home in the location they desire than just a ‘place to stay’.
Travelers for vacation, business, medical or education have all been moving towards homeshare platforms. However, these platforms alone do not provide the quality and consistency that many travelers expect when it comes to in-unit furnishing, building amenities, service or location. This is where short-term platforms that utilize traditional multifamily assets come in. Not only have these found success in limited trials, but full-scale buildings built on this model are mere months away from delivery.