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Short Term Rentals – Where Luxury & Lifestyle Intersect

By Rachel Rothman, Head of Hotels Research & Data Analytics for CBRE
25 June 2021
4 min read
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Timbers Kiawah Credit Timbers Kiawah Ocean Club & Residences

Luxury home-sharing, branded residences, and fractional ownership are not new, but what was once limited to the elite, is now plentiful, accessible on any device, and bookable on demand.

Like hotels, the two biggest determinants of luxury are the physical aspects of a property – finishings, privacy, premium design, and a high degree of personalization, as well as what Laura Dutrieux, Managing Director of EMEA at RLA Global Hospitality Advisory, calls the “luxury of experience.” According to Laura, “high degrees of personalization, can be easier to achieve in short-term rentals.”

Pre-COVID-19, short-term rentals (STRs) were already proliferating, but 2020 brought about record growth.

Baron Ah Moo, Head of the US PKF hotelexperts highlighted that “before COVID the single most important variables in booking an STR would be proximity to destination, regardless of density. Now, apartments and STRs in urban areas have lost traction in the market to units that offer higher ceilings, outdoor spaces, and larger living areas.”

Analysis by Jamie Lane, VP of Research at AirDNA underscores that theme. “In US urban locations, where luxury units can average over $350 per night, demand was down over 50% for the year. In contrast, demand was up over 20% in 2020 for markets in mountain destinations and small town/rural areas like Big Bear, Winter Park, the Poconos, and the Ozarks.”

Grand Galerie Penthouse

Interestingly, as more nimble owners capitalized on the shift to privacy and remote locations, STR penetration increased from 3.7% of supply in 2019 to 13.6% in 2020, with 2021’s penetration expected to increase to 17.9% based on research by RLA Global’s Laura Dutrieux. Some of this increase can be attributed to shuttered hotels, which may or may not come back online in the future.

“With a scarcity of available units in many of these “high demand” areas, average daily rate (ADRs) rose for most Luxury properties. Professionally managed properties grew by the most though, with +10% compared to 2% for other individually managed properties,” Lane continued.

Capitalizing on the “work from anywhere” and shift to remote schooling, one crown in the Jewel is Timbers Kiawah Ocean Club & Residences, on Kiawah Island, SC, where the professionally managed residences offer the services and amenities of a five-star resort with the privacy and the exclusivity of a private home.

According to Chris Burden, Chief Development Officer at Timbers Resorts, “much more than purchasing a piece of property, Timbers Kiawah is meant to be a lifestyle investment with extensive services, amenities, and programming. At Timbers Kiawah, owners are purchasing an equity investment and making a lifestyle choice versus choosing to rent a vacation home. Timbers Resorts offers a wide variety of locations, including both beach and ski destinations, as many affluent clients enjoy these locales.

By remaining in-tune with the quickly evolving landscape, and offering programs such as “school lunches,” hands-on learning experiences (i.e. discovering local wildlife), and creating plug and play home offices, Timbers Kiawah was able to drive a 30% increase in sales volume in 2020, closing out the year with 11 transactions in December alone.

When asked if this trend is here to stay or if travel patterns will shift back post-pandemic, universally our experts agreed that the shift would be in large part permanent. With more families having experienced the breadth of property offerings during the pandemic, first- time hesitancy is abating.

Baron Ah Moo also highlighted, “Hotels have always been slow to adapt to changes in the market. VRBO, Boutique/Lifestyle accommodations, Timeshare, Vacation Ownerships, fractional ownership, and now home sharing have all forced big Brands to adjust their business model to be competitive. Airbnb’s market cap exceeds Marriott, Hilton, IHG, and Hyatt combined and will continue to redefine the leisure real estate investment model. For now, STRs remain a niche segment within hospitality due to their inherent fragmentation. The entrepreneurial aspect lends itself to a growth trajectory that will likely exceed traditional hotels provided the regulatory environment continues to remain favorable.”

With STRs offering increased sophistication like food delivery, chef-prepared meals, and other tailored services, luxury hotels will need to find ways to over-deliver in the areas of service, amenities, and physical surroundings to compete in the increasingly competitive landscape for the luxury traveler’s share of wallet.