The short term rental industry has exploded over the past decade. This post examines the deep shifts in real estate, technology, and labor that have forged a new definition of "mixed-use" and opens the discussion with insight into the direction it’s heading next. Following is an excerpt of the post. To read the entire article, click here; https://www.vrmb.com/mixed-use/
Part 1. The Death of Retail Commercial Real Estate
It all started a few years ago when I was in NYC for a business trip. We had just purchased our new home so I took an extra day to visit an area of the city that used to be lined with home store after home store.
At the time, I was working for a large media company in corporate America and leading a division that helped traditional media companies (think newspaper and television companies) integrate digital media into their advertising teams.
By then, I had seen first hand the impacts that “going digital” can have on businesses. However, I had never thought of the implications that could mean for real estate.
Until then. Somehow seeing the visual of what used to be a retail mecca now lined with “for lease” sign after “for lease” sign on vacant storefronts, it finally hit me. I remember thinking to myself: what is going to happen to all of this retail space as more shopping happens online and less happens in-store?
The headlines in years since have only caused this question to fester. According to a recent article in Moneywise, “Walgreens, Dressbarn, Pier 1, Gap and other chains have already announced 7,500 store closings in 2019 -- way more than we saw during all of 2018.”
Reinvented Spaces
Vacancies have led to reduced commercial rent, which has led to reinvented use of commercial spaces. One way these spaces are being reinvented is by tapping into the sharing economy.
Allwork.Space reported on the increase in co-working spaces that “Between 2014 and end of 2018, the number of flexible workspace locations expanded by +205% while the number of operators expanded by +138%.”
Another new trend is converting large vacant spaces (or developing unused land for multi-family spaces) for the sole purpose of short-term rentals. The death of traditional retail has created new ways to meet today’s consumer demands.
The Consumer Shift to Digital
This new economy has also changed the way people interact with one another – consumer habits have changed dramatically.
I think of my own habits and how they have migrated online. I rarely leave my house to grocery shop because I do it through an app. During the week, I do not even leave to eat out because dinner from my favorite restaurants can be delivered to my door. Many days, I do not even leave to go to work in the traditional sense because I can do a fair amount of what I need to on my laptop, iPad or phone.
I did not grow up doing all of those things. This shift really has only happened in the last few years for me. However, many people just slightly younger than me (and those much younger than me) may never know the reality of grocery shopping or reporting into a physical office.
Knocking on your neighbors’ door for sugar is a foreign concept to many. This is just one of many factors for a reduced appeal of home-ownership among millennials.
Short-term rentals are growing exponentially. People are re-purposing unused real estate such as vacation homes, portions of their own homes, and even newly-purchased property for the sole purpose of short term renting it.
What some new-to-the-scene folks do not realize is that short-term rentals date back to the 1950’s in U.S. and even earlier in Europe (side note: check out this great infographic on the history of vacation rentals by Rentals United).
Vrbo (formerly Vacation Rentals by Owners) was founded in 1995 as a place for hosts to list their vacation rentals for potential guests. Back then, while they may have found the home on VRBO, most communication was done via phone, fax or even snail mail.
Then in 2008, Airbnb came along. What originally started as “Air Bed and Breakfast” because the founders began renting out air mattresses in their apartment, now boasts “6+ million unique places to stay in 100,000+ cities and 191 countries and regions” according to their site.
Airbnb managed to bring a “cool factor” to the traditional vacation rental model. Though not the first game in town and definitely not the only, it has become the verb many use in and outside of the industry (i.e. “I have an Airbnb”).
Accidental Investors vs. Accidental Hosts
This “cool factor” and rise in short term rentals has attracted two distinct groups of stakeholders:
- Those with a desire to host
- Those looking to invest for income
I personally started in the “desire to host” camp. As a by-product, it has also provided a steady income stream for my family. I call my group Accidental Investors. This group is focused on guest experience, providing unexpected amenities and making sure the space is uniquely designed to stand out. While many of us Accidental Investors are smart about making sure those things also result in increased occupancy or revenue, those are not the main reasons we do them, they just help us justify them.
Most Accidental Investors scoff at those who enter the industry solely to make money.
Traditional investors, on the other hand, look at vacation rentals as first and foremost a financial decision. They analyze all aspects of the deal, make sure the property will be income producing and then consider if further expenses can be justified for things like guest experience, amenities and design. I call this group Accidental Hosts.
Many Accidental Hosts look at Accidental Investors like we are crazy for doing what we do to make guests happy because they feel renting your home should be purely a business transaction.
Adding to the two newbie groups above, you also have The Pioneers: the predecessors who have been renting traditional vacation rentals since before it was the cool thing to do – you know, before Vrbo and well before Airbnb. This group is now trying to adjust to the newfound popularity of the industry which can be both good and bad: while new ways to market their homes has increased, so has competition. Some are on board and adapting with the times while others are rolling their eyes at both newbie groups and longing for the good ole’ days before Airbnb came along and ruined it all.
