The ongoing pandemic has already slowed bookings for companies like Airbnb, and may prompt investors to shift their strategies going forward.

Less than two weeks after the World Health Organization declared a pandemic over the coronavirus, one thing has become clear: People are traveling less. Airplanes are flying empty, hotels are shutting down and fewer people are booking stays in short-term rentals.

These trends have an array of ramifications across many industries, but they’re particularly acute for real estate. Less travel means less revenue for property owners. It also has the potential to disrupt the lives of the agents who work with rental investors, the companies that manage and operate units and the venture capitalist investors who have recently fueled explosive growth in the sector.

Though the pandemic is still relatively new, it could prove to be a uniquely disruptive moment for the short-term rental ecosystem — only time will tell what kind of market emerges on the other side of the crisis.

The first impacts are already here

What we know right now is that the effects of the crisis are here and they’re significant. In a report from March 11, short-term rental analysis firm AirDNA reported that demand for units was already “seeing significant setbacks.” The firm also revealed that urban markets were seeing greater impacts than leisure markets, and that coronavirus-driven event cancelations were exacerbating the problem.

Since AirDNA released its report, the number of confirmed coronavirus cases has nearly tripled. It’s not clear how travel has fared since, but given that various restrictions on movement — at least in the U.S. — have only become more severe, it’s reasonable to assume short-term bookings have plunged even further.

Credit: CDC

Asked for information on its bookings and the coronavirus impact, Airbnb referred Inman to its coronavirus response page. The page does not include data on bookings, but does provide information on the company’s now-more lenient cancelation policy, among other things.

Real estate experts also agreed that the short-term industry is suffering.

Jared Antin, director of sales at New York City-based Elegran Real Estate, told Inman that in his market “we’re definitely seeing that bookings are down and cancelations are up.”

“We’re seeing those companies start to offer some incentives and discounts there,” he said, referring to firms that operate groups of units as shorter-term rentals.

Alex Allison, co-founder and managing partner at Denver-based short-term rental company D.Alexander, similarly said the impacts to the industry are significant.

Alex Allison

“The hospitality travel lodging space at large, globally, has been radically impacted,” he told Inman. Unlike other short-term rental companies such as Vacasa that manage units on behalf of owners, D.Alexander owns its rentals outright. It operates in six markets in California, Tennessee, Florida, and other states.

And Allison said that his company is currently seeing some curious booking trends.

“Generally, someone books about 110 days in advance,” he explained. “But we’re seeing that cycle shorten dramatically, in which people are booking next day. They’re also booking longer durations of stays. They are looking for a home that is more isolated than their own home.”

Those observations track with earlier indications that the coronavirus is driving growing interest in survivalist-type real estate and safe houses.

It’s not yet clear where all of this leads, or if we’ve reached the bottom of the short-term rental market. Given that cases of coronavirus in the U.S. continue to rise, however, its likely that there’s more upheaval in store.

Awaiting the investor response

There are two groups of investors who will feel these trends most acutely.

The first and most obvious are the property owners themselves — so for example, people who bought a vacation home with the idea of renting it out at least some of the time.

Jared Antin

Antin pointed out that in times of economic distress, “secondary homes and vacation homes are the ones people let go of first.”

“They may put them on the market if they can’t weather the storm,” he added of the ongoing crisis.

Such an uptick in supply, if it materialized, could come at a difficult time as demand falls. And that in turn would ultimately be a recipe for falling property prices in vacation-oriented communities.

However, at this point it’s still way too early to say what may happen, and Antin noted that real estate generally is seen as a less volatile asset class, meaning that it may also be an effective place for investors to park their money.

The other type of investor impacted by the virus outbreak are the venture capitalists who have helped the short-term rental sector grow. It’s worth noting that such investors have been key players in recent years, pouring hundreds of millions of dollars into companies like Vacasa, for example, making it the largest firm of its kind and giving it a valuation over $1 billion.

Airbnb has gone even further, raising $4.4 billion. It’s also reportedly talking to investors right now about accepting even more cash.

The virus outbreak and resulting economic chaos may force some of the investors who get involved in such high-profile funding rounds to adjust their strategies. Among other things, well-funded startup investors may be “forced to inject more liquidity into portfolio companies,” according to a March 16 note from software and data analytics company Pitchbook.

The note — which Pitchbook provided to Inman — isn’t specifically about companies operating at the intersection of travel and real estate. But it does point out that “the travel and leisure industries have already seen demand plunge.” It also argues that investors’ holding periods will “increase as firms will be forced to hold struggling assets and may find exit markets to be completely subdued for most assets.”

In other words, investors may have to pump more money into the companies they back, and then hold onto those assets for a longer period of time.

The upside, though, is that Pitchbook believes that while the investment environment may change, it won’t disappear, with the note adding that “many name-brand [venture capital] firms also seem primed to benefit in the current environment.”

Other observers believe that investors won’t head for the hills in the coming weeks or months, but rather will be more discerning with what they back. Allison made this point, saying that the current crisis will force both entrepreneurs and “individuals to think differently about their business.”

He speculated that companies may explore different ownership models for units, or for something in between short- and longer-term rental periods.

Moreover Sundeep Chanana, founder of investment bank Horatio Partners, told Skift last week that investors won’t necessarily “self sideline,” but “will apply stricter filters when searching for high quality assets.”

The result may be a willingness among companies to look for new and emerging ways to make money.

“At any time like this I think you’re going to see business models change,” Allison said. “People are going to reevaluate their business model. And what investors look for will change in parallel.”

The future is still uncertain — but not automatically grim

Inman reached out to Vacasa to see how the company was doing amid all of this chaos. It didn’t provide any data on bookings, but in a statement did describe the present moment as a “period of uncertainty” and said “this is a difficult time for the travel industry as a whole.”

“However, we expect once this situation stabilizes, we will see increased demand for safe travel and reliable vacation experiences in professionally managed short-term rentals,” the company said.

Vacasa is obviously partial. But despite the dire headlines about the virus, a belief that normalcy will eventually return does seem to be widespread. Chanana, for instance, said that older and more established companies should “remain calm and optimistic.”

And Antin told Inman that he believes impacts to investment in travel and real estate-oriented startups will be a “blip”— providing the coronavirus outbreak is contained soon.

“If we sort of normalize in the next 60 days, I think in the grand scheme of things, in the next six to 12 months, it’ll be a blip,” he said. “In my opinion it’s a matter of time before it can bounce back.”

Finally, Allison noted that “we’re very early on,” and said that the coming days and weeks will be especially telling.

“I think the next couple of weeks will give us a strong indication of the impact and where the industry will go,” Allison said.

Email Jim Dalrymple II

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top
We're here to help. Free 90-day trial for new subscribers.Click Here ×