Analyze Your Short-Term Rental Market

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Coronavirus COVID-19's Newest Victim: The Short-Term Rental Market

Part 1 – March 9, 2020

The coronavirus disease (COVID-19) was first reported on December 31, 2019 in Wuhan, China. Since then, over 110,000 cases have been estimated across 95 countries around the world.1 Out of the affected countries, China, South Korea and Italy are amongst those hit hardest by the COVID-19 virus.1 The outbreak has claimed over 4,000 lives worldwide, but the impact of coronavirus reaches far beyond the health sector.1-3

Al Jazeera News equated the magnitude of the effect of the coronavirus epidemic on the global economy with the financial crisis of 2008.2 ­­The travel industry is crucial to the global economy and thus, travel restrictions and recommendations, closures of transportation routes, cancellation of events and perceived risk of coronavirus has led to consequences to the travel and tourism industry around the world. 2, 4

In this report, we work to uncover the consequences of the coronavirus epidemic with respect to key performance indicators of the short-term rental market. We hope that continuing to analyze the impact of this epidemic on China’s vacation rental market will help us predict market trends in future epidemics  as well as to assess the future impact we may see in other countries where the coronavirus has just recently spread.

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China - First Case: December 31, 2019

With the city of Wuhan being at the center of the epidemic, China has been the most adversely affected by the COVID-19 virus.1 In January, China became the first country to be classified as Level 3 by the CDC due to coronavirus – a travel warning advising Americans to avoid all nonessential travel to the country.5 In response, Airbnb continuously updated their ‘extenuating circumstances policy’ to reflect health advisories and travel guidance by local authorities and WHO.6  Our Airbnb statistics reveal that this has had a severe impact on the behavior of short-term rental travelers.

We observed that beginning in 2020, the occupancy rates and adjusted occupancy rates for China’s vacation rental market were significantly reduced compared to a year ago. The average occupancy rate for China’s Airbnb market in 2020 dropped by 47% as compared to the previous year. The average adjusted occupancy rate was down 44% (Figure 1). In February alone, the occupancy rate fell 63% from the previous year, and the adjusted occupancy rate decreased by 59%. The data reveals that as concerns about coronavirus intensify, the behavior of Airbnb guests is radically altered.

Figure 1: The YOY adjusted occupancy rates for China’s short-term rental market

Figure 2: The YOY number of nights booked (1,000s) for China’s short-term rental market 

As observed in Figures 2 and 3, overall demand for China’s short-term rentals is down compared to last year as well. In February 2020 alone, the number of nights booked decreased by 37% as compared to last year. It is important to note that the projected demand should be much higher in 2020 than 2019, so this reduction is even more significant than it appears.

A causal impact analysis for number of nights booked in China over time revealed the difference between the demand observed in 2020 and what was projected to occur in 2020 without the impact of the coronavirus on the short-term rental market (Figure 4).7 We observed that these two values are significantly different (p-value = 0.03). In 2020, the overall number of Airbnb nights booked in China was 2.57 million, but based on other factors of the growing vacation rental market we would have expected an average of around 5.52 million. In other words, the observed demand in China’s short-term rental market in 2020 thus far is significantly lower than the predicted demand we expected.

Figure 3: The YOY change in nights booked  for China’s short-term rental market

Figure 4: Causal Impact Analysis for China’s number of nights booked over time (pre period: June 1, 2016 – December 31, 2019, post-period: January 1, 2020 – February 29, 2020)

In response to the outbreak, Airbnb blocked out all listings in Beijing from February 7th to March 1st 2020, while listings for Wuhan, the city at the center of the outbreak, remained.8 The data reflected this, as the average number of nights blocked in Airbnb’s all across China increased by 47% from the previous year. 

The supply of Airbnb listings in China increased as expected by normal trends. The average number of listings in 2020 increased by 74% from the previous year. Supply did not seem to be impacted by the disruption of coronavirus outbreak in China. However, the data shows that vacation rentals hosts in China did respond to the crisis in other ways. In February 2020, the average daily rate (ADR) was down by 18% as compared to February 2019 (Figure 5). This number suggests that hosts reduce the prices of their listings significantly in response to global epidemics.

In February 2020, China’s gross revenues for the vacation rental market were down by 53% compared to a year ago (Figure 6). Coronavirus is likely a significant factor in this reduction in earnings observed in China’s short-term rental market. It is also important to note that the supply of vacation rentals in China has grown by 74% over the past year which means that the projected revenues of the short-term rental market in 2020 should be much higher than gross revenues in 2019.

Figure 5: The YOY ADR (USD) for China’s short-term rental market

Figure 6: The YOY gross revenues ($ Millions) for China’s short-term rental market

South Korea - First Case: January 20, 2020

Behind China, South Korea is the second-most impacted country in terms of coronavirus prevalence, although it has less than a tenth of the number of cases reported in China. The CDC only classified South Korea as ‘Level 3’ on February 25, 2020, therefore it is still too early to assess the entire impact of coronavirus on South Korea’s vacation rental market.5 Still, in February 2020, we saw a significant reduction in occupancy rates for South Korea’s rental market compared to the previous year. The occupancy rate  decreased by 24% and the adjusted occupancy rate by 21% (Figure 7).

ADR also dropped in South Korea in response to the coronavirus outbreak. In February 2020, the ADR for South Korea’s vacation rental market decreased by 4% compared to the previous year (Figure 8). This figure makes sense compared to what we observed in China, since the outbreak hasn’t been as severe in South Korea. 

While Airbnb hasn’t taken any type of similar action to blocking listings in South Korea as they did in China, we observed a 31% increase of nights blocked on Airbnb in 2020 compared to a year ago, indicating a clear trend of hosts responding to disease outbreak. 

 Figure 7: The YOY adjusted occupancy rates for South Korea’s short-term rental market

Figure 8: The YOY Average Daily Rate (in USD) for South Korea’s vacation    rental market

As we see in Figure 9, the demand for South Korea has seemed to drop beginning 2020 – as compared to other years. Since the epidemic is still in its early stages, we do not observe a significant change in this performance indicator, but we will continue to monitor the situation in South Korea as well as in other regions to track these ever-growing changes as they occur. 

In South Korea’s vacation rental market, we see a reduction of 5% in gross revenues for February 2020 compared to the previous year (Figure 10). Supply increased by 31% in 2020 compared to the previous year, so, without the negative impact of the coronavirus outbreak, we would expect to see significant growth in South Korea’s vacation rental market. Therefore, a reduction of 5% is actually quite a significant figure when we take into account what we would have predicted for the market.

Figure 9: The YOY number of nights booked (1,000s) for South Korea’s short-term rental market 

Figure 10: The YOY gross revenues ($ Millions) for South Korea’s short-term rental market

United States - First Case: January 21, 2020

Although no country has been hit as hard as China or South Korea, even countries away from the epidemic’s hot spots have been impacted in certain performance indicators of the short-term rental market. In Figure 11, we see that the occupancy rates for Airbnb’s in the United States in 2020 are a bit lower than we would expect, but this change isn’t as drastic when compared to what we’ve observed in China or South Korea. The average occupancy rate for vacation rentals in the US was down 16% compared to a year ago. Additionally, the average adjusted occupancy rate dropped 13% from 2019 to 2020.

In contrast, countries farther from the epidemic have yet to demonstrate an impact in other key performance indicators in the short-term rental market from the coronavirus outbreak. The vacation rental market in the United States did not show a reduction in demand, ADR, or gross revenue in 2020. The observed key performance indicators for the United States in 2020 actually showed signs of growth, and similar trends can be seen in other countries not impacted as severely by the coronavirus epidemic.

Figure 11: The YOY adjusted occupancy rates for the United States’ short-term rental market

Figure 12: The YOY Average Daily Rate (in USD)  for the United States’ short-term rental market

In fact, in February 2020, the ADR for Airbnb’s in the United States increased by 7% (Figure 12) compared to a year ago. The demand for vacation rentals in 2020 was up 5% (Figure 13) and gross revenue also increased by 8% in 2020 compared to the previous year (Figure 14).

As we continue to monitor the situation, it will be interesting to see whether countries such as the US follow similar patterns to China and South Korea in regards to the key performance indicators. It is likely that as we collect and analyze the data from March in the following weeks, we will be able to track the extent of the impact of coronavirus and get a better idea on how the market reacts to such global disruptions overall. 

Figure 13: The YOY number of nights booked (1,000s) for The United States’ short-term rental market

Figure 14: The YOY gross revenues ($ Millions) for The United States’ short-term rental market

Conclusion

Events such as the coronavirus undoubtedly impact the normal patterns in the vacation rental market in a significant manner. As coronavirus concerns intensify in impacted countries, we observe that it is negatively associated with demand, occupancy rates, ADR and gross revenues in the vacation rental market. Understandably, we see that the impact of coronavirus is highest at the epicenter of the outbreak and becomes weaker the further you move from the hotspots. It is important to track these trends and gain insight into the ways that epidemics can affect the market in order to better understand event-based fluctuations, predict how future health crises may impact the market, and provide the different stakeholders with the information and tools to respond to such events.

Although the extent of the impact the epidemic will have is unknown, it is reassuring that data in previous similar outbreaks such as SARS in 2003 and MERS in 2015 has shown that the travel industry is ultimately able to recover from such disruptions to the global market.9 As we continue to monitor the situation we shall track the spread of disease and economic toll in countries such as Italy and other regions whose short-term rental industries have only just begun to reveal signs of decline. 

References