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March 16, 2021

Housing Rentals – Monthly Stays

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Another corner of the market where we see a crossover between the hospitality industry and the housing market is in ‘monthly stays’ or stays between one and six months. Ironically, the pandemic jumpstarted this market and helped companies like Airbnb offset travel-related revenue declines. The question is where does the market go next?

14% of nights booked in 2019 and 24% for the nine months ended September 30, 2020 were for long-term stays

Airbnb S-1 – pg. 202

When Airbnb released their first quarterly earnings report since their IPO in December 2020, the market liked the results. This despite the fact that their headline GBV (Gross Booking Value) decreased by 31% YoY (Year over Year) due to the effects of the pandemic.

Airbnb Q4 2020

What was the source of optimism?

There were two reasons:

1) because while they were down 31%, their peers Expedia Group and Booking Holdings saw revenues decline by 67% and 63% respectively

2) the resiliency of their business model which was able to make up for the massive declines in travel volume via ‘nearby stays’ and the new category of ‘long-term stays’

the freefall in tourism caused by the pandemic has prompted many Airbnb-type hosts to change operations from short-term to long-term.

PYMNTS

While Airbnb doesn’t elaborate on the extent to which ‘long-term stays‘ contributed to the uptick in revenue versus their peers, we do know that this new category is emerging and the global market is only at the earliest stages of seeing a boom in monthly stays as the lines between travel and work blur.

People are starting to stay longer at Airbnb locations, rather than opting for a quick getaway, making travel less of a feature and more of a way of life. “As length of stay increases, those two worlds start blurring together,” Chesky told USA TODAY.  “We are seeing that length of stay is increasing.”

USA Today

‘Monthly Stays’ & the Mid-Term Market

There is a shift in nomenclature around these types of stays that are generally defined as between 1 and 6 months.

Some – like Airbnb – will refer to them as ‘Long-Term Stays.’ When we were looking at the market in 2018, we referred to it as the ‘Mid-Term Market.’ In any respect, for the purposes of analysis here, we are going to call them ‘Monthly Stays.’

One of the demand catalysts for monthly stays leading up to the pandemic was a generation of digital nomads and remote workers who were moving around frequently between cities, countries, and continents and looking to live life without the lease.

We saw the emergence of the ‘mid-term market’ and many players within that market such as Spotahome, Housing Anywhere and other niche platforms, the majority which emerged out of the European market. While one wouldn’t classify this market’s growth as explosive, the groundwork was laid for the moment in history we have arrived at now.

These are not ‘roommates’ platforms. Nor are they student housing businesses that contract a master lease/purchase agreement for a big building and subdivide it into small ‘student flats.’ While some of those landlords may list on these platforms, they are still platforms. They list the rooms, take professional photographs and in some cases videos (as is the case with Spotahome), prepare the appropriate legal agreements, and connect to tenants. They are very similar to Airbnb in terms of their business models, but the mechanics of stays that average 3 – 6 months are much different than short-term stays, so their operational models are much different.

The company charges a Booking Fee between 6-9% of the Total Contract Value (TCV), which is capped at £445 (~€500).

Checking in on a few of the players mentioned in the 2019 Mid-Term Market post and where they are at now:

>Spotahome recently had its 7th anniversary. They have raised $80M to date and now have more than 100,000 properties listed on their platform in more than 9 countries. Based on a recent post from the CEO, the pandemic triggered a similar effect to Airbnb, having actually increased the company’s trajectory in 2H (second half) 2020.

Covid hit our industry really hard but it also showed that digital rentals is the way to go. And we have been focusing on just that for 7 years 🙂 Despite Covid, the second half of 2020 has been our best performing period ever. Now, as the world sees the light out of the tunnel, Spotahome is in its strongest position to date

Spotahome CEO – LinkedIn

>In February of 2021, Dutch-based Housing Anywhere raised a €24M Series C round. In addition to organic growth, the company has been on a M&A spree after making its 4th acquisition in the last year, as part of its ambition to become “Europe’s largest end-to-end rental accommodation marketplace”

In January 2021, HousingAnywhere closed the Series C round by raising funds to acquire Kamernet, a Dutch classifieds website operating in categories including room, studio, and one-bedroom apartments. This is the company’s fourth acquisition in a year. The company has already acquired Germany’s Studenten-WG, Italy’s StanzaZoo, and Iceland’s Rentmate.

Silicon Canals

>Depending on the source you read, Czech-based Flat.io (branded as a “a few month long accommodation“) either merged with/or acquired Portugal-based NomadX late last year. In any sense, the goal of the merger/acquisition was to “team up to take on Airbnb.” With a combined > 10,000 listings at the beginning of the year across Europe (mostly Eastern Europe), they are going for gold in 2021 and beyond

By the end of next year, we expect the business to be doing at least close to 10x of what it’s doing today. That’s what we have in the forecast,”

150Sec

If you look at the net effect of Airbnb’s ‘long-terms stays’ and the rapid growth of the ‘mid-term market’, we can that the combined platformization of the rental market for monthly stays has only just begun.

Sub Living Crossover

With platforms like Airbnb and its mid-term peers effectively platformizing rooms from landlords, families, and couples/singles for monthly stays, we must now throw the ‘Subscription Living’ trend into the mix.

Residential real-estate rentals and boutique hotels were both hammered by the pandemic and have had to look at innovative ways to reinvent their business model. As a result, they have begun creating Sub Living products that are predicated on the same concept (monthly stays) with a very similar target market.

The major difference is experiential. While booking on a platform like those mentioned above is convenient, there is always room for poor experiences as we have seen in the early-days of the short-term sector. Sub Living products and their derivatives can control the experience from end-to-end, depending on what Customer Segment they are targeting.

In that light, we shouldn’t expect mid-term platforms and their equivalents to simply take over the market. While no doubt there will be explosive growth in monthly stay ‘listings’ on a global basis, the Sub Living product is much more in line with the direction the rental market is going from an experiential perspective. But pricing is paramount in the rental market, and by bringing on a whole new batch of rental supply for monthly stays, the mid-term platforms will create a new category just like we saw in short-term rentals when Airbnb came onto the scene in the early 2010s.

Category Creation – Monthly Stays

In the Airbnb S-1 ahead of their IPO in December, they talked about the TAM (Total Addressable Market) of ‘long term stays’ (stays greater than 28 days on their platform).

We estimate our TAM to be $3.4 trillion, including $1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences. 

For long-term stays, we calculate that we can address our estimate for the entire $48 billion global serviced apartment market and 10% of the $1.6 trillion global residential rental market, or $162 billion.” 

Airbnb S-1 – pg. 202

They took a cross-section of the global serviced apartment market ($48 billion) and 10% of the global residential rental market ($162 billion) to come up with a TAM of $210 billion for monthly stays.

We believe that this is a very difficult and fluid TAM to calculate definitively because it crosses into so many different sectors of the rental/housing markets, sectors that are all seeing significant structural changes brought on by not only the pandemic, but also changes in consumer behaviours with the younger generations; therefore, $210 billion is a starting point, as we will potentially see more than 10% of the global residential rental market taken up, combined with crossover from hospitality and other sectors.

Overall, monthly stays has seen a surprise spark from the pandemic. With many platforms ready to scale their operations and business model in the mid-term sector, combined with crossover from Airbnb’s own bookings and innovations in the Sub Living sector, this category is likely to explode in the next 5 years.

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