An STR study of data from a leading U.K. home rental booking and management platform shows that compared to hotels, home-rental performance is less stable, with seasonal peaks around holidays.
LONDON—A recent analysis by STR found that it is 25% more expensive on average to stay in a holiday rental in the United Kingdom than in a hotel. (STR is the parent company of Hotel News Now.)
For this study, we compared STR’s hotel data from the U.K. to holiday rental data from SuperControl, a leading provider of booking and management software. Both sectors have seen similar growth trends, which is not surprising given that both sectors have gone through significant changes in recent years.
The rise in accommodation platforms has caused several shifts in consumer and operational behavior. Home-sharing platforms like Airbnb have become increasingly popular as more people list their homes, meaning there are more options than ever for where to stay on vacation.
A large amount of the U.K. holiday rentals we studied have been available to rent for several decades. Holiday rentals are a subset of the larger home-rental sector, which is defined as furnished residential properties available for short-term accommodation rental. Many of these listings fall under apartment rentals or even single-room rentals and tend to be found in more urban locations. Holiday rentals, on the other hand, are traditionally listed as entire homes that can accommodate families during longer stays and are typically found in leisure or resort destinations.
A key differentiator between holiday rentals and hotels is that hotels draw both leisure and corporate demand. The findings showed that seasonality is a major factor in both sectors, with some opposite up and down periods throughout the year.
U.K. hotel performance tends to be more stable from month to month. For holiday rentals, year-end results are skewed down by the low-season winter months, when occupancy levels fall in the 20% to 30% range. Meanwhile, the highest demand surges are seen around public holidays and school breaks.
Interestingly, hotel demand is some cases goes down when holiday rental demand goes up. There are clear swings during spring and summer break. The largest disparity in 2017 was in November, when hotel occupancy was 52 percentage points higher than holiday rental occupancy. This reflects a period of high business travel and off-peak leisure travel in the U.K.
With more stable streams of business, occupancy for U.K. hotels was 35.5 percentage points higher than occupancy for U.K. holiday rentals in 2017. But occupancy levels have been growing at a similar, moderate pace for both sectors over the past three years, indicating that demand levels are rising and product offerings are being adapted to facilitate traveler needs.
While hotels might post higher occupancy levels, holiday rentals win in terms of average daily rate. In 2017, holiday rental ADR was 25% higher than hotel ADR.
The most obvious explanation is that holiday rental properties typically accommodate more guests than the average hotel room. Digging deeper, there are fundamental differences in the product offerings of the two sectors—a consumer booking a holiday rental is booking a different experience from a consumer booking a hotel room.
Comparing hotels with other types of home rentals in the U.K., studio rooms are actually much more expensive to rent than hotel rooms—£123.26 ($158.22) vs. £92.30 ($118.48) in 2017—whereas one-bedroom and two-bedroom apartments operate at rates more similar to hotel rooms.
According to the study, 70% of U.K. holiday rental listings contained two or more bedrooms. Four-bedroom listings that can accommodate entire families or small groups accounted for nearly 10% of the listings analyzed. As the graph below illustrates, the higher overall ADR for holiday rentals is mainly driven by these larger types of properties. Additionally, holiday rental stays tend to be longer than the average hotel stays, which is reflected in their varying price points.
Breaking down the UK
Many of the key takeaways from this study are echoed when you narrow down the reporting sample by location, but there were some interesting variances across the four countries that make up the U.K.
While hotel occupancy levels are similar from place to place, holiday rental occupancy was more mixed. Scotland holiday rentals recorded the highest year-end occupancy level in 2017 (43.7%), while Northern Ireland recorded the lowest (32.3%). But Northern Ireland hotels and holiday rentals alike have seen substantial demand and rate growth in recent years, with “Game of Thrones” filming locations helping drive increased tourism to the area. The highest gap between hotel and holiday rental rates was seen in Wales, with holiday rental ADR higher than hotel ADR by 60% (£105.97 ($135.97) compared to £66.23 ($84.98)).
In general, both sectors appear to be adjusting their rates according to periods of increased demand. This indicates that operators in holiday rentals are applying revenue-management practices similar to those used by hotels to achieve higher occupancy levels and charge rate premiums during peak business times.
It’s clear that there is a substantial market for holiday rentals, particularly during holidays and school breaks. Looking ahead, we expect to see more hotel companies explore the holiday rental sector to take advantage of these unique opportunities.
To read the full report, download it here.
Robert Bauer is a Senior Analyst of R&D and Analysis at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.