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Shortterm Rentals

Overview of Metro Detroit’s Short Term Rental Market

Property investors are attracted to short-term rental properties because they offer an opportunity to make more than long-term leasing, but the short term rental industry has taken a huge hit during the coronavirus pandemic. In Michigan, STRs were banned from operating during the height of the lockdown, and even now that they’ve been allowed to reopen to guests, vacancy rates are still sky-high – hitting as much as 85% in some areas. 

Furthermore, the great “Airbnb debate” has been raging in many areas of Metro Detroit for years now, with local city councils seeking heightened regulation and a limit to the number of short term rentals permitted within a given area. 

The new proposed ordinance in the City of Detroit, for example, will supposedly eliminate 85% of the nearly 1,000 listings currently active there – something short term rental owners in the area are keen to prevent. This is because, in addition to a rule limiting the number of Airbnbs to roughly 1 per city block, the new regulations would make it so that only owner-occupied properties could be used as a short term rentals. 

Yet “private rooms” in a host’s house account for less than 50% of all the short-term rentals currently on Airbnb in the Metro Detroit area. The rest are whole-place stays, where guests have exclusive use of an entire house or apartment, and these types of properties are where most of the demand will lie as we enter the age of the new normal. 

This could be an opportunity for STR owners outside the City of Detroit to take advantage of the area’s growing tourism industry in the coming years. If the new ordinance is passed, guests may look further afield to Metro Detroit’s Ring Cities as an alternative to staying in hotels or shared STRs in the city center. 

So, if your property is located near to good transport links or local amenities, you should highlight these points in your listing. In places like Hazel Park, Dearborn, and Dearborn Heights, where there are several conference centers catering to private and corporate events, expect a healthy demand from business travelers and out-of-town visitors once we return to normalcy. Whereas, in the shorter term, cities like the Pointes and St Clair Shores might see demand rise as people search for an escape from the more densely-populated metropolitan areas. 

Whether you want to target tourists, businesspeople, or city-dwellers looking for a more remote getaway, the way you present your STR should be in line with what your ideal customer wants. For example: 

Budget Stays – These could be just a simple, private room in the owner’s house, with basic furnishings, or a no-frills apartment. The target market for these types of stays are budget travelers and businesspeople, looking for an alternative to a 2 or 3-star hotel. This means you won’t need to splash out on fancy interiors or extra amenities, but you will need to make sure the property is in a good location, since budget guests will value convenience and affordable travel costs above all else. 

Luxury Stays – These include high-end apartments and lofts or nicely-decorated houses, and should ideally be located in safer, trendier areas with a walkable downtown. Your target market will be the bigger spending guests, looking for an alternative to a 4 or 5-star hotel. This means that you’ll likely have fewer issues regarding the security of your rental, but will almost certainly have to work harder to accommodate guests’ high expectations. Expect to get detailed reviews listing any small thing that your visitors found unsatisfactory, like clutter, dust hiding in corners, or noise from outside the property. 

The short-term rental market in Metro Detroit is still not as developed as it is in other cities, like Chicago, but the industry was growing prior to the coronavirus outbreak, and will likely continue to do so once regular travel resumes. If you operate an STR, keep an eye out for new proposed ordinances in your area, voice your opinions to your local city council, and make sure you adjust your strategy accordingly if nearby cities impose their own Airbnb bans – this could be an opportunity for you to capture guests from those markets. 

Image Courtesy of Monica Silvestre

Categories
Shortterm Rentals

How Soon Until Short Term Rentals Bounce Back From Coronavirus

Lady wearing a face mask
What is the new normal?

Coronavirus has affected the travel and tourism industry at an unprecedented scale. With strict stay-at-home orders and lockdowns still in place globally, online travel traffic is down by 70%, potentially accounting for up to $20B in missed revenues. In the US, bookings for short-term rentals bookings saw a 94% year-on-year decrease due to the pandemic.

As borders slowly start to reopen in the near future, what will the new normal of the short-term rental industry look like in Metro Detroit and Oakland County, in particular?

Localized Effects Will Differ

Travel restrictions have crippled the industry severely, but data suggests that the short-term rental industry is doing better than the hotel industry, which reported continuous declines, with revenues per available hotel room dropping year-on-year by as much as 94%.

Urban markets will likely suffer more than holiday or leisure destinations. In New York (where the virus hit hardest), year-on-year data indicate that the demand for short-term rental properties have decreased by 50%, and consequently, revenues have gone down by 47%, too.

What we’re currently seeing is a shift in demand from urban to remote rental locations, where there is less exposure to the virus. As these patterns carry on into the foreseeable future, we recommend STR operators to keep a closer eye on market trends and industry news. More than ever, strategic and data-driven decisions will be crucial in bouncing back from this crisis.

Assessing the Impact of COVID-19

To predict demand and gain market insights, consider using a trend analysis tool, such as MarketMinder. They provide good breakdowns of market rates and offer valuable insights on trends that can help you work out the state of your particular market, and adjust your strategy accordingly. (Note: some of their features are only available for paid subscribers, but you can do 5 basic reports a month for free).

Here are some trends to look at to gauge the stage of your market’s recovery:

  • How far ahead reservations are being made?
  • How are other hosts pricing their properties now vs. their pre-pandemic rates?
  • What rate do guests actually book the property for?
  • How far are people travelling to reach your area?
  • How are they getting there – by air or car?
  • When will business-related travel resume? Are there any conferences planned for the future in your area?
  • Are people booking owner-occupied rentals, or only “have the whole place to yourself” ones?

Post-pandemic, it seems very likely that travelers may opt for vacations that could be reached via land travel to mitigate risks. This may lead to an increase in demand for nearby STRs, as travelers try to find budget-friendly holidays and accommodations within easy reach of the city. 

To see how these trends are developing in Metro Detroit, we used MarketMinder to conduct a comparison between Downtown Detroit and a suburban area closer to the lake, such as Saint Clair Shores.

Insights from the tool indicate a rental demand score for Saint Clair Shores of 72, in comparison to Detroit’s score of 69. Median occupancy rates (calculated over the last 12 months) in Downtown Detroit are also down, from 69% in June 2019 to 45% in April 2020. By comparison, Saint Clair Shores has a current occupancy rate of 50%, possibly showing early signs of the shift in demand from urban locations to less densely-populated areas.

Human beings have an inherent desire to travel and explore. So it’s almost certain that, once travel restrictions are lifted globally, the demand for STRs will slowly increase again. Although we don’t exactly know when this “new normal” will begin in earnest, for now, property owners and landlords can spend this time preparing for it, by implementing strict sanitation measures to reassure and attract future guests.

Image Courtesy of: Anan Shvets