CEO of ReAlpha. Tech entrepreneur: 1 IPO, 2 exits. Author: “Nothing for Nasdaq.”
The short-term rental (STR) market is currently booming. The turnover of the industry in 2021 has increased 26.2% as of 2021, and it continues to grow, with an expected domestic market value of $17.6 billion by the end of 2022. Meanwhile, 30% of money spent on hospitality went to short-term rentals as of July 2021, with demand up 60% from a year earlier. No wonder STRs are the talk of the town. But this sector isn’t here for a short stay (pun intended). And we need to plan through a lens for the future. Sustainability is a non-negotiable element of that future. And since the space is new, we’re at a ripe stage to act. If not, we’ll be playing catch-up for years, like the traditional hotel industry.
The future therefore lies in SSTRs: sustainable short-term rentals. A 2018 report said the travel industry is responsible for 8% of global emissions. SSTRs can make a major contribution to reducing this.
Challenges and benefits
The main reason why property managers are hesitant to include SSTR is the rise in costs.
Travel is a cut-throat business and industry players have found innovative ways to increase margins. Too often this means using the cheapest options available to reduce the upfront investment. But the proof is in the pudding: an investment in sustainability has direct and indirect benefits.
First, it leads to more sales.
According to 2019 findings from Booking.com, a travel leader, 70% of travelers are more likely to book accommodation with environmentally friendly business practices. And they may be willing to pay more for a permanent residence. A recent study of office buildings found that those with LEED certification were average 31% higher rent; checked by location, age and renovation history, LEED-certified buildings still benefited from a 4% rent allowance. U.S homeowners and tenants also show a strong preference for green buildings. The trend is clear and STRs should participate.
Another advantage is the long-term savings in construction costs. There is no denying that investing in sustainability can entail high initial costs. But the long-term benefits outweigh these.
Take a simple example: Replacing incandescent light bulbs with LEDs can save an administrator money $225 every year for every property. Similarly, using cloth towels instead of paper towels, paper napkins and tissues can also save you hundreds, as can using a water filtration system instead of providing plastic water bottles.
And it’s not just small savings (although small savings do add up). Install solar panels can save you up to $20,000 in electricity bills more than 20 years. And a recent study in Washington, D.C. found that LEED certification cuts operating costs for multifamily homes by 17.3%.
The additional revenue for short-term rental companies and the long-term cost benefits make SSTR a no-brainer for the future of space.
What is necessary
For a property to be an SSTR, your guiding principle must be long-term sustainability. Overseeing your supply chain is a good starting point. The supply chain is the main CO2 emitter in the world and is particularly relevant for companies as it is responsible for more than 90% of the total greenhouse gas emissions of most organizations. This means choosing suppliers with sustainable practices.
If you want to start slowly, investing in climate initiatives is one way to become more sustainable. You can donate part of your reservation costs to a climate charity or buy carbon offsets to reduce the company’s overall carbon footprint.
You need to start thinking about SSTR. Because even if you are not very environmentally conscious, your customers are: 69% of global customers say they do doing their best to reduce their carbon footprint, and 81% expect companies to be environmentally conscious.
Soon SSTR will be the norm, and properties that fail to meet basic sustainable practices will lose much of their business. So now is the time to capitalize on the trend and make huge investments early on so that you can reap the rewards later on.