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Attrition Rates Among Airbnb Owners - The “so what” behind the Air b-n-bust

Published on
July 18, 2023

‍The contours of a market downturn

With the recent debates among STR experts on 2023 industry performance, we at OTT Risk wanted to share how we see a potential drop in revenue materializing into tangible next steps for STR hosts.

Operators in the STR industry generally agree that demand in 2023 is softer than it was in 2021/22. And it could get worse: demand could blow past its mean-reverting trend if the economy worsens or takes a turn into recession. 

Many stories have been published about over-supplied markets, and many data analyses shared - both questionable and credible. In all of this coverage, two important points are being lost in the market averages:

  1. Some properties are down 50%+, even if their overall market is only down a little
  2. Many hosts are worried they’ll end up the same: below the average in an already- softening market

OTT Risk YoY analysis for Palm Spring, CA

Palm Springs in California gives us a recent picture of revenue variability for hosts. Below is the YoY revenue per available night (RevPAN) among properties for Q1 of 2023 vs. 2022.

Every property’s Revenue per Available Night (RevPAN) varies year to year, and Palm Springs California (shown above) is no different. Most properties earn about the same every year, with a Y-o-Y RevPAN close to 1.0. A few properties do much better, earnings 2-3x what they earned the prior year. And some properties do much worse. In Palm Springs in Jan-Mar 2023, 7% of properties earned 0.5x or less of what they earned the prior year.

The Palm Springs market - in its high season for 2023 - was right on par with 2022, with a median YoY change in RevPAN of about +1%. But that hides the story for many properties: about 7% of properties experienced a YoY RevPAN drop of -50% or more. This is only considering properties with more than two years’ experience that had earned at least $2,500 over at least 20 days booked in Q1 2022. In other words, established STRs.

Property retention

With our own analysis and data in hand, we set out to understand what STR hosts do after a bad season. Would they try a new marketplace, ditch their property manager, adjust prices, or even sell their property? 

In fact, we can see that the sting of a bad quarter can have a long-running impact on retention. Taking a stark example – April-June 2020, when COVID first hit -- we find that, among properties that went through COVID with a modest downturn (RevPAN 60% or more of 2019 earnings), 53% are still operating today. In contrast, among properties that had a painful COVID downturn (RevPAN 30% or less of 2019 earnings), only 40% are still operating today.

When COVID hit, some properties did much worse than others (think: big cities vs. rural getaways). The properties with the largest shock to their RevPAN have also had the least retention through today. While not shown, this pattern holds when controlling for the age of the property.

What STR hosts and marketplaces can do about it

At OTT Risk we offer Revenue Protection to STR hosts to provide them with a financial bridge when disaster strikes. While market-wide downturns are just one disaster that Revenue Protection covers, it has become a top-of-mind issue for hosts. Our Revenue Protection is a guaranteed quarterly revenue for STR properties and incentivizes hosts to stick around by helping them weather these downturns.

Most hosts we talk to are savvy, dedicated operators that know they will have ups and downs over the years. Our research suggests that YoY drops of 40-60% are when most STRs would have trouble meeting their fixed costs, especially mortgage payments, and that’s when hosts start to need the financial support that OTT Risk can provide.

OTT’s mortgage and STR revenue research is consistent with host reports.  A 25% drop in revenue leaves around 25% of active hosts unable to cover their mortgage, whereas a more severe drop of 70% leaves over 90% of hosts unable to cover their mortgage and monthly costs.

Conclusion

In the long run, we believe the travel market is best served by experienced hosts and a healthy supply of properties that keep prices competitive. A boom-and-bust cycle among hosts makes that difficult. By helping hosts get through a tough time, Revenue Protection can improve property retention rates in the STR market and lead to a better experience all around for both hosts and travelers.

Get in touch with us to learn about how to deploy Revenue Protection for your platform, property management portfolio and/or properties.

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