Remember the Skift 2023 megatrend that sees luxury hospitality going even further?
We are barely a quarter of the year, and the luxury rental market from Phuket to Provence is blooming with lavender and gardenia.
In the United States, the luxury segment would see both average daily rates and length of stay double by December 2023, compared to January 2022, from $492 to $854. The average length of stay over the same period is expected to drop from an average of 6.66 nights to 12.43 nights, according to short-term rental data provider KeyData.
Looking ahead, the global luxury vacation rental industry is expected to be valued at $82 billion by 2031, growing 13.1% this decade (2021-2031).
Vacation rental company Evolve announced in January that it would offer luxury and high-end properties in partnership with Homes & Villas by Marriott Benvoy. And London-based Onefinestay, which specializes in luxury private rentals, launched in New York with 16 homes, plus a collection of luxury villas in Provence, France. There is also speculation that Airbnb is leaning into luxury.
More is more
Across the pond, London-based hotel and property management company Altido, which has properties ranging from student accommodation to luxury villas, has begun segmenting its inventory and launched its “Luxury Collection” more early this year and will continue to add to it this year.
“Increasing average daily rates is the name of the game,” said William Parry, CEO of Altido. “We’ve always looked to grab the high end of the market, which makes a lot more sense for the economics of the business.”
Altido’s average daily rates for luxury rentals increased by 19% compared to the same period last year in the UK. Parry added that what property managers lose in occupancy they make up for in higher rates. And during a recession, luxury vacation rentals often act as a shock absorber, should budget stays dip.
Merilee Karr, founder and CEO of London-based group Under The Doormat, agrees with the trend but isn’t surprised by it.
“It’s no surprise,” Karr said. “If anything, rising interest rates mean the wealthy are the ones who benefit and have more money to spend. This is true in cities as well as in holiday destinations.
Unique or “experiential” stays that are often old family properties or second homes owned by the wealthy may not be the primary income for homeowners, but in downturns maintenance can become costly.
It’s spelled “Rich-cession“
And there is a reason for that.
When the world was battling a pandemic, there was a new billionaire every 17 hours, making 2020 a banner year for the world’s richest.
There were 500 new billionaires in 2021 with a net worth of at least $1 billion. Even so, the extremely well cost of living index, calculated by Forbes, increased by 7% in 2022, it was still lower than the consumer price index, which stood at 8.3%.
“We’re seeing both supply and demand growing in the luxury segment,” said Marcus Rader, co-founder and CEO of Hostaway, a vacation rental software and channel manager. “People who can afford luxury travel and can work remotely have more money available for it.”
The median rate per night for luxury rentals rose from $1,473 to $1,537 in 2022, according to data from Hostaway, which primarily covers the US market. The same was true for occupancy rates and length of stay, which increased by 4% and 8% respectively. Saber Kordestanchi, co-founder of Hostaway, said it was unusual for all three metrics to increase.
“We usually see prices go down if occupancies and lengths of stay increase or vice versa. But in the luxury segment, all three are up,” Kordestanchi said.
He also pointed out that some of the new destinations with a high concentration of luxury homes are the United Arab Emirates, Mexico, Colombia, United States of America, Caribbean Islands and New Zealand.
And Dustin Abney, CEO of Portoro, a property management company for high-end vacation rentals, thinks that’s just the beginning. He sees many investors interested in buying second homes to serve exclusively as luxury rentals.
“People buy expecting prices to go up,” Abney said. “Investors have a lot of money because the market is down, and there are some good deals that we have seen coming up, while rental demand is also high – this is attracting interest from institutional investors who are building or buy to rent.”
Experience versus Expense
Investors, who are often also consumers, often set the trend. A beachfront property owned by a wealthy individual who has outsourced its management can complement high-end hotel hospitality with privacy, space, and personalized concierge service.
“It will be difficult for [luxury vacation rentals] us to move hotels in terms of inventory,” said Zachary Tombley, founder of Black Swan Holdings, which owns and operates apartment-style luxury accommodations. “But people are interested in having private spaces. They don’t want to pay big bucks for small rooms and shared amenities.
This is probably why pool cabanas at resorts would be more expensive than rooms.
But history shows that even the luxury market is likely to decline. Take the global personal luxury market, for example, which shrank almost 10% from $172 billion in 2007 to $157 billion in 2009, according to the Bain Luxury Study.
Affluent spending is directly proportional to consumer sentiment – not how much money people have, but how much money they think they have. And the biggest drop in consumer sentiment has been seen among high-income consumers, according to research by McKinsey. “A group that frequently traded more expensive products and brands in 2020 and 2021, but may soon moderate buying.”