When Mike Kelley founded the first few Airbnbs in Fort Wayne, Indiana in 2023, he thought it would be a success. It was supposed to be an investment project that he and his daughter would work on together. But their hopes were quickly dashed as more people left busy, expensive urban centers and moved to the Midwest.
Fort Wayne’s housing market was booming. Due to the high demand for housing and the low housing stock in the city, costs are relatively high. Home prices rose 9.2% in October compared to last year, according to a Redfin analysis of housing data. An overheated housing market is raising property taxes and disrupting the short-term rental business model. “The house we bought to turn into an Airbnb appreciated so much more than what we invested in it that we can barely afford to keep it,” Kelly said. “Return on equity won’t be that high.”
Short-term rental property owners across the country are facing a similar reality, with stories of declining revenues over the past few years as new rentals flooded the market. AirDNA, an analytics firm that tracks the short-term rental market, found that revenue per rental fell by nearly 2% in 2022 and more than 8% in 2023 due to a glut of units available for rent. AirDNA expects to return to profitability in 2024 as the market corrects. But some short-term rental owners noticed signs of Airbnbust and realized they needed to change direction.
But at one end of the market, things are different. According to AirDNA data, overall demand for short-term rentals increased by only 1.8% in 2023, but demand for stays over $1,000 increased by nearly 8%. For stays of $1,500 or more, demand increased by 12.5%. In fact, demand for rentals over $1,000 per night has increased 73% since 2019. While cheap rentals are slowing down, luxury, niche and themed stays are taking their place. Wealthy vacationers are increasingly seeking cabin porn-style luxury properties, such as secluded Malibu beach mansions or modern cabins surrounded by pristine forests. Meanwhile, Airbnb alternatives are entering the market to meet growing demand. The desire for luxury is driving the short-term rental market to new heights.
In recent years, an increasing number of travelers have turned away from the Airbnb model, citing exorbitant cleaning fees, extensive cleaning requirements, and outright fraud. As a result, some travelers choose to stay in old-fashioned hotels because of their consistent service.
But these complaints tend to focus on lower-end rental properties, with room rates as high as $200 a night, the kind you might book to visit family or get out of town for the weekend. Luxury items in the rental market play a different role. These spots offer many hotel-like amenities, including contactless check-in, high-speed internet, toiletries, and coffee makers. Luxury rental properties tend to have standardized cleaning services due to their high prices. However, unlike hotel rooms, houses and apartments have more rooms to host guests, as well as amenities such as kitchens and private pools. Splitting a night or weekend with multiple guests can make the price surprisingly affordable.
Hotels are retreating as high-income travelers make up an increasingly large share of this year’s travelers. Deloitte’s Summer 2024 Travel Report found that the proportion of people with incomes of $200,000 or more choosing to stay in a full-service hotel decreased by 17 percentage points compared to the previous summer. While middle-income travelers took advantage of affordable accommodations such as B&Bs and RV rentals, higher-income travelers shifted to vacation rentals.
One brand that is capitalizing on the increased demand is Wonder. Founded in 2022, Wonder owns all of its 200 properties, each beautifully designed with stunning landscaping. Founder and CEO John Andrew Entwistle came up with the idea to make vacation rentals feel like a luxury hospitality brand after a harrowing ordeal renting a cabin in Colorado. “The whole experience felt broken. It’s the kind of thing we’ve all experienced at one time or another in a vacation rental. The place looked nothing like the pictures. The bed was uncomfortable. The list is… Too many to count,” he said. .
He wanted a heartfelt rental home with a building designed to fit the landscape and high-speed internet running throughout the home. Wonder rentals are often located in secluded locations to give guests a sense of privacy and tranquility. Cleaning services are standardized, so you don’t have to worry about cleaning up afterwards, and customers can check in on their own from their smartphones. Each unit, which averages $900 a night, also features sophisticated workstations for digital nomads.
Related articles
Wandering
Display less
Wandering
Display less
Other travel brands have had similar success in the luxury market. Mint House is a combination hotel and short-term rental with 12 properties in 10 major U.S. cities. The visitor experience is personalized, for example, they can request that their refrigerator be restocked with their favorite groceries before they arrive. We also have 24/7 customer care. Studio or multi-bedroom apartments are priced similar to hotels and come with everything you need for modern accommodation, along with bespoke furniture and décor. To explain the brand’s success, Mint House CEO Christian Lee pointed to the company’s ability to provide a consistent experience. “Unlike other short-term properties that lack security and consideration for guests and often force guests to do chores upon checkout, all of our properties are designed to ensure maximum safety, security and cleanliness. “It is professionally managed,” he said.
From there, it becomes even more luxurious. Rental Escapes is a full-service luxury villa rental company founded in 2012 with over 5,000 villas in over 70 destinations around the world. Rates start at $500 per night, but most cost tens of thousands of dollars. Amase Stays, a $10 million rental property conglomerate launched this year, creates bespoke experiences in high-end properties, with a dedicated concierge who can arrange everything from private chefs and spa services to customized tours .
Business coach and product strategist Chris Lema is a big fan of Wonder. “These are architecturally beautiful places, and the land there feels like a national park,” he said. He likes that the company offers affordable luxury. He said he has been to 13 different Wonder locations and wants to “collect them all.” He’s also started planning trips around Wonder’s rental properties.
“I thought this is what Airbnb’s business model is about,” he said. “Right now, if you go to the Airbnb website, you’ll see different categories, like ‘stunning views’ and ‘lakefront.’ But none of these rental services are pushing the issue of experience. The ‘Luxe’ category Yes, but it’s not the same. ”
In Airbnb’s luxury category, home prices can range from $200 to hundreds of thousands of dollars per night. When the category was launched in 2019, Airbnb said in a press release that homes had to pass design and experience standards, including higher standards for cleanliness and amenities such as towels and toiletries. Unlike other Airbnb properties, company representatives must see Luxe properties in person to confirm. Nevertheless, Rema was unimpressed.
“They seem to be ranking luxes based on the quality of the residences, but that’s not the essence of what that kind of experience should be,” Lema says.
“We’re proud to be the only travel platform that offers stays for almost any travel experience you want,” an Airbnb spokesperson said. He added: “We are proud of our increased supply in the Luxe category and look forward to expanding our offering.”
So far, Wonder’s model is working. Entwistle said the company started with just three locations, but two years later had 200 homes and an average occupancy rate of 80%. Entwistle hopes to open locations in Mexico and Canada by early 2025.
Related articles
Upon returning to Fort Wayne, Kelly pivoted his Airbnb business to meet this demand for luxury. “We focus on homes with four or more bedrooms where groups can gather for weddings and reunions,” he said. He found that homes with pools and hot tubs were especially desirable. Kelly has also amassed an active collection of themed Airbnbs. He designed one home to look like the childhood home of fictional character Fawn Leibowitz from the cult classic film Animal House. He’s working on another rental themed around Indiana University sports teams.
“At the end of the day, ‘luxury’ housing is more affordable than staying in multiple hotel rooms,” he said. Plus, offering something unique like a theme will help your home stand out from the rest. Because of the new focus, Kelly’s Airbnb is rarely empty, he said.
Travelers are increasingly aware of the fact that their time, and where, how and with whom they spend it, is their greatest luxury.
Part of the change in demand is due to people viewing luxury rentals as a destination in their own right. If it’s cool enough where you’re staying, you don’t need to go out much. Some people are drawn to them as a way to escape the hustle and bustle. Spencer Bailey, editor of the new book Design: The Leading Hotels of the World, said: “In today’s globalized world, destinations are becoming increasingly homogeneous and the burden on tourists is increasing.” said. “People want a unique experience away from the crowd, and a sense of some kind of intimacy, craft, and care.” It’s about top-notch service, elaborate design, and even a Michelin star. It’s not just restaurants. “It’s not about an Instagram moment, it’s about creating a personalized felt experience that encourages tranquility and slowness, being in nature, participating in local culture,” says Bailey.
Private rentals are often located in secluded locations, allowing travelers to prioritize spending time alone with loved ones. “Travelers are becoming increasingly aware of the fact that their time, and where, how and with whom they spend it, is their greatest luxury,” he says. Michelle Steinhardt, founder of luxury travel blog The Trav Nav, writes about her recent stay at a secluded beachfront rental in Punta Mita, Mexico: “Even though we were just minutes from the local town, our party felt like everyone else was miles away.”
For more and more people, simply being away from home isn’t enough. We also want to separate ourselves from others. For those who can afford it or have enough friends, luxury travel companies may be happy to accommodate you.
Michelle Mastro covers lifestyle, travel, architecture and culture.
