Hotels vs STRs: Is it a level playing field?

Over the last decade STR businesses have grown 16 times faster, reflecting the changing priorities of travellers seeking “experience-led” accommodations, according to the latest ONS figures analysed by RMS Cloud. Out of the 382 UK local authorities, 260 saw an increase in short-term rental (STR) businesses, averaging 13.2 new businesses per region. In contrast, only 154 local authorities experienced growth in the hotel sector, with an average of just 4.6 new hotel operators per region. Additionally, UK campgrounds have seen a notable 35% rise in new sites from 2,495 in 2013 to 3,375 in 2023 (an increase of 880). This strategic shift has been partly driven by changing regulatory environments and the unique advantages offered by short-term letting. According to Ruth Whitehead, the chief operations officer at Eviivo, a comprehensive property management system (PMS) used by over 27,000 hospitality businesses in the UK, Europe, and North America, travellers today expect more personalised and unique experiences. She says: “The traditional hotel model is still popular for some, however many people now seek something more memorable, especially post-pandemic. Whether it’s a quirky cottage, a city-centre apartment, or a stay in a converted windmill, those types of stays are becoming more popular, especially with younger audiences. Guests want to live like the locals and STRs are better at providing that experience. Plus, guests–especially young families–often want more space, privacy, and the chance to stay somewhere that feels like ‘one of a kind,’ which is a big pull for many travellers.” Zen Valli, managing director at RMS Cloud, also agrees that guest expectations in terms of travel preferences are constantly changing. Today digital nomad visas are available in over 60 countries around the world, and most people who are working remotely, want to be able to stay for a longer period of time and have the amenities of the home away from home. He states: “STRs are particularly popular among the younger generations, as they look for more authentic stays or places that are worth posting about on social media.” Additionally, he highlights that STRS are really accessible to book nowadays as platforms such as Airbnb, Booking.com, Hostaway gain more and more popularity. He adds: “If you look at these agencies and the marketing that they do, it’s a lot of marketing to target that short term rental sector or that traveller.” As a result, the flexibility that STRs offer has certainly added to the already existing pressures on the hospitality industry. A major impact the hotel sector is facing is competition. Withead says: “STRs have pushed the whole industry to be more competitive and creative, particularly in offering unique experiences.” A sentiment Peter Nye, general manager of The Reach at Piccadilly in Manchester, agrees with: “Initially our competition was with fellow hotel brands, but now there's the STR business to consider. This has definitely forced hotels to be more competitive in terms of price. People generally looking for extended stays opt for STRs but we are slowly seeing more and more business travellers also booking STRs”. Short-term rentals also offer a wide variety of lodging options, from budget-friendly apartments to luxury homes, often at more affordable prices than hotels. This price advantage, along with the flexibility and home-like amenities such as kitchens and larger spaces, appeals more to travellers. In response, the hotel industry has had to adapt by focusing on enhancing guest experiences, offering more tailored services, and embracing digital transformation. Hotels are now investing in new strategies to differentiate themselves and reclaim market share, especially in the face of ongoing competition from short-term rentals. Valli states where hotels do have a competitive edge is the personalisation, which STRS don't necessarily offer. He also says that other areas, such as encouraging loyalty programmes is also primarily something that only hotels offer. This encourages guests to stay at the hotel frequently. Additionally, Valli highlights that hoteliers have really made an effort to make everything more accessible with the help of technology. He says: “Over the last 12 to 24 months, booking and managing rooms have become so much easier. Hotels have also started incorporating co-working spaces in their design to compete with STRs.” Whitehead adds: “An interesting trend we've noticed is hotels starting to add STRs into their portfolio - think countryside hotels adding glamping pods and yurts. Some hotel chains are adding villas, while others offer aparthotel rooms or extended stay options within the same building. As a result, the lines between hotels and STRs are blurring as they continue to converge.” She also mentions that the challenge for hoteliers now is running different property types seamlessly and using systems that flex to meet different needs. Hotels prioritise accounting and POS systems, but STRs need more focus on housekeeping and keyless access integration. She says: “The question hoteliers must ask now is how can I future-proof my systems for this trend? Scalability is no longer just about adding more properties, but expanding property types to meet changing traveller expectations.” With the rise in STRs and cost-of-living crisis the govt on 19 February 2024 introduced alterations to the planning and regulations governing short-term rentals. Under the proposed changes, individuals will be required to obtain permission from the local council before converting their property into a short-term let. Additionally, a mandatory national short-term lets registration scheme will be introduced. However, the government is still figuring out the specifics to ensure that the register doesn't impose excessive regulations, especially on individuals who rent out their homes occasionally. The introduction of the new regulation was aimed at preventing residents from facing challenges in affording to reside within their communities and to offer a level playing field for hotels. But has it had the intended effect or is there more that the government can do? Valli thinks it's a tough question to answer because while the regulations aim to make it offer an equal platform for hotels, it doesn’t eliminate the competitive edge that short term rentals have, particularly when it comes to pricing flexibility and the cost effectiveness that they have compared to the hotel room. However, he adds: “If you look at some of the regulations for short term rentals, if the government tightens that up a little bit, around the licences, the taxes, meeting safety standards that would probably help level the playing field a bit more. It needs to make sure that they don't get an unfair advantage by skipping over some of the rules that hotels have to follow, making competition a little bit more balanced.” Matthew Mackaness, managing director of Rudding Park, also believes that as a community-based person, individual community is important to his business in Harrogate and how it entwines itself with the community. He states: “I am very supportive of measures the government has taken to prevent the sort of hollowing out of communities in these areas. I think it's a good start from the perspective of trying to put a hold on the hollowing out of communities, because I think community is so important to the fabric of the country. The involvement of local authorities to provide an element of safe and relevant standards of service and accommodation is also important, so that the guest has that level of comfort in their decision making.” Whitehead adds that the hospitality sector has been through a lot in recent years, so ongoing government support is crucial. She says: “One key area is investment in tourism infrastructure. Improvements in transportation, digital connectivity, and public spaces will naturally boost the travel sector. Tax incentives and grants for businesses investing in green technologies would go a long way to improve sustainability. Finally, investing in workforce training and development for a digitally skilled labour force will also strengthen the hospitality industry long-term.”