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CONTACT: Jonathan Gray Principal Rockport Analytics 443.629.7150 [email protected] ANALYSIS OF THE SHORT-TERM VACATION RENTAL MARKET IN ANNAPOLIS & ANNE ARUNDEL COUNTY, MD February 2019
CONTACT: Jonathan Gray
Principal Rockport Analytics
443.629.7150 [email protected]
ANALYSIS OF THE SHORT-TERM VACATION RENTAL MARKET IN ANNAPOLIS & ANNE ARUNDEL COUNTY, MD
February 2019
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 2
February 2019
Table of Contents EXECUTIVE SUMMARY ......................................................................................................... 3
OVERVIEW .............................................................................................................................. 4
Background & Methodology ............................................................................................... 4 The rise of the sharing economy ........................................................................................ 4
UNDERSTANDING THE ANNAPOLIS & ANNE ARUNDEL COUNTY SHORT-TERM VACATION RENTAL (STVR) MARKET .................................................................................. 6
Overview of the Annapolis STVR market ........................................................................... 6 Mirroring trends in the U.S. market, the supply and demand for Annapolis STVRs are expanding rapidly ............................................................................................................... 6 Lodging revenue generated by the Annapolis short-term vacation rental market ............... 8 Annapolis short-term vacation rentals by zip code ........................................................... 10 Looking at the Entire Anne Arundel STVR Market ........................................................... 11
CONCLUSION ....................................................................................................................... 12
METHODOLOGICAL NOTES ............................................................................................... 13
APPENDIX I: GLOSSARY..................................................................................................... 14
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 3
February 2019
Executive Summary • Emerging platforms and the changing marketplace have brought about significant
growth in the short-term vacation rental market (STVR) in the US over the last few years. Many local jurisdictions are challenged with how to tax and regulate this rental activity. Lack of oversight can have negative consequences on local jobs, tax revenue and community affairs.
• Annapolis has the largest share of the STVR market within Anne Arundel County. In 2016, there were a total of 22,346 room nights demanded in Annapolis. This total catapulted to 38,695 in 2017 and 51,922 in 2018 as the platform and market for short-term vacation rentals expanded.
• Over one-third of current active Annapolis STVR rentals are owned by multi-property owners. This share is likely to grow as opportunistic investors aim to capitalize on the growth of the STVR market.
• Short-term vacation rental transactions in Annapolis totalled an estimated $5.4 million in 2016, $9.5 million in 2017 and $13.6 million last year. This represents annual revenue growth of 76% and 43% in 2017 and 2018, respectively.
• Short-term vacation rental transactions are growing at a significantly faster pace than traditional lodging transactions, which increase their proportion of total lodging revenue. In 2016, these transactions made up roughly 11% of total Annapolis lodging sales. This share grew to 18% in 2017 and 23% in 2018.
• There are an additional 295 STVR properties in the county outside of Annapolis – including 48 in Glen Burnie 38 in Edgewater, 32 in Severn, 32 in Arnold and 30 in Severna Park. These 295 properties totaled an additional $6.6 million in market revenue in 2018.
• Accounting for all 797 properties in Anne Arundel County, a total of $20.2 in market revenue was generated in 2018.
• If the 7% hotel tax was assessed on STVRs, an additional $1.4 million hotel tax receipts would have been generated in 2018. As the STVR market in Anne Arundel County continues to grow and capture market share form traditional hoteliers, long-term tax receipts could witness declines. Given a simple trend forecast of STVR activity, we expect a 7% tax in Anne Arundel County would produce $1.9 million in tax receipts in 2019, $2.3 million in 2020 and $2.8 million in 2021.
Total Number of
Active1 Properties (2018)
STVR Market Revenue (2018)
Foregone Tax Revenue (2018)
Annapolis 502 $13.6 Million $954k Other AAC Towns & Cities 295 $6.6 Million $463k Total Anne Arundel County 797 $20.2 Million $1.4 million
1 Active properties have at least one future booking or with a booking in the previous month.
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 4
February 2019
Overview Background & Methodology The Analysis of the Short-Term Vacation Rental (STVR) Market in Annapolis & Anne Arundel County, MD was commissioned by Visit Annapolis & Anne Arundel County (VAAAC) to better understand the landscape and revenue opportunity of the short-term vacation rental market in Annapolis and Anne Arundel County. The study was conducted by Rockport Analytics, an independent market and economic research firm with domain expertise in the travel and tourism sector. Data used in this analysis include those collected by AirDNA, AllTheRooms and Mashvisor. These sources all utilize data from online STVR platforms to estimate booking patterns and metrics across the US. The rise of the sharing economy The sharing economy emerged from the ashes of the Great Recession as many consumers-cum-entrepreneurs looked for opportunities for additional income streams. On the demand side, many consumers looked for alternate (and sometimes) cheaper goods and services that can be sourced directly from individuals rather than traditional suppliers. The lodging industry, or so-called ‘short-term vacation rental market,’ was a prime candidate for disruption. Real estate is the most valuable asset for the majority of middle-class households in the US and lodging technology platforms like Airbnb, VRBO, FlipKey and HomeAway gave households a new opportunity to monetize those assets and create a whole new supply of rental properties in the market. These peer-to-peer (P2P) platforms have evolved rapidly over the last ten years. Over that time the supply of properties has grown tremendously, and adding to the P2P activity, has been the addition of professional investors, hedge funds and other market participants buying traditional rental properties and converting them into their own personal hotels. Airbnb has been a leader in this space and their growth over a relatively short period of time has been extraordinary. It is estimated by AllTheRooms Analytics that Airbnb owns around 65% of the STVR market. Here are a couple key facts about Airbnb and the short-term vacation rental market in the US:
• Over the last five years the number of properties available on Airbnb has grown by over 500% (AirDNA)
• There are now over 5 million Airbnb properties worldwide – representing more available rooms than the top-5 hotel chains combined (Source: STR and Airbnb)
• As of December of 2018, Airbnb has collected over $1 billion in taxes on behalf of various taxing jurisdictions (source: Airbnb)
• There have been over 400 million guest arrivals since Airbnb’s inception (Source: Airbnb)
• There are currently 820,000 active properties listed on Airbnb in the US (source: AirDNA)
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 5
February 2019
Source: AirDNA
The tremendous growth in both supply and demand and the rapid change in the marketplace has left local policymakers across the US faced with a number of questions to answers, such as:
• How/if should short-term vacation rentals be regulated? • How/if should short-term vacation rentals be taxed? • What is the impact of short-term vacation rentals on local communities? • What is the impact of short-term vacation rentals on local real estate prices? • What is the impact of short-term vacation rentals on local hoteliers and other
businesses? Over the last few years many state-level policymakers have considered state-level legislation but only one state – Indiana – has approved regulation. Instead, most states have deferred to local jurisdictions to regulate the rental activity. This approach makes sense given the differing local market conditions from one jurisdiction to the next, i.e., taxation and regulation in one city or county is likely to be different than what is optimal in another city or county within the same state. Local jurisdictions dealing with the rapid growth of short-term vacation rentals in their communities have been faced with a number of specific challenges:
1. Local service jobs can be jeopardized as unfair competition from unregulated and untaxed short-term rentals reduces demand for local bed & breakfasts, hotels and motels.
2. Towns often lose out on tax revenue (most often referred to as Transient Occupancy Tax / Hotel Tax / Bed Tax) as most short-term landlords fail to remit those taxes even if it is required by law.
3. Lack of proper regulation or limited enforcement of existing ordinances may cause tension or hostility between short-term landlords and their neighbors.
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Total Number of Active Airbnb Listings in the United States
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 6
February 2019
4. The existence of “pseudo hotels” in residential neighborhoods (often in violation of local zoning ordinances etc.) may lead to disillusionment with local government officials who may be perceived as ineffective in protecting the interests of local tax-paying citizens.
Currently Airbnb is facilitating the collection of taxes on short-term vacation rentals in 46 out of 50 states and has agreements in place with more than 370 taxing authorities globally.
Understanding the Annapolis & Anne Arundel County Short-Term Vacation Rental (STVR) Market
Overview of the Annapolis STVR market In the state of Maryland, Baltimore City, Montgomery County and Prince George’s County all have passed specific legislation levying imposes a Room Rental-Transient Tax on short-term vacation rental stays. In Anne Arundel County there is currently no specific provision for assessing tax on STVRs. However, there is a 7% tax assessed on hotels, which includes motels, inns, B&Bs and rooming or guest houses. Hotel taxes in Anne Arundel County are used to support a number of key functions including an array of city services, tourism infrastructure, tourism policy development and promoting Annapolis and Anne Arundel County as a destination to would-be-visitors to the area. The tourism sector is a significant contributor to the Annapolis economy with visitors bringing an estimated $2.5 billion (2012) in economic impact to the Annapolis and Anne Arundel County economies. Currently there is no formal taxation or regulation of the STVR market in Annapolis or Anne Arundel County. There is no mechanism or specific language in the tax code that requires STVR hosts to levy any tax on guests and submit any revenue to taxing authorities. Mirroring trends in the U.S. market, the supply and demand for Annapolis STVRs are expanding rapidly Not surprisingly, the largest share of the county STVR market in the county is located in Annapolis. Demand growth in the Annapolis short-term vacation rental market has been extremely robust as illustrated in the chart on the following page. In 2016, there were a total of 22,346 room nights demanded. This total catapulted to 38,695 in 2017 and 51,922 in 2018 as the platform and market for short-term vacation rentals expanded. The chart also illustrates the cyclical trend in the demand in the STVR market in Annapolis with spikes in May during the Naval Academy’s Commissioning Week, and October, during the United States Boat Shows. There is also strong demand throughout the summer months with declining demand in January and February. In 2018, average daily rates among booked STVR properties was $254.
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 7
February 2019
Source: AirDNA, Rockport Analytics Not surprisingly the supply of hotels has grown steadily over the last two years as well. As highlighted below, the number of active properties (those with at least one active forward booking or a rental in the previous month) has grown from an average of 258 per month in 2016 to an average of 490 per month in 2018. One of the interesting dynamics of the short-term vacation market is the short-term supply of rooms is not fixed as it is with hotels. Property owners can add availability when demand spikes – a period when they will generate the most revenue per night. You can see this phenomenon in the bar chart below with supply increasing during high-demand months like May and October. Over one-third of current active Annapolis STVR rentals are owned my multi-property owners. This share is likely to grow as opportunistic investors aim to capitalize on the growth of the STVR market.
Source: AirDNA, Rockport Analytics
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Annapolis STVR Demand: Total Number of Booked Nights : 2016 - 2018
2016 = 22,346
2017 = 38,695 (+73%)
2018 = 51,922 (+34%)
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Supply of Active Annapolis Short-Term Vacation Rentals by Month: 2016 - 2018
34%
66%
Multi-Listing Hosts Own Over One-Third of
Annapolis STVR Listings
Multi-listing hosts Single-listing hosts
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 8
February 2019
The cyclical occupancy rate trend in short-term vacation rentals mirrors that of the traditional Annapolis hotel market, with occupancy building through spring into summer and then beginning its decline towards the end of fall. It’s interesting to note that despite the fact that occupancy rates on STVRs get some stability from the flexibility in supply, traditional lodging tends to perform better in the off-season months. This is likely due to efforts of hoteliers and the CVB to fill those “low-season” rooms with visitors for group meeting and events, transient business travel, travel based around the Maryland Legislative Sessions and other activities that don’t fall in line with the typical high-demand tourism months.
Source: AirDNA, Rockport Analytics
Lodging revenue generated by the Annapolis short-term vacation rental market The trends in revenue generated in the short-term vacation rental market mirror the seasonal trend in demand with the Naval Academy Commissioning Week and The United States Boat Shows, driving significant rental revenue in May and October. The seasonality in the revenue trend is even more pronounced than that of demand busier months garner both higher levels of demand and higher average daily rates (ADR). While ADRs in the market were $254 in 2018 as a whole, they reached $385 in May and $325 in October. Short-term vacation rental transactions totalled an estimated $5.4 million in 2016, $9.5 million in 2017 and $13.6 million last year. This represents annual revenue growth of 76% and 43% in 2017 and 2018, respectively.
35%28%
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2018 Annapolis Occupancy Rate by Month (Short-term Vacation Rentals vs. Traditional Hotels)
STVRs Traditional Hotels
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 9
February 2019
Source: AirDNA, Rockport Analytics Short-term vacation rental transactions are also growing at a significantly faster pace than traditional lodging transactions, which increase their proportion of total lodging revenue. In 2016, these transactions made up roughly 11% of total lodging sales. This share grew to 18% in 2017 and 23% in 2018.
Source: AirDNA, Smith Travel Research (STR), Rockport Analytics
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Total Short-Term Vacation Rental Revenue Generated by Month: 2016 - 2018
2017 = $9.5M
2018 = $13.6M
2016 = $5.4M
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STVR Revenue as a Percentage of Total Annapolis Lodging Revenue
STVRs Traditional Hotels
$13.6M
$45.6M
$9.5M
$44.6M
$5.4M
$44.8M
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 10
February 2019
Annapolis short-term vacation rentals by zip code There are currently 502 active short-term vacation rentals in Annapolis. Active properties are defined as those with at least one rental the current month or one rental in the previous month. The map below shows how these properties are distributed by zip code with well over half located in the 21401 zip code. The majority of these properties are clustered around the historic district. The 21403 zip code (Eastport-Annapolis Neck) contains the second highest supply of STVR properties in the area with 35% of the total Annapolis properties. The 21409 zip code (Cape St. Claire-St. Margaret’s) comprises the additional share (aside from the six listings around the Naval Academy). The 21401 zip code’s dominance is even more apparent when looking at the revenue generated in each zip code. In 2018, $8.4 million in rental revenue was generated in 21401, amounting to 62% of the total revenue generated in the Annapolis market. This compares to $4.4 million (32%) generated in 20143 and $765k (6%) generated in 21409. Occupancy rates are slightly higher in 21401 (46%) when compared to 21403 (42%) and 21409 (34%) and there also tends to be more multi-property hosts (professional investors) in the 21401 zip code (34%) compared to 21403 (31%) and 21409 (23%).
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 11
February 2019
Looking at the Entire Anne Arundel STVR Market While Annapolis holds the lion’s share of the STVR market in the county with 502 active properties and $13.6 million on rental revenue generated in 2018, there is also significant activity elsewhere in the county with an additional 295 active STVR properties generating another $6.6 million in market revenue throughput the county. The table below highlights the number of active properties and total STVR revenue generated in various cities and towns in Anne Arundel County.
Number of Properties
(2018) Market Revenue
(2018)
Glen Burnie 48 $ 504,033 Odenton 10 $ 103,022 Gambrills 6 $ 65,307 Severn 32 $ 466,199 Pasadena 14 $ 350,361 Severna Park 30 $ 495,600 Arnold 32 $ 1,567,460 Millersville 7 $ 76,148 Crownsville 12 $ 351,241 Riva 13 $ 350,240 Edgewater 38 $ 822,022 Davidsonville 8 $ 173,552 Harwood 18 $ 462,808 Shady Side 6 $ 138,951 Churchton 7 $ 189,355 Deale 5 $ 129,797 Tracys Landing 9 $ 366,671 All cities/towns outside of Annapolis 295 $ 6,612,767 Annapolis 502 $ 13,625,502 Total 797 $ 20,238,269
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 12
February 2019
Conclusion The short-term rental market in Annapolis and Anne Arundel County continues to experience extraordinary growth. Total STVR market revenues grew 43% in Annapolis and 52% elsewhere in the county in 2018. While the rate of growth is slowing, we expect both the supply and demand of properties in the Annapolis market will continue to exhibit relatively strong growth over the next few years, capturing additional market share from traditional hoteliers. As this market continues to mature, policymakers should look closely at this growth’s direct and indirect impact on tourism, area hoteliers, local citizens, jobs and tax revenue. Given the rise of lodging entrepreneurs, taxation and regulation will ensure a level playing field for all lodging participants and will also supply the resources for better management of the local STVR market and facilitate the establishment of sound tourism policy. Not administering a tax on these rentals could lead to future declines in hotel tax receipts as the STVR market continues to erode traditional hotels’ market share. Working directly with online platforms like Airbnb would give Anne Arundel County officials a mechanism to collect taxes from a centralized source without having to rely on submissions directly from property owners. Further, policy can be considered to segment the market so that homeowners who are using these platforms to rent their properties for one or two weeks per year (i.e., during major events) are exempt from taxation. Given the estimated 2018 Anne Arundel County market revenue of $20.2 million generated by STVRs, assessing the 7% hotel tax on these rentals would have led to an additional $1.4 million hotel tax receipts in 2018. Using simple linear regression of Airbnb revenue growth over the last few years, we have projected tax collections into the future as illustrated below. We forecast that assessing a hotel tax on STVRs would lead to nearly $1.9 million in collections in 2019, $2.3 million in 2020 and nearly $2.8 million in 2021.
$514,113
$971,643
$1,416,679
$1,870,044
$2,321,328
$2,772,611
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2016 2017 2018 2019 2020 2021
Projected Tax Revenue Based on a 7% Hotel Tax Assessed on Anne Aurndel County STVRs
Projections Include Forecasted STVR Revenue
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 13
February 2019
Methodological Notes The primary data source used in this analysis was AirDNA. Revenue data included in this analysis includes the amount paid by the guest including the room fee and any cleaning fees. AirDNA is the world’s leading provider of short-term vacation rental data and analytics, tracking the daily performance of over 10 million listings in 80,000 markets globally on Airbnb, HomeAway, and more. AirDNA uses machine learning algorithms to decipher true revenue potential and market demand based on booked, and not blocked, reservations. Given that this data is only focused on one part of the STVR markets, the estimates contained in the report are likely conservative. However, online listing covered by AirDNA are likely to cover the majority of the market. Given most property owners desire to market their properties through as many active channels as possible, it’s likely that most owners that are regularly marketing their properties as short-term vacation rentals are listing them on Airbnb. Further, since AirDNA uses calendar analysis to measure demand and revenue, when a property is listed on Airbnb but booked through another channel, revenue would be accounted for as the calendar would still be blocked on Airbnb for that booking. Some markets where the data may be less representative include traditional home rental markets like Nags Head, NC or Rehoboth, DE. These markets are more likely to have the majority of listing held with traditional real estate agents and not necessarily listed through other online platforms.
Analysis of the Short-Term Vacation Rental Market in Annapolis & Anne Arundel County, MD 14
February 2019
Appendix I: Glossary Active Property: An active property is any STVR that currently has a future booking or had a booking over the previous month. AirDNA: The world’s leading provider of short-term vacation rental data and analytics, tracking the daily performance of over 10 million listings in 80,000 markets globally on Airbnb, HomeAway, and more. Average Daily Rate: An average daily rate (ADR) is a metric widely used in the hospitality industry to indicate the average realized room rental per day. Market Revenue: The total amount of rental revenue generated within a specified market. Multi-Listing Host: A host that has numerous STVRs listed across a single platform. Multi-listing hosts tend to be professional investors or companies invested in multiple units. Occupancy Rate: The ratio of rented or used rental units to the total amount of available rental units. Peer-to-Peer Platforms: Platforms to facilitate the process of an individual renting an owned good, service, or property to another individual. Room Demand (Nights Booked): The total number of booked nights across all rental units over a specified period of time. Room Supply: The total number of available rental units over a specified period of time. Short-Term Vacation Rental (STVR): A rental of a residential dwelling unit or accessory building for periods of less than 31 consecutive days. Transient Occupancy Tax / Hotel Tax / Bed Tax: These taxes are charged in most of the United States to travelers when they rent accommodations (a room, rooms, entire home, or other living space) in a hotel, inn, tourist home or house, motel, or other lodging unless the stay is for a period of 30 days or more.
