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Short-Term Rentals May Be Just As Damaging For Hotels As Airbnb Is

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A living room in a Sonder property
A living room in a Sonder property

As short-term rentals have gained acceptance from multifamily developers, the hotel industry might be staring down another cataclysm like Airbnb.

Startups like Sonder, Stay Alfred and Domio have progressed from renting floors of apartment buildings to doing deals for full buildings, either as redevelopments or new construction. The increased confidence in such products comes from the expectation that their professional management and amenity packages will increasingly appeal to business travelers, The Wall Street Journal reports.

As Airbnb spent the past decade sucking away tourists and value-conscious travelers, the hospitality industry kept delivering luxury hotels, largely driven by the frequent travel and spending power of business clients. But professionally managed short-term rentals are increasingly able to provide the consistency, location and amenities that class of hotel customer demands.

Hotels are already feeling the effects, with national revenue per available room slowing its year-to-year growth from 3.5% in the first eight months of last year to 1.2% over the same period this year, according to STR data reported by the WSJ.

A historical building fully leased to Sonder is months away from opening in Philadelphia, and the WSJ reports that competitor Domio is underway in the city with a project of its own.

Without any full-time residents, a building can be managed even more like a hotel while still providing residential amenities like a washer and dryer and full kitchen. Sonder, which became a unicorn after a July funding round pushed its valuation past $1B, claims it can undercut hotel prices by 20-30%, and its competitors say the same, WSJ reports.

Sonder has also partnered with Rastegar Property Co. for a new construction project in Dallas by agreeing to a 10-year lease for the whole building, which the developer said made it easier to get financing. As more buildings devoted to short-term rentals come online, investors will be eager to snap them up, according to a recent Cushman & Wakefield report.