How Much Market Share are Vacation Rentals Pulling from Hotels?
Greetings, readers. There’s been a little bit of a dystopian tilt in the digital pages of the Sunday Morning Post over the past few weeks, including looks at a potential labor market wipeout by AI, industry failure from technological disruption, and the critical thinking crisis (whose idea was it to write those three articles in back-to-back weeks?? I need an editor.).
So I thought we’d cleanse the palate today with a throwback-style article, reminiscent of the early days of this newsletter: a data-driven look at the lodging battle between the traditional hotel industry and the comparative upstarts in the world of Airbnb, VRBO, and other short-term rental platforms.
Are vacation rentals really pulling business from hotels? What are the long-term trends? And what does the future look like—for both the industry and for investors? Let’s dig in.
(Quick note from the archives: I wrote in November 2021 about Bar Harbor, Maine putting limits on vacation rentals, which you can read here. I did an overview of the risks of investing in vacation rentals in April 2023, which you can read here. Rather than rehash the specifics of those topics today, you can go back and read those ones if you are so inclined).
Recent Trends in Vacation Rentals
After a decade of explosive growth through the 2010s and during the pandemic boom years, vacation rentals have entered a more mature phase. New listings are still being added globally, but the pace has slowed, especially in saturated or tightly regulated markets. Still, Airbnb—whose financials are public as a traded company—posted revenue growth of 18% in 2023 and 12% in 2024, with projections of 8–10% in 2025. In Q2 of 2025, revenues were up 13% year-over-year, however, reaching an all-time high and beating analyst expectations. That suggests the short-term rental market, while maturing, remains very healthy.
Per Mashvisor, occupancy rates for vacation rentals have eased in the past two years, a reflection of both heightened supply and a tightening consumer that is weary of inflation and perhaps uneasy about the state of the economy. But Average Daily Revenue numbers are up. After growing at a rate of approximately 30% for the past several years, ADRs were still up about 25% in May 2025 vs. May 2024, which shows strength and stability, for sure.
Growth in new vacation rental units and ADRs alike is strongest in secondary and tertiary markets that lack existing supply. Mashvisor also points to “explosive growth” in communities adjacent to those that have enacted tight restrictions on short-term rentals. For example, listings in San Gabriel, California, have jumped by over 700%, likely fueled by tighter rules on short-term rentals in nearby Los Angeles. Anecdotally, we’ve seen the same thing here in Maine: after Bar Harbor and other coastal communities cracked down, nearby towns like Ellsworth, Trenton, and Lamoine have experienced surges in listings and ADRs.
Consumer comfort with vacation rentals has grown steadily. What once felt like an awkward stay in a stranger’s home is now mainstream: 19% of Americans have stayed in a vacation rental, double the share from five years ago. Average stay length has increased from 3.7 nights in 2019 to 4.1 today, and the share of stays lasting 28 days or more has nearly doubled since 2020. Although longer stays are still a comparatively small portion of the overall short-term market, they do represent a structural shift in demand, fueled by changing work habits and consumer preferences.
What About Hotels?
The traditional hotel sector has enjoyed a strong rebound since the COVID-19 downturn, though growth has cooled more recently in some markets. Hotels face rising costs—labor, property taxes, insurance, utilities—that are increasing faster than revenues. Profit margins in many markets are now tighter than pre-pandemic, even as gross revenues rise. These challenges are not unique to hotels and have been emblematic of all types of real estate investing over the past several years, but in the hospitality business, they are weighing things down, for sure.
Construction of new hotels remains “muted,” per CBRE, with new supply concentrated in luxury and upper-midscale segments (see last week’s comments about a bifurcated economy). Higher interest rates and the higher cost of materials and labor are no doubt to blame here, at least in part.
The AHLA 2025 State of the Industry report found U.S. hotel occupancy at 63% in 2024, essentially flat in 2025, with ADR projected to rise modestly from $159 to $162.16. Market-level data varies widely, however. Here in Maine—where tourism is critical—anecdotally it feels like business is down modestly this year, partly due to fewer Canadian visitors and also from more cautious U.S. consumers.
The Vacation Rental vs. Hotel Question
On the surface, the statistics suggest short-term rentals are eating into hotels’ market share: vacation rentals are still growing while hotels are essentially flat. But context matters. Vacation rentals are still in a growth phase, while hotels are a mature sector, where explosive growth is unlikely. Still, it seems clear that without the short-term rental boom, hotels would be capturing a larger share of demand.
Several studies back this up. Cornell and Boston University researchers (pre-pandemic) found that a 1% increase in Airbnb supply was associated with a 0.02–0.05% decline in hotel revenues, with the biggest effects on budget and mid-tier hotels. That may sound small, but when revenue runs in the millions, it adds up—and in some communities, supply has increased by 100% or more. In San Gabriel, as noted above, it was over 700%!
A National Bureau of Economic Research working paper has also shown that consumers are increasingly flexible, toggling between hotels and rentals depending on price and availability. This is particularly true during peak events—concerts, sporting events, conventions—where hotels once had significant pricing power. The rise of vacation rentals has undermined that leverage, forcing both sectors to compete more directly. In competitive markets with ample supply of both short-term rentals and hotels, the price pressures lead to lower ADRs (which is good for consumers, but bad for property owners or investors — again, though, from the consumer perspective, competition is good!).
Another factor is generational change. As we’ve discussed in previous SMP articles about restaurants and other industries, each generation reshapes consumption patterns. Younger travelers are more comfortable with nontraditional lodging, whether that’s vacation rentals, glamping, co-living setups, or furnished serviced apartments. Hotels remain central, but they’re no longer the only default.
The Regulatory Impact
On the opposite side of the coin, there is growing evidence that restrictions on vacation rentals directly benefit hotels. When New York City began enforcing Local Law 18 in September 2023, the number of legal short-term listings plummeted. Within a year, hotel occupancy rose and average nightly rates increased about 7.4%, compared with just a 2.1% national increase over the same period.
The takeaway: demand for hotels and short-term rentals is intertwined. If the latter is suppressed, the former benefits. This creates an ironic twist in local debates where residents and housing advocates oftentimes aim to preserve affordable housing stock and the character of their communities by restricting vacation rentals, but one of the immediate beneficiaries ends up being the hotel industry. Local politics makes strange political bedfellows, indeed.
Conclusion
Despite inflation pressures and economic uncertainty, consumer spending on travel and lodging has proven resilient. Both hotels and vacation rentals have benefitted, but the balance of power has shifted. Short-term rentals, once seen as quirky alternatives, are now mainstream competitors. They have eroded hotels’ historical pricing power, forced the industry to innovate, and reshaped the lodging landscape.
For investors and policymakers, the key lesson is that these markets are now interconnected. Restrictions in one sector create opportunities in the other. And for consumers, the real upside is choice: a spectrum of lodging options, from budget hotels to luxury rentals to unique, one-off stays that didn’t exist in the same way a generation ago.
For more discussion about the investor angle on short-term rentals or what some communities are doing to restrict short-term rentals (and why they are doing this), check the archives here and here. We’ll see you next week for another topic on The Sunday Morning Post. Thanks for reading.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.