Report Overview

The short-term rental (STR) market has been booming over the past few years. While Europe and North America dominate this segment, Asia Pacific is expected to be the most promising market in the coming years primarily because of the increase in tourism over the past few years (with the exception of the pandemic years) owing to conducive macroeconomic and demographic features.

In this report we investigate the industry dynamics with key emphasis on understanding the current ecosystem, user penetration in the market defining the current phase of the industry cycle, demand and supply balance, as well as the current regulatory framework at a country level. In addition, we interviewed five top executives in the STR space to understand the market dynamics and validate our own findings.

The STR market in Asia Pacific is a high potential market which is witnessing a rapid change in the industry dynamics both on the demand and supply end. The next few years will be crucial for the industry shape-up as the market matures.

What You'll Learn From This Report

  • The current ecosystem of short-term rentals in Asia Pacific
  • User penetration in top Asian countries
  • Level of domestic and foreign demand
  • Preferred style of real estate in short-term rentals
  • Demand and supply dynamics in the industry
  • Regulatory frameworks at a country level

Executives Interviewed

  • Daniel Rouquette, Managing Director, Villa Finder
  • Eacham Curry, Director, Government and Corporate Affairs, Expedia Group
  • Eugenio Ferrante, Co-Founder, Casa Mia Coliving
  • Jamie Lane, VP of Research, AirDNA
  • Yoav Tourel, Managing Director APAC, Guesty

Executive Summary

What began as part of the sharing economy and a simple platform for homeowners to rent out their homes online is now a burgeoning industry that is starting to attract serious investment interest. Despite their various challenges, short-term rentals (STRs) are emerging as a preferred choice of accommodation for many travelers around the globe and Asia is catching up fast.

In this report we highlight the current landscape of short-term rental platforms in Asia Pacific (APAC) by listing out the global and regional platforms and understanding how the players coexist by providing almost the same service yet differentiating from each other by providing value added services like managing the properties on behalf of the owners.

Furthermore, we outline the key characteristics of the market with respect to the user penetration, level of domestic and foreign demand and demand for urban vs. non-urban STRs. The short term rentals industry in APAC is still in its nascent stage. The user penetration across countries in the region show that the Australian and Japanese markets are the most mature. 

The report also highlights that strong domestic demand correlates with dominant presence of local players and how increase in domestic demand due to Covid has further validated this. However, it is yet to be seen if we will go back to the distribution channel allocation before the pandemic once international travel resumes or if people will continue to use local players as they did during the pandemic.  

STRs in APAC consistently outperformed hotels during the pandemic. This was possible because of diminished STR supply and healthy RevPAR levels. The demand and supply dynamics in the APAC market suggest that there were signs of oversupply in the market pre-Covid. However, 2021 was characterized by low supply but high RevPAR, indicating that STRs gained popularity during the pandemic and managed to charge higher ADRs. With no long-term history as a gauge, however, it remains to be seen how successful the STR market will be in the future.

Taking stock of the regulations in place in the top STR markets in Asia inferred that while Australia, China and Indonesia have a rather lenient regulatory structure in place, regulations in Thailand and Singapore do not allow owners of rental properties to rent their units for a short term, diminishing the value proposition of vacation rentals in these countries.

Growth of short-term rentals in APAC

The short-term rental (STR) market has been booming over the past few years. While Europe and North America dominate this segment, Asia Pacific is catching up fast. Revenue in this segment is projected to reach $35 billion in 2026 as compared to the current projection of $23 billion for 2022 (11% CAGR 2022-2026).

The pandemic heavily impacted the travel industry including STR market. Traveler behavior shifted and evolved during the pandemic. During the course of the pandemic, travelers preferred a boutique-personal space which made short-term rentals the best choice of accommodation.

Skift Research’s recent 2022 Travelers: A Multi-country survey report confirms that this shift in preferences will likely be long lasting, with ~30% of the respondents in  Australia, China and India stating that they prefer to use vacation rentals more often in the future, as compared to before the pandemic.

Asia has all the right ingredients to be a promising market for short-term rentals

Asia Pacific is expected to be the most promising market in the coming years primarily because of the increase in tourism over the past few years, owing to conducive macroeconomic and demographic features.

It has become one of the largest and fastest-growing economic sectors in the world with a tremendous GDP growth rate, increase in the middle-class population and rise in the per capita disposable income. For instance, in 2011, Asia Pacific’s middle class consisted of around 700 million people which will increase to 2.1 billion by 2030. This will cause a sea change in the distribution of middle-class expenditure, creating a significant increase in discretionary spending. These factors have helped in growing the tourism industry on the whole and is bound to have a cascading impact on the short-term rentals sector.

Another key factor is the huge presence of Millennials in Asia. There are 1.2 billion of them around the world, more than half of whom are based in Asia. A number of surveys conducted in the past have concluded that Millennial travelers prefer local host rentals to hotels, particularly those in the emerging markets. For example, Skift Research’s Millennial and Gen Z Traveler Survey found that, out of the five countries surveyed – the U.S., UK, Australia, China and India,  Millennial/Gen Z travelers in China and India are the most likely to have stayed in a short-term rental. 

Furthermore, millennials are considered to be the most sustainability-conscious generation. Hotels, typically, have a much larger carbon footprint than short-term rentals due to the 24/7 nature of the properties. In contrast, since short-term rentals are typically individual homes or units, they are generally better equipped to conserve energy and water. In addition,staying in residential neighborhoods balances traveler loads around cities more than staying in hotels typically does.

In addition, the recent trend of wanting unique and secluded locations where travelers can spend time with their entire family or group of friends away from the crowds is also expected to lead to an increased use of STRs in areas where fewer hotels are available. 

Highlights of short-term rental market development in APAC

The table below highlights key events that defined the industry in APAC over the last decade.

Current Ecosystem of STR Platforms

In the last decade or so, a number of regional online travel agents (OTAs) like MakeMyTrip and Yatra have started listing alternative accommodations and a variety of niche short-term rental platforms like Ministry of Villas in Indonesia and Villa Finder in Singapore have emerged too.

Along with this, global niche platforms like Airbnb have expanded organically in the region and platforms like HomeAway, now Vrbo, have acquired or made partners with a series of regional players like Stayz in Australia, Bookabach in New Zealand, and Tujia in China to grow its presence in the Asian market.

Several cross-platform partnerships have taken place to gain access to a bigger pool of inventory and grow business mutually. For example, in 2018, Japan’s Rakuten LIFULL STAY and Agoda Homes collaborated in their vacation rental business. As per the agreement, Rakuten LIFULL STAY provides its inventory of Japanese vacation rental properties listed on its vacation rental and accommodation booking site Vacation STAY to Agoda, allowing Agoda’s users to reserve these accommodations through Agoda’s online booking platform. In addition, the two companies collaborate on marketing activities aimed at international tourists, particularly from Asia, visiting Japan.

At the same time, the recent global trend of hotels entering the rental space can also be seen in APAC. For example, Taj group of hotels entered the homestay segment with the brand Ama Trails and Stays in 2019 wherein it entered into a management contract with heritage bungalows across India. The move into the homestay segment came at a time when global players such as Airbnb and several start-ups such as Saffron Stays were already expanding their presence in the segment in India.

Furthermore, consolidation in the industry at a local level is also taking place to an extent. For example, the China based STR giant Tujia, founded in 2011, acquired its competitor Mayi and the short-term rental divisions of major Chinese online travel agents Ctrip & Qunar in 2016. 

The image below gives a snapshot of the current ecosystem of short-term rentals’ ecosystem in the region.

Need for differentiation to coexist and make profit

The basic business model of STR platforms is to connect property owners with travelers looking for alternatives to hotels. The primary source of their revenue comes from service fees from bookings charged to both guests and hosts or only the hosts. 

For example, while Airbnb is proving popular with property owners paying a 3 percent commission to cover payment processing costs and travelers paying a booking fee of 6 to 12 percent, Stayz charges a 10 percent commission to property owners but is free for travelers to book. 

It must be noted that hosts reduce or increase their nightly rates in order to ensure that competitive prices are available to the traveler. For example, Airbnb charges both guests and hosts, but the hosts might take this into account and reduce their nightly rate accordingly. That way, the guest will pay $100, as they would at the other platforms, and the host payout would be $85, the same as on Booking.com.

However, just setting the right commission percentage is not enough. Yoav Tourel, Managing Director APAC at Guesty commented: “Hosts usually pick channels based on their experience with them. If Airbnb with a good brand and mature marketing channels is growing, we also see growth of niche OTAs that are providing luxurious experiences. All channels are continuously trying more and more to differentiate themselves. As a channel manager, we encourage hosts to test, see what works, see what type of customers they are getting from each of the channels, what is the return they see etc. It is basically a trial-and-error process.”

A constant drive to differentiate from peers in the industry by tweaking business models is very much evident in APAC. For example, Tujia in China expanded into full end-to-end value-added services to drive profits and beat the competition. It works with real estate developers, agents, and owners to manage their properties. For the owners, it’s an extra source of income minus the headache of managing the rentals and maintenance. Apart from promoting the properties online, Tujia contracts local service providers for utilities, cleaning, laundry, and so on. In larger cities, it runs an agent service which helps with all kinds of minute details – like providing a smart lock so that the host doesn’t have to hand the key to the guest every time. If owners want to manage their own properties, Tujia just provides services and charges for them – which is its most risk-free model.

Airbnb, on the other hand, emphasizes landlords’ training and government relationships, which is partly a lesson from its overseas experiences. In addition, it acquired a French concierge services company, Luckey Homes, in 2018, signaling a potential entry into property management. However, at present, the service is only available in select cities in France, Canada and Spain.

Then there are smaller niche companies like Villa Finder which also have a hybrid model of listing and managing properties at the same time. In an interaction with Skift, Daniel Rouquette, Managing Director, Villa Finder commented, “We have the types of contracts. Out of the 3000 properties we work with most of them, we do not have an exclusive contract. They are listed on multiple platforms, but about 1,250 are exclusively distributed by Villa Finder. What that means is that we do distribution in the way that we do marketing for those properties. We do list them on our platform, but we control those listings. We are the one managing their inventory availability. We make sure that we provide the best price guarantee and the best experience.”

Platforms like Villa Finder make personalization the highlight of their service. They screen the villas exhaustively to the extent that they turn down 50% of the villas that are not up to their standards.

Industry Beat

User penetration varies from country to country

The concept of short-term rentals in APAC is decades old. However back then, the industry was more concentrated in the west influenced Australian market. For instance, Stayz, a Sydney based holiday rentals platform was founded back in 2001 (later purchased by HomeAway in 2013) and continues to be one of Australia’s favorite holiday rental websites for the last two decades.

It was only after 2012 when Airbnb entered the Asian region and a couple of regional platforms like Tujia were launched that the market became more spread out in terms of geography and other Asian markets started warming up to the concept.

Eacham Curry, Director, Government and Corporate Affairs at Expedia Group based out of Sydney, Australia said: “We must recognize that vacation rentals generally across Asia Pacific are actually not well embraced. The markets for Australia and New Zealand are actually very mature. They’ve been around a very long time. We’ve got a healthy sector. It’s just part of our [Australian] culture. That’s not something which happens very widely beyond us. There are a couple of distinct countries which embrace it a bit. Thailand is one. Bali within Indonesia is another market where it’s used a bit, but generally across the rest of the Asia Pacific vacation short term rentals is relatively a new industry still.”

This can be validated by looking at the user penetration of STRs across Asian countries. The penetration rate is the percentage of the target group (people who travel and use an accommodation option) that has used a short-term rental at least once in the time period. It is one of the measures of an industry’s success in getting consumers to use their products.

As can be seen in the chart below, the Australian and Japanese markets are much more mature as compared to other markets in Asia. Though they are far away from reaching the penetration rate in France, which is the most mature market globally. The user penetration in these markets is comparable to that of the U.S. Countries like Thailand and China are moderately mature while India and Indonesia lag behind on the scale.

It must be noted that although there was a dip in user penetration starting 2020 due to the impact of Covid, the trends at a country level have remained the same.

The share of global and local players depends on the nature of traveler demand 

Correlation with domestic and international demand

Industry experts believe that markets that have high domestic demand have stronger local players. However, the presence of global players might help in bringing more revenue from inbound travel. 

Tourel from Guesty noted: “Unlike the European and the U.S. market, even unlike the Australian market, in Asian markets we see the importance of the local and well-established OTAs. So it can be, for example, Make My Trip in India or a local player in Indonesia or Agoda Homes. Agoda Homes before Covid was a must have channel for a lot of the Australian property managers. Trip.com is another prominent regional player. There is no doubt that players like Airbnb and Expedia are strong in the market but the local players are so well embedded in the market and the culture that they are bound to maintain a strong position in the future as well.”

Tourel further added, “Rakuten for example is a prominent player in Japan but Airbnb and Booking.com did a very good job for the Japanese property managers with bringing international travelers to Japan.”

One classic example to explain the dominance of a domestic player as compared to a global one is the rivalry between the Chinese homegrown brand Tujia and Airbnb in China. ~90% of the demand for STRs in China comes from domestic travelers and hence, the hurdle for international companies entering China often rests in balancing global status with local understanding. The Chinese STR market is fiercely contested and domestic players like Tujia, which is backed by China’s largest travel operator Trip.com, are leveraging their knowledge of local conditions to keep foreign players like Airbnb from increasing its market share.

Cross-border travel was hit the hardest during the pandemic. As discussed in Skift Research’s Global Travel Outlook Report 2022, the global cross border trips decreased by 73% while outbound departures from APAC decreased by 86% in 2020 and as per our projections, we don’t see a full recovery of cross-border travel until 2024 at the earliest. 

As a result, the overall STR demand has become more skewed toward domestic travelers. The following data from AirDNA shows how STR stays shifted in Asia during the pandemic. This domestic reliance is likely giving local players a further edge.

While there is little hard data to validate the argument that strong domestic demand during the pandemic correlates with strong performance of local players, anecdotal data does point to that direction. For instance, Airbnb, whose Asian market heavily relies on international tourists from its North American and European markets, saw Asian market depressed for the last two years. Referring to our ​​Airbnb and the Short-Term Rental Market 2020 report, Asia Pacific accounted for only 13% of its gross booking value in 2019 and according to its recent company filing, Asia Pacific accounted for only 7% of its gross booking value in 2021. 

Similarly, speaking specifically about the distribution shift of the villa rental market in Asia, Rouquette at Villa Finder said: “My impression is that it has changed a lot since Airbnb was mostly used by international travelers which we haven’t seen in the past 18 months. Meanwhile, while volume has definitely dropped for them too, I think the share of bookings coming from OTAs (in particular local ones such as Agoda, Traveloka) has increased. So I would estimate: Airbnb: 5-15%, Direct: 20%, OTAs: 50%, Other VR marketplaces: 5%, Tour operators and travel agents: 10-20%.” 

For reference, according to an Asia Pacific Villa Rental Market research report published by Villa Finder, in 2017 Airbnb accounted for 30% while local specialist websites accounted for 20%, direct bookings accounted for 20%, Booking.com and other OTAs accounted for 15%, other vacation rental marketplaces accounted for 10% and tour operators and agents accounted for 5% of villa bookings in Asia. 

However, it is yet to be seen if we will go back to the pre-pandemic channel mix once international travel resumes.

Correlation with urban and non-urban demand

There seems to be an inherent advantage for local players in non-urban areas and global players in urban areas. For example, in Australia, Airbnb appears to be very well received among short-term rental hosts from urban and metropolitan areas, with bookings from the capital city supplying a significant 69% of revenue to Airbnb, and only 17% to Stayz, a local player. Tourel from Guesty echoes: “The channel usage might be also based on geography. I can tell you from Australia that the more you go to regional Australia to the countryside, for example, they’re really used to working with Stayz because that is sort of a legacy. The more urban, they will be more skewed to Airbnb.”

The heavier skew of global players towards international tourists that we discussed earlier might be at least partly attributed to their urban dominance, as inbound travelers are more likely to visit urban/metropolitan destinations. It should be noted that this kind of discrepancy can only be witnessed in mature markets where there is a clear development of urban and countryside STRs. In countries like India, for example, the concept of STRs is only limited to urban cities and core holiday destinations like Goa.

STRs are inching towards becoming the preferred option of accommodation

Covid-driven concerns over safety, crowd and cleaning protocols have made rentals a preferred choice for many consumers. STRs have consistently outperformed hotels during the pandemic. Referring to our Global Travel Outlook Report 2022, globally, STRs came through 2020 better than hotels, registering a decline of -33% as compared to -60% for hotels. In 2021, it is expected to have registered a 42% growth, moving towards bookings returning to pre-pandemic levels by 2022. 

Asia was no exception to this trend. As per the Skift Travel Health Index scores for the hotel and vacation rental sectors, recovery of vacation rentals has outpaced that of hotels in the last two years in the APAC region. 

This was possible because of diminished STR supply and healthy RevPAR levels. In 2018 and 2019 supply and demand for STRs was both growing. However, decreasing occupancy rates and RevPAR pointed towards an oversupply. These growth rates came to an abrupt halt in 2020 with the onset of the pandemic. In 2021, absolute demand remained lower than 2019 levels but the RevPAR surpassed the 2019 level, indicating that STRs in APAC managed to increase their ADRs possibly because of limited supply in the market.

It must be noted that ADR increase and hence, RevPAR increase, were witnessed only in countries with heavy domestic demand. For example, RevPAR in Australia, India and China increased by 46%, 36% and 13% respectively from 2019 to 2021 and RevPAR in countries like Indonesia and Thailand which are heavily dependent on international tourism decreased. France and the U.S., both primarily domestic markets, also witnessed an increase in RevPAR between 2019 and 2021. 

All that said, we do need to consider that while STRs have recorded stronger performance of late, the hotel sector continues to make up ground. Hotels will certainly win back some of the lost business, especially in the transient business and solo travelers segment. Data from the Skift Travel Health Index has shown that throughout 2021, hotel bookings grew faster than rental bookings in 7 of the 8 Asian countries analyzed. 

Whether the preferred demand for STRs is a momentary or longer-lasting trend is difficult to predict. Year 2022 will be crucial in defining long-term trends in the lodging industry.

Apartment/condo/loft is the preferred style of STRs in APAC

As per the data shared by AirDNA, overall, apartment/condo/loft is the preferred style of STRs in APAC similar to the trend in Europe while in the U.S. a house/villa is the preferred style of STR. The trends appear to be tied to the type of traveler segment – business or leisure – and the cost of real estate in countries which defines the availability of different types of STRs.  

In 2019, on an average, 66% of the travelers opted for apartments or condos or lofts kind of rentals in APAC while 27% of them opted for houses or villas. In 2021, the trend remained the same, with 65% of them opting for apartments, condos, lofts, and 28% opting for houses or villas. Percentage share of B&Bs and unique stays has been comparatively lower in the past.

When we look at the percentage usage at a country level, one trend is that in countries like China, Japan and Singapore where there is a stronger business travel segment, demand for apartments, condos and lofts is higher than houses or villas. Leisure markets like India, Indonesia and Australia see a reverse trend in the demand. Similarly, in France, which witnesses a good balance of business and leisure tourists, demand for apartments, condos and lofts is similar to houses or villas while in the U.S. where there is a stronger leisure travel segment, demand for houses or villas is higher than apartments, condos and lofts. 

Another way of validating the trend is by looking at the cost of real estate in these countries. In countries like Singapore and Japan where average price per square meter for a city center flat is $19,798 and $11,004 respectively, ADRs for a house or a villa will be much higher than an apartment or a condo which pushes the demand for apartments up. On the other hand, in markets like India and Indonesia where average price per square meter for a city center flat is $1,359 and $1,688 respectively, a luxurious villa is easily affordable and hence, is in more demand than a condo.

The surge in demand for STRs has warranted the need for regulatory oversight

Short-term rental business opportunities are a great way for homeowners to earn money. But as short-term rentals have grown beyond a cottage industry, regulators are starting to play catch-up. Spurred by complaints from neighboring residents and the traditional hotel industry, cities and states have enacted laws to regulate short-term rentals across the globe.  

Curry at Expedia Group commented, “So what we know is that there are four main things that local and state governments use as the reasons why they want to regulate. The first is what they perceive to be the impact of the vacation rental sector on housing affordability. Second, what they think the impact is on housing availability. Third, the impact that they think there is on community amenity and fourth, the impact that they think it has on local government service provision, for example, the resources STRs draw towards waste collection or things like that.”

Short term rentals around the world are lobbying to get formal regulations and a code of conduct in place to ensure smooth functioning of the sector. Curry at Expedia Group shared: “When I talk with my counterpart at Airbnb, the things on which we broadly agree are that there should be a code of conduct and there should be some mechanism by which to collect data, which can show how the sector is growing. And we do this because we know that in order to get greater legitimacy and for people to understand that our sector is actually being run in a reasonable way, in a way that is respectful of the environments and the communities in which it operates, you want to have very clear rules.” 

Over and above meeting the basic requirement of relevant public security and safety conditions, the main themes of regulatory restrictions for STRs in APAC are: the number of nights the rental property can be open for booking, license requirements and tax structure (in addition to paying income tax and self-employment taxes, some local governments impose a short-term rental occupancy tax or lodging or hotel tax on STRs).

We looked at the regulations in place in the top STR markets in Asia to assess the level of stringency at a country level. While Australia, China and Indonesia have a rather lenient and cooperative regulatory structure in place, regulations in Thailand and Singapore do not allow owners of rental properties to rent their units for anything less than 30 days and 90 days respectively, making it difficult for STRs in the countries to adequately offer bespoke services to their customers, diminishing the value proposition of their core business model.  

Markets like Singapore are extremely regulated. We spoke to Eugenio Ferrante, Co-Founder at Casa Mia Coliving in Singapore, to discuss the impact of the stringent regulations with respect to STRs in the country. Ferrante commented: “The concept of vacation rentals in Singapore does not exist. If travelers are coming to Singapore for less than three months, they only have two options – hotels where you can stay for even one night or serviced apartments where you have to stay at least one week and then for longer term stays, a coliving space, like ours, is the best option available to people traveling for business. However, you should be a Singapore citizen, Singapore Permanent Resident (PR) or hold a valid permit in Singapore to rent a property in Singapore, especially for the long term.”

Despite these regulations, listings for short-term rentals in Singapore remain. A check on the Airbnb site shows over 300 listings, many of which do not stipulate any minimum rental period. Space is at a premium in Singapore, which is ranked by the World Bank as one of the world’s most densely populated countries. Not only that, but the country is often named as the most expensive place in the world for expats. No wonder that short-term leasing options are popular despite existing in a legal gray area.

Hence, although there are regulations in place in each country there are a lot of loopholes and policies are yet to be ironed out in order for guests to run their business efficiently and provide high quality customer service. 

Where is the Asian Short-Term Rental Market headed?

  • Demand, Supply and Pricing:

The supply and demand of STRs was approximately 25% and 36% lower at the end of 2021 as compared to 2019 respectively. We expect supply growth to come only after substantial demand recovery where property owners find it lucrative to list back their properties. 

However, demand has grown in 2021 vs. 2020 and ADRs have completely recovered and are expected to do even better. With the combination of rising ADRs and demand, the sector is poised to perform very well with substantial revenue growth. As with the rest of the world, STR in Asia, with its growing relevance, is likely to become a category of its own and not an alternate accommodation sector anymore, competing head on with hotels. 

The caveat is that ADRs have increased in countries like Australia, China and India which are domestic dominant markets. Once international travel resumes a change in trend can be expected. 

  • Time for local players to shine:

During the pandemic, STR demand in APAC is domestic driven, where travelers tend to book via local channels or OTAs. ​​The dominance of Airbnb within the industry will be challenged. Based on Airbnb’s persistence in China, hyper-competition amongst the players is expected. But given that travelers have been using local channels more during the pandemic period, local players can leverage this brand stickiness to raise brand loyalty. 

  • A fragmented industry, at least in the near future:

As the STR market grows rapidly in APAC, there will be room for all its stakeholders to grow along. The sector is expected to remain fragmented since it is still at a nascent stage in APAC. In the coming few years as the market matures, market leaders will emerge. 

  • More of end-to-end business models expected:

Although all kinds of business models, end-to-end service providers, niche market players, hybrid models will all coexist in the market, more end-to-end platforms can be expected as the additional value added services is the best way to drive profits and beat the competition. Example, how Tujia has kept Airbnb at bay in China. 

  • China and India user penetration is expected to climb up: 

Till before Covid happened, even smaller tourist markets like South Korea and Thailand showed higher penetration rates than tourism hubs like China and India. In the post-Covid world, when the two countries have witnessed the power of domestic tourism, user penetration rate is likely to climb up faster. 

  • Regulations:

Regulations formalization will be a slow process as Covid has distorted the data trends in the industry and a stable pattern of demand and supply is quintessential to formulate just and fair guidelines for the industry.