The pandemic has shifted how we live, work, and travel. Can it ever go back to the way it was? We think not. Skift Research believes that the remote office is here to stay and that this change to how we work will have dramatic ripple effects across the travel industry. Prime amongst them, the rise of the digital nomad.
Digital nomads were a niche community prior to the pandemic, but we believe this full-time travel lifestyle is poised to go mainstream and bring significant dollars with it.
This report examines current trends in remote work and what it means for the travel industry. To gain a deeper understanding of how big the potential addressable market is, we select the U.S. for a case study of quantifying the market size and monetary value. We also provide recommendations for travel companies seeking to tap into this growing population.
What You'll Learn From This Report
- How many Americans are currently working remotely and their prospects for returning to the office
- Reasons for the rise of digital nomadism
- Estimated U.S. Digital Nomad market size, population, and room nights
- Recommendations for building travel businesses around digital nomads
Remote Work is Here to Stay
When coronavirus became a true pandemic in the spring of 2020 nearly every nation in the world went into lockdown. Millions of offices across the globe shuttered and sent their workers home. While working from home was certainly not new pre-COVID, neither was it the standard. But seemingly overnight every cultural and social barrier holding remote work back disappeared and work from home became mainstream.
In the European Union, rates of regular remote work increased by ~2.5x, rising to 12.3% of all Europeans who consistently work from home. This is still a relatively small figure as a share of the total population due to counting those not in the labor force as well as the fact that not all work can be performed remotely.
Each country will have a different set of jobs that make up its economy as well as different skill levels within its labor force and as such different long-term potential for remote work. The OECD estimates that on average about a third of jobs across its core membership of 25, mostly advanced economies, can be performed remotely. But this varies widely. In Great Britain, ~43% of jobs might be able to be performed remotely whereas perhaps only ~21% of Turkish jobs could be done from anywhere.
The U.S. sits just below the OECD average with ~32% of jobs having the potential to be done remote. But America also reminds us of the urban vs. rural gap in terms of the kind of work and technological infrastructure available. In a major city like D.C. nearly half of the jobs have the potential to be done remotely.
Research on the future of work from McKinsey makes clear that the big differentiator is what industry you work in. It assessed both the theoretical and practical potential for each industry to work remotely. McKinsey found that the finance industry had the largest potential with three-quarters or more of work time spent on activities that transfer well to a remote world. This was followed closely by management, IT, and other professional service fields.
Digital Nomadism Goes Mainstream
Remote work will not be everywhere. There will be some jobs that cannot work from anywhere and some countries will be home to more remote workers than others. But none of this changes the fact that across the world and major swaths of the global economy, remote work has been a sudden and dramatic success.
Yes, there have been plenty of kinks to work out, but technology has proven up to the task and the overall response has been positive. The bottom line is that remote work is here to stay. And this will have a dramatic downstream impact on the travel industry and Americans rethinking their relationship between work and travel.
Market Analysis: A U.S. Focus
Remote Worker Population
The tools needed to make remote work successful in the U.S. have been in place for over a decade. By 2010, a critical mass of more than 2/3rds of Americans had access to high-speed broadband at home, and video conferencing software company Zoom was founded in 2011.
But despite having all of the ingredients available to them, corporations resisted a remote work culture. Most famously, in 2013 Yahoo CEO Marissa Mayer recalled all of her remote employees back to the office. The move was hailed as a deathblow to the then-nascent remote work movement.
Eight years on, Yahoo no longer exists as an independent company while remote work is experiencing a renaissance thanks to the global pandemic. Skift Research’s latest travel tracker survey shows that 63% of Americans currently in the workforce had worked from home at some point during the pandemic.
Our data suggests that 2/3rds of Americans who were sent home for the pandemic are still working remotely. When you add back in the 11% who had been working remotely before coronavirus, we believe that 45% of all Americans are still working remotely.
For the vast majority of people the pandemic was their first remote work experience. But many are finding benefits to working remotely even as the pandemic recedes. A Flexjobs survey found that 65% of respondents want to become full time remote workers after the pandemic while 31% would prefer a hybrid arrangement.
On the employer side, remote work can offer significant cost savings, with Skift itself expected to save $600,000+ annually in rent and office expenses by switching to a remote company. Even organizations that are reluctant to embrace remote work are being dragged that way by their employees. To wit, 39% would consider quitting their jobs if not offered some form of flexible remote work post pandemic according to a May 2021 poll of 1,000 Americans. The poll, conducted by Morning Consult for Bloomberg News, also found a growing generational divide. Among Millennials and Gen Z workers, 49% would change companies for remote flexibility.
As a result, many companies in the U.S. are planning a return to work that includes remote. Google, for instance, will give employees a choice to work from anywhere permanently if their role allows it, and CEO Sundar Pichai expects 20% of his 140,000 employees to elect this option. Google will provide its remaining 80% of workers with the flexibility to work from anywhere for a full month away from their home office.
Google is one of the most influential companies in the world and we believe its generous full-time and hybrid remote work policies are likely to set a new standard for other Fortune 500 firms both in and out of the tech world.
A Gartner survey of 127 company leaders supports this proposition. It found that 82% of executives planned to incorporate some form of hybrid remote work into their businesses post-pandemic. Nearly half were considering the most extreme options of full time remote work.
Remote Work Drives More Travel
Already our travel tracker is showing that remote work is creating a higher propensity for Americans to travel. In April 2021, 14% of Americans told us they had taken more short-term trips and 16% had taken an extended trip because of their remote work status. A further 24% were planning to take a remote-induced extended trip. Said another way, more than half of Americans had taken or were planning to travel as a result of being remote.
Keep in mind, the average American only uses half of their given vacation days in a year and as a result the nation left a cumulative 768 million unused vacation days on the table in 2017. Cost was the biggest reason given for not using allotted vacation time. Secondarily was trouble getting away from work with 30% of Americans listing it as their primary or secondary reason for not traveling. Digital Nomadism addresses both issues and will make it significantly easier for Americans to travel.
Digital nomadism addresses the cost hurdle of travel indirectly. It does not make the travel itself any cheaper but creates savings elsewhere. For the average American, housing is their largest expense, typically a total of 16% of annual spending budgets. This is followed closely by transportation at 14% of annual spending.
Digital nomads have the flexibility to convert their housing costs into travel spend and as remote workers there are immediate transportation savings. In effect, switching from a permanent office worker to a digital nomad frees up a third of most Americans’ budget to be spent on travel.
What about finding time to get away from work? At first glance, becoming a digital nomad does not necessarily solve for this. Remote workers still work full time after all. But by being located in-country, digital nomads will find it much easier to stage extended trips from their new home base. Plus, they can experience the local culture outside of work hours even though traditional tours and activities may not be possible. Traveling and working as a digital nomad plays into the desire to ‘live like a local’ which is increasingly important to modern travelers, especially among younger generations.
With the combination of flexible jobs, cost savings, and local experiences interest in becoming a digital nomad has skyrocketed. Since the start of the pandemic in April 2020 digital nomad related Google searches have increased by 50% and are up by more than 1,000% over the last decade.
Travel as the New Rent, Scenario Analysis
It’s clear Digital Nomads stand to develop into a valuable segment of the travel industry over the next few years. To understand just how big this market will be, we turn to our previous cost framework based around housing costs.
Being a Digital Nomad is much more complex than planning a typical vacation. It means finding a place to live and work in a new city. It almost means giving up your current living situation for one of travel. As a result, we believe that most digital nomads do not see the costs for these trips as coming out of their savings or from an annual budget set aside for travel. Rather we believe that for many, these trips can be funded by former rent dollars.
For digital nomads travel is their new rent.
We will create a U.S. market size by estimating how many Americans could plausibly become digital nomads and then converting their former rent payments into a total addressable market for the space.
Despite the unprecedented flexibility on offer in the workplace today, not every American can become a digital nomad. Some jobs just simply cannot be done remotely. And many remote workers have families and/or other responsibilities that would prevent them from leading a truly nomadic lifestyle.
We believe most digital nomads will need to meet four basic flexibility standards for lifestyle, profession, age, and housing. For lifestyle we only considered households that were single or married without kids, this is about 96 million Americans, or 30% of the population. For jobs, we only considered managerial, professional, administrative, or sales positions. These roles have the potential to be done remotely, unlike other sectors such as farming, construction, retail, teaching, etc. When combined with our lifestyle filter, we were left with 27 million eligible workers.
For age, we limited our population to those 22-34 years old. This is perhaps the most subjective criteria as there is nothing stopping a 65 year old from becoming a digital nomad, but we suspect this demographic is the sweet spot for nomads, and by being restrictive we bake in a layer of conservatism. This drops our addressable market to 6 million Americans.
Lastly, we only look at renters. Homeowners face greater logistical hurdles – either selling or renting out their houses – to becoming nomads.
All of this leaves us with 3.7 million American who have the theoretical ability to choose to become digital nomads. These individuals earn an average of $60,000 and spend $13,000 a year on rent according to Skift Research analysis of the U.S. Bureau of Labor Statistics’ consumer expenditure data.
It’s worth noting that only 47% of households in this group took a trip in 2017 (the latest year data is available). This travel penetration rate under-indexes compared to the broad U.S. population (56%) and to similar age groups (25-34: 62%) or income brackets ($60-89k: 68%). Given that these groups are traveling less than the norm, we believe that converting these people to digital nomads would generate incremental travel spend and not simply transfer dollars from other pre-existing travel spend categories. (See U.S. Traveler Profile report for more details on travel participation and spending by demographic).
But not all with the potential to become digital nomads will elect to do so and for others it will not be a full-time lifestyle. And although our thesis is that travel can become the new rent for digital nomads, not all rent will be fully reinvested.
We assume that just 1 out of 20 of the eligible population decides to be digital nomads and that they will only do it part-time, 6 months of the year. Alternatively, this is the same as 2.5% of the eligible population becoming full-time nomads. We will also assume that these Americans pocket one-fifth of their former rents as windfall savings and reinvest the remainder into living, working, and traveling as digital nomads.
All considered, our Skift Research base case estimate is a total addressable market of $972 million a year that could be converted from rent to hotel stays by U.S. digital nomads. This scenario imagines ~180,000 part-time digital nomads in the U.S. This is a rather small number of individuals, after all nearly 180 million Americans travel a year; the cruise industry served 14 million Americans in 2019. But given that these are long-term travelers they can have an outsized economic impact. These travelers could account for as many as 33 million room nights a year. For context, Expedia sold 389 million room nights globally in 2019. Said differently,, this audience of ~0.1% of American travelers has the potential to generate ~9% of Expedia’s pre-COVID annual room nights thanks to the impact of long-term stays.
Our assumptions could, of course, be off. To help understand the sensitivity of this estimate to our assumptions, the table below stresses our size estimate for what share of the eligible pool choose to become nomads and how many months they choose to travel per year. We consider the most likely range of values to be between $750 million to $1.25 billion.
Recommendations for Travel Companies
This is just a rough exercise of how big the digital nomad travel market could be for the U.S. population. Expanding it to the global level, the market potential is profound. Digital nomads have the potential to be a small, but fast growing and powerful niche in the travel industry. We have seven recommendations for travel companies looking to tap into this marketplace
- Be Targeted: It takes precise aim to hit a small target, but this is a bullseye worth aiming for. Our base case estimates that there could be ~180k digital nomads in the U.S. but that they might generate ~33 million room nights. For context, this audience of ~0.1% of American travelers has the potential to generate ~9% of Expedia’s pre-COVID annual room nights. That’s the power of long-term stays. It’s worth getting in the weeds to create highly specific offers for this clientele.
- Integrate Across the Value Chain: The addressable market for digital nomadism is so much more than a flight or a room. As a digital nomad, travel is a holistic experience and not broken down into the traditional travel segments. To best capture value from the customer, you should be prepared to offer services across the full travel value chain including transportation, accommodation, in-destination activities and food and beverage. There is also an opportunity to expand beyond traditional travel offerings and to sell business and coworking services
- Upsell: Closely related to the above concept, digital nomads offer an opportunity to take pricing power in a difficult environment. Our $1 billion addressable market represents a total pool of available dollars. But if you do not sell against this full opportunity, travelers will happily pocket the excess savings. Make sure you price your offering relative to the opportunity cost – which in this case is rent, not other forms of travel. Finding your room rates are out of whack? Consider attaching other offerings as per the above, or changing your pricing model as per the below.
- Consider Subscriptions: Digital nomads present a great opportunity for travel businesses to earn recurring revenue. They will be on the road far more than other travelers and require continuous access to travel, lifestyle, and work services. After all, rent is the ultimate subscription, and you are replacing rent for the digital nomad, not their once-a-year trip.
- Ensure Reliability: Digital nomads are not on vacation – at least not all the time. They will be working full-time and will require reliable access to Wi-Fi, quiet and comfortable working spaces, meeting rooms, and more. And this need exists 24/7 across multiple time zones. Especially if you are charging for a premium product or subscription, you will be held to a much higher standard, and for a much longer time frame, than your typical leisure, or even itinerant business guest. Be sure you can deliver a high standard of reliability before launching a digital nomad offering.
- Create Community: Working remotely can be a lonely experience, as many of us discovered during quarantine. Digital nomads will want to have a fulfilling working and living experience during their sojourns abroad. This means creating the ability for networking and social opportunities. This will mean offering co-working spaces and organizing regular events. Maybe it’s time to bring back the social hotel lobby?
- Expand the Market: We made several assumptions that limit our market such as no kids and younger age brackets. We think these are the most likely core demographics for digital nomads, but there is an exception to every rule. Perhaps you could create a space for families to travel and work remotely, for instance. This will grow the market for digital nomads and ties back to our very first recommendation to be hyper-targeted in building out an offering.