Driving from San Francisco to Charleston, S.C. with stops across Texas and Georgia, Francis Davidson is one of the few business travelers currently traversing the country, clocking more than 7,000 miles. To the chagrin of public health officials, Davidson simply can’t do his job over Zoom.
The CEO and co-founder of the short-term rental company Sonder spends every night at a property available through his own brand, testing a room’s internet speed in Houston or the inefficiencies of 24-hour hotel service in Savannah, Ga. He’s always looking to make sure each desk is properly lined up to a room’s windows, ensuring adequate natural light.
“It’s an epic trip, and it’s possible to do pretty safely if you stay at a Sonder,” Davidson said.
He’s usually satisfied, and he has a reason to be. Even before the pandemic, Sonder proudly emphasized its digital know-how, offering contactless check-in and arrival done in the brand’s mobile app for rooms in hotels and residences in apartment complexes across 39 cities worldwide. And while the travel industry continues to be pummeled by the pandemic—as reflected in bleak airline earnings and low U.S. hotel occupancy—short-term rental brands continue to outperform their competition, riding a wave that began in early summer and has continued into the fall.
Between mid-May and mid-June, Airbnb saw its new bookings grow 20% year over year, largely in rural and coastal destinations. Sonder’s occupancy currently sits at roughly 80%, about 30% more than the U.S. average of 50%, according to STR, which benchmarks the hospitality industry. That disparity is much starker in cities where brands like Sonder and Airbnb are largely located.
In Sonder’s case, much of this business has been buoyed by remote workers willing to give up a traditional lease and live in housing on a month-to-month basis. That’s meant a major change to how the brand operated before the pandemic, when the average length of stay was four days before the pandemic and extended stays only accounted for 10% to 15% of demand. At the height of the pandemic, average stays were longer than 30 days; bookings have since begun trending back down to between 12 and 15 days.
“[It’s] people that didn’t want to live with their roommate, or their lease was up and they didn’t know what was going to happen in the next few months,” Davidson said.
Airbnb has seen the same trends. But while both fulfill similar needs for travelers—all the way down to the brand’s online aesthetic—Sonder negotiates leases with property owners, offering rooms in hotels and apartment buildings. (Those leases also include protections when a recession hits, something that Davidson has called “critical” to the brand’s survival.) Sonder rooms can even be booked on Airbnb, as well as Expedia and Booking.com.
“These brands aren’t as much at the mercy of business travel as are traditional hospitality brands. The drought in business travel that has sounded the death knell for the urban hotel has had less of an impact on these properties,” said Dipanjan Chatterjee, an analyst at Forrester, noting that giving the traveler a larger degree of control in an uncertain environment (such as contactless check-ins in lobby-less buildings) can have real impact.
“Brands like these who have come of age in an era where data and analytics feed decision-making tend to be far more nimble and adaptable in responding to crisis than legacy hospitality brands,” he added.
However, the brand wasn’t bulletproof when the first few months of the pandemic cratered demand, laying off 22% of employees and furloughing another 11%.
“It’s the most dramatic shock we’ve seen in the hospitality industry by far,” Davidson said. It started as a “punch in the face” as the brand’s Rome bookings tanked and cancellations spiked the last week of February. But by the second week of March, Sonder was already promoting its extended stays, including a landing page on the brand’s website.
“The pandemic probably set us back six months, maybe 12 months, but the competitive environment is much less heated,” said Davidson. To his point, Lyric, a short-term rental brand backed by Airbnb, shuttered almost all of its locations in July.
Relative to the giants in the hospitality industry, Sonder is still small, with only 5,000 rooms compared to Marriott’s 7,400 properties. Because of this tight supply, the brand isn’t interested in a ton of broad marketing. Instead, it relies on referrals and repeat customers, who make up about 60% of Sonder’s revenue.
While target and performance marketing weren’t previously of interest, the brand has increased its investment in areas such as Facebook ads, which have since brought in about 10% of the brand’s revenue. While Sonder didn’t provide specifics, the brand was last valued at $1.3 billion, raising $170 million in June.
One challenge that doesn’t deter Davidson is the brand’s ability to seemingly be all things, from a hotel room to an apartment, for casual travelers as well as those looking for an extended stay. While Marriott oversees nearly 30 brands, Sonder still maintains everything under the same umbrella.
“We used to be a short-term rental company, and now we’ve really elevated to being just a hospitality company. The thing we’re good at is not offering you a kitchen, living room and an apartment,” Davidson said. “We’re good at modernizing services and adding technology to the experience and the backend that powers it so it can be affordable. Any accommodation category, it doesn’t matter.”