The latest industry report performed by the Puerto Rico DMO brings great news to the tourism industry. Demand for lodging and the total revenue made by the lodging sector has increased. Interestingly, short-term rentals have increased their share of the lodging industry from 15 percent in 2017 to 26 percent in 2019.
One would think that larger participation of short-term rentals in the market would translate into not only less market share but also less revenue for hotels, but the data shows otherwise. Hotel sector revenues have remained nearly unchanged during the same time period. This last data point illustrates how, without affecting the total hotel sector revenue, almost all of the aggregate demand has been supplied by short-term rentals. It also illustrates how the market dynamics of the conventional tourism industry have been disrupted with the arrival of short-term rental platforms.
Absent of short-term rental platforms, hotels used to manage an excess in demand by bumping up the price per night and thus increasing the overall hotel sector revenue. Not doing so would be managerial nonsense. Therefore, for decades the number of rooms available on the island remained relatively stable.
Today, with the incursion short-term rentals into the market, the way the tourism industry responds to an increment in demand has materially changed. Nowadays, in order to catch up with new demand, supply is being increased through new short-term rental units. After all, it is easier to convert existing properties into short-term rental units than building new hotels.
The new supply brings prices back to equilibrium. This new market dynamic is great news for the tourism industry altogether because it makes staying in Puerto Rico more affordable and thus more attractive for a larger pool of tourists. In addition to a further increase in demand, it also diversifies lodging alternatives and experiences. Understanding these trends will be critical for both hotels and short-term rentals owners. Hotels will have to accentuate what makes them different from short-term rentals.
As a result, the market standard of service will improve. On the other hand, short-term rental owners need to understand that even if today’s excess in demand is translating into more profits, the increasing supply that follows will require them constantly revise their pricing strategy and service standard if they want to thrive. Better prices and ever improving quality throughout competition will make Puerto Rico Tourism outlook look even brighter in the future.