Like a lot of people, Andrew White got into the short term rental game in 2021.
It was a heady time for the industry. Travel had cratered the year before, thanks to the pandemic, but by 2021, folks were on the move again, eager to get away and spend a little of that COVID-era cash.
Travelers were also still cautious, and for many, short term rentals from Airbnb, VRBO and others seemed safer than a busy hotel. Occupancy surged, and investors soon followed.
White and his wife bought their first investment property in Dignowity Hill. They loved the house, the process of fixing it up and the positive reviews from guests.
“It was a light-bulb moment for us,” White said. “The hospitality world really struck a chord … being able to provide joy for someone on vacation.”
Over time, the couple added three more short-term rentals, or STRs, to their portfolio. But they also recently sold that first property in Dignowity Hill. After a strong first year and a half of cash flow, it wasn’t getting the bookings it used to, White said.
According to data from AirDNA, a vacation rental data analytics company, supply and demand for STRs are both still growing in San Antonio, but the revenue per available night has dropped 4% from May 2022 to May 2023.
The company still predicts a fairly bullish STR market overall, with 10.4% demand growth forecast for the rest of 2023 and 8.5% the following year. But that rosy outlook is not being felt evenly in the market. Large homes that can accommodate big groups and luxury properties that offer amenities like pools and game rooms remain strong.
STRs in the “mediocre middle,” however, are suffering — those without a desirable location or premium furnishings.
Adding to that pressure, the number of STRs continues to rise. AirDNA estimates that as of May, almost 6,000 STRs may be operating in San Antonio. The number of “demand nights,” the total number of booked nights in a given period, has also risen, but more slowly, leading to the drop in occupancy rates and revenue per available night.
Some investors are selling. A listing for a home in Denver Heights that has been used as an STR exhorts, “This home is for sale as a complete package! All furniture! Decor! Appliances! And a complete kitchen is what you get at this list price!!!!” Another listing claims the property generated approximately $50,000 in revenue in 2021. That home has been on the market for more than 250 days, according to Zillow.
Carlos Mendoza, the real estate agent who listed the property, said he has seen an increase in STRs going on the market in San Antonio, especially in certain neighborhoods, such as Denver Heights. Others are moving to long-term rentals.
Shelley Galbraith has been renting the carriage house behind her historic King William home since 2016. She formed the Short Term Rental Association of San Antonio, which educates and advocates for property owners and managers, and moderates one of the three San Antonio-area Facebook groups for Airbnb hosts.
Bookings for Galbraith’s carriage house remain strong, given her location, and she’s raised her prices over the years. But she knows others have had to lower nightly rates and she’s seen increasing churn over the past year.
“People going out of business and people coming in,” she said. “Never had that before.”
Galbraith said the “simple” days, when “you threw some cups and plates and sheets and towels in there, and threw it up on Airbnb … and [the platform] did all the work,” are over. Airbnb regularly changes its algorithm, which determines which properties are shown to site visitors, and guests are much more demanding. Positive reviews are the lifeblood of STR operators.
Despite the current churn, there’s still money to be made, said Alex Cruz, owner of Welcome Home Club, a local STR property management company. Like White, Cruz owns a handful of properties and manages others. Good quality hosting benefits everyone, he said — the guests, the property owners and the neighbors who live nearby.
“We’re in a unique position to influence visitors,” he said. “Instead of telling them to go eat at Chili’s, we suggest great local restaurants, and keep those dollars in the community.”
What he and others very much do not like, however, are the number of scofflaws — operators who don’t get the required permit or pass along the collected 16.75% hotel occupancy tax. As of July 11, the city’s zoning map showed just 3,459 permitted properties.
San Antonio recently replaced the vendor it uses to collect, monitor and ensure compliance of STRs. It will pay Avenu Insights & Analytics just under $3.5 million for three years. Background documents at the time predicted that the additional cost of the contract would be covered by increased revenue from bringing unpermitted properties into compliance.
That contract went into effect on July 1.
Galbraith and others are hopeful that permit enforcement will pick up. She said she’d like to see the city consider tweaking its ordinance to be more like Galveston’s, which requires STR platforms like Airbnb and VRBO to ensure all listed properties have permits and remit the collected tax. Doing so, she said, would boost the city’s revenue and equal the playing field.
Increased enforcement could prompt more owners to sell, which White acknowledges wouldn’t be the worst thing for San Antonio’s tight housing and rental market. “I think it could be a very healthy reset,” he said.
The people who bought his Dignowity Hill house now live in it.
Correction: An earlier version of this story included an estimate of the number of short term rental properties in the San Antonio Metropolitan Statistical Area rather than the City of San Antonio.
