Suburban hotels are forecasting an uptick in both bookings and revenue once Dallas’ crackdown on short-term rentals in residential neighborhoods goes into effect next month.
Dallas defines short-term rentals (STRs) as “a full or partial rentable unit containing one or more kitchens, one or more bathrooms, and/or one or more bedrooms that is rented to occupants for fewer than 30 consecutive days or one month, whichever is less, per rental period.”
The ban on STRs is projected to eliminate roughly 95% of all existing Airbnb and Vrbo listings in Dallas, leaving only a small number of allowable zoning districts where STRs can still operate. These include mid-range office, general office, central area, multifamily, mixed-use, multiple commercial, and urban corridor districts.
As of September, Dallas had over 33,000 operating STRs, according to AirDNA, a data and analytics firm that tracks STRs.
Since much of Dallas’ existing STR supply is located in “somewhat suburban areas,” that’s where demand for hotels will return first, according to Brian Nordahl, executive vice president of CBRE Hotels.
“The super upscale hotels in Uptown really aren’t competing with short-term rentals,” said Nordahl, per Bisnow. “People are making a choice to stay in that type of property. But when you get into a more suburban area, people are making the choice to stay in one versus the other.”
While hotels in the city’s suburban submarkets have generally struggled to reach pre-pandemic occupancy levels, hotels in urban submarkets like Uptown or Downtown have benefited from strong, consistent demand.
For instance, hotels near Dallas Love Field Airport and The Galleria are indexing at 80% and 71%, respectively, compared to the average of an aggregate group of hotels, while hotels in Downtown Dallas are indexing at around 140% or higher. This means that hotels in suburban submarkets are significantly underperforming in terms of occupancy, average daily rate, and revenue per available room, per Bisnow.
“[Suburban] hotels are obviously experiencing lower demand, lower occupancy levels, and they have lower price points,” said Lior Sekler, senior vice president of revenue management at HRI Properties, per Bisnow. “The suburban markets are hopefully going to be able to benefit from less competition.”
With the majority of STRs in Dallas going offline in December, local citizens will have fewer options to pick from when choosing where to lodge.
“From a pure math perspective, if you have less supply and the same amount of demand, you’re going to have increased occupancies,” Nordahl said, per Bisnow. “When you have increased occupancies at hotels, that creates compression, and they’re able to raise rates.”
People generally book hotels and STRs for very different reasons, according to Traci Mayer, executive director of the Hotel Association of North Texas (HANT).
“The STR [client] is looking for a different type of experience. They don’t necessarily want to stay in a hotel,” she said.
However, STR operators in Dallas are not going down without a legal fight.
In October, the Dallas Short-Term Rental Alliance filed a lawsuit against the City of Dallas for its ban on STRs in single-family neighborhoods. The group alleges that the City’s crackdown violates the Texas constitution and other state laws against government overreach, as previously reported by The Dallas Express.
“There’s still going to be STRs operating,” said Mayer, per Bisnow. “With the lawsuits, there’s still going to be a lot of movement on this, not only here but across the state.”
The Dallas Express reached out to HANT for a statement about the City of Dallas’ upcoming STR ban but did not hear back by the time of publishing.
