Is cutting prices the best way to attract guests to short-term rentals and increase return on their investment?
“Short-term rental owners often resort to price cuts to fill vacancies, unaware of the long-term damage. While this might boost short-term bookings, it erodes property values and overall returns for the entire development,” says Joep Schoof, Director of Operations at Valor Hospitality.
The full-service hospitality company specialises in acquisition, development, and management and is known for its innovative strategies that enhance guest experiences and boost revenue for hotels and resorts globally. “These decisions have a cascading effect, impacting the entire development and diminishing property values and returns for all stakeholders,” Schoof explains.
Valor Hospitality, which manages a portfolio of branded and non-branded hotels and residences across Africa —including recent partnerships in Kenya and Tanzania —advocates a more strategic approach. “Within the fiercely competitive short-term rental market, owners and operators engaged in price wars are employing short-sighted, cut-throat tactics that ultimately harm the entire industry,” explains Schoof. “Instead of chasing short-term gains through aggressive discounting, owners should focus on long-term strategies that enhance the overall appeal of the market and attract a larger pool of travellers, thereby increasing demand and driving profitability for all stakeholders.”
How Price Wars Create Doom Loops
In developing countries, establishing the correct pricing for STR (Short-term rental) developments targeting the holiday and leisure market is critical to profitability, destination quality, and attracting high-value tourists.
Steep rate cuts often spark a destructive chain reaction in price-sensitive markets such as Bali, Thailand, and parts of Africa. Property values decline as owners undercut one another to attract guests, forcing cuts to service quality. This downward spiral, or “doom loop,” traps developments in low-margin operations, strains infrastructure, and drives away high-value travellers.
As property values fall, owners face reduced income and struggle to maintain their units. They fail to attract premium guests who book repeat stays, purchase high-end services, and value quality accommodation without sufficient revenue. This neglect leads to further deterioration, fewer bookings, and even lower rates, perpetuating the spiral.
Falling property values and unstable market conditions also deter potential investors. A 2020 study on STRs in a Spanish city revealed that intense competition and price wars destabilise markets, reducing capital inflows in the hospitality sector. Consequently, properties fail to appreciate as expected, negatively impacting long-term return on investment (ROI).
The same study found that prolonged price reductions force hosts to cut corners on maintenance and service quality, diminishing guest satisfaction and repeat bookings. Ultimately, this erosion harms both short-term profitability and long-term value.
Market data and industry experts agree: The solution lies not in undercutting competitors but expert management and strategic pricing. Successful developments in similar markets demonstrate that sustained profitability requires rethinking how short-term rental properties are priced and positioned.
The Role of Data and Dynamic Pricing
Short-term rentals are long-term investments, and every pricing decision directly impacts ROI, property value, and reputation.
“Inconsistent pricing within a development can confuse potential guests and damage the property’s reputation,” says Schoof. “Partnering with a professional management company can optimise your bookings, enhance the guest experience, and attract higher-quality guests. This enables property owners to manage their properties remotely, increasing profits and minimising stress.”
A recent study in the International Journal of Housing Markets and Analysis highlighted the importance of data-driven pricing strategies. Maintaining rate consistency across a development boosts revenue and occupancy throughout the year. Conversely, aggressive undercutting results in collective revenue losses as hosts struggle to remain profitable amid constant price reductions.
“Setting the right price is like navigating a complex course. Every turn and decision must be carefully calculated to reach the destination,” says Michela Trolese, Commercial Director of Valor Hospitality. “Our advanced tools are a seasoned navigator, guiding investors through the ever-changing market landscape. By analysing booking platforms, we gain real-time insights into demand, competition, and guest preferences. This helps us to fine-tune prices daily, ensuring properties maximise value and earn owners optimum revenue.”
Leveraging Guest Data for Personalised Pricing
A recent Lighthouse’s market analysis reveals that short-term rental bookings can serve as an early indicator of travel demand. While hotels typically see booking surges 30–60 days before peak periods, STR reservations often begin months earlier. This gives proactive property owners a crucial window to make strategic pricing adjustments.
Properties adopting dynamic pricing strategies report revenue increases of up to 85%, according to a Lighthouse’s market analysis. Professionally managed properties also achieve 70–90% occupancy rates, compared to just 50–70% for individually managed units.
The most advanced operators take this further by leveraging guest data for personalised pricing strategies. A repeat guest who favours ocean-view units might receive early access to peak season dates. Similarly, guests who frequently travel with their multi-generational family could be offered special rates on bookings for adjacent units. These tailored approaches enable properties to achieve higher daily rates—20–30% above market averages—while building guest loyalty.
“Valor’s global reach, coupled with our in-depth understanding of the African market, ensures that your African investments are managed with the utmost expertise, generating optimal returns. Whether you reside in Mombasa or Maputo or further afield in Munich or Muscat, you can trust Valor to maximise your investment returns,” says Schoof.
“Eastern Africa’s tourism market is maturing, characterised by increased competition and a focus on profitability. In this environment, price wars are less sustainable. Investments that deliver the best returns will prioritise exceptional offerings and guest experiences, requiring strategic property oversight,” he concludes.
