The Effect of Airbnb on the Hospitality CRE Sector
Airbnb has been making waves in the hospitality industry since its launch in 2008. Its humble beginnings came in the form of a couple of roommates renting out a few air mattresses on their own living room floor. But, just over a decade later, it has turned into a $38 billion business and money-making opportunity for temporary landlords around the globe. In 2018, about 2 million people stayed in an Airbnb rental.
The introduction of Airbnb has given travelers numerous options for lodging. Now, they have more choices that invite new experiences, and they can temporarily live like one of the locals. Airbnb travelers can choose tiny homes, two-story houses, or even opt for a spare bedroom in someone’s attic. The choices are more personalized and less cookie-cutter than the traditional hotel model. It’s the kind of experience-driven opportunity that today’s customers are looking for across all industries.
While the popularity of the home-sharing model is great news for Airbnb, the company’s success is impacting the hospitality industry overall. One study revealed that in 2016, 49% of Airbnb renters chose this platform over a traditional hotel. And aside from the loss of patrons, hotels may not have as much flexibility with supply and demand-related price increases. The increased availability of Airbnb properties removes a strong demand for hotels during events or peak seasons. As room availability increases, so does competitive pricing. The hospitality industry is facing a few new facets that it may not be prepared for.
Hospitality Industry Competition
The hotel industry reviews progress using RevPAR, which is “revenue per available room.” The Boston Hospitality Review suggests that between 2008 and 2017, hotel RevPAR decreased by 2% across ten major hotel markets in the United States. This drop in revenue is attributed to Airbnb. By 2016, Airbnb’s share in the hotel industry had increased to 4.5%. But this is not to say that Airbnb is now taking the hotel market by storm.
The increase in Airbnb market share is to be expected, as it is in a competitive industry. Between 2009 and 2017, hotel bookings reportedly increased from $116 billion to $185 billion. This evidence proves that there is market share for both the home-rental and standard hotel models. The industry as a whole is simply facing a healthy shift.
The hotel industry, as we know it, has taken Airbnb’s success as a challenge. Globally-recognized hospitality company Marriott-International has recently announced its plan to start a competing home-rental platform. The company launched a pilot, partnering with management company Hostmaker. Its 340 properties in cities like Paris and London provided customers with a face-to-face check-in through Hostmaker and a 24-hour support phone line. Other hospitality companies are also taking note of Airbnb’s success. Hilton Worldwide Holdings and Hyatt Hotels have been monitoring the home-sharing industry.
Hospitality Commercial Real Estate
Hotels are not only beginning to compete with Airbnb in their rental processes but their physical spaces as well. One brand, Ace Hotel, is changing out its facility layout to accommodate guests’ new desire for more communal areas. And independent micro hotels are offering smaller but more moderately priced rooms. Arlo Hotels’ SoHo location, for example, offers guests locally-influenced amenities and events. This gives their property a sense of community and local culture.
Airbnb is also currently growing a new real estate strategy. The company is opening a new type of hotel, housing multiple Airbnb units under the same roof in a brand named Niido. Tenants of Niido are urged to list their spaces on Airbnb, with Niido and Airbnb earning 25% of the revenue. Since apartment subleasing regulations vary by area and property, this is an attractive offer for tenants who want the flexibility to rent their space. While there are currently only two of these properties in existence—Nashville and Orlando—there are expansion plans for Niido. By 2020, Airbnb plans to own 14 properties for home-sharing purposes.
The future of the hospitality industry is uncertain. Hotels will need to continue to make adjustments to meet new customer expectations that Airbnb has introduced into the market. Other intricacies involving Airbnb, such as potential government regulations and the company’s plan to go public in 2020, could further change the scope of the market. But, as of now, Airbnb will continue to affect the hospitality industry with healthy competition in both price and customer experience.
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