Airbnb has seen rapid growth in the past few years. And while this is bad news for the uninitiated, forward thinking hotels with an eye for innovation are capitalize on the company’s shortcomings and evolve into something greater.
Investors must keep a close eye on the hospitality industry as it adapts to an economy that values experiences over anything else.
Founded in 2008, Airbnb has over 200 million guests using its service and claims to operate in 65,000 cities with more than 3,000,000 listings worldwide. It took time for investors to latch on to the idea, but recent funding has now pushed its value to $30 billion. A report by Morgan Stanley surveyed 4,000 global travelers and saw a significant increase in the percentage who use Airbnb, climbing from 15% in 2015 to 19% in 2016, and expected to hit 25% in 2017. In New York City, HVS estimates that hotels lose approximately $450 million in direct revenues per year to the short-term lodging company. While this isn’t great news for the hospitality industry, it’s still a far cry from the demise of hotels. For instance, STR shows that despite increases in Airbnb supply, hotel compression nights (when occupancy is at or above 95%) did not vary greatly in the seven U.S. markets surveyed: 61 total in 2013, 75 total in 2014, 76 total in 2015 and 71 total in 2016.
Airbnb is the worst kind of enemy to hotels—a company with no visible real estate presence capable of transforming common households into direct competition. Some travelers are choosing to stay in these homes, and it’s important to understand why.
Mike Hu is Senior Vice President at Gaw Capital Partners, a global real estate investment firm founded in 2005 that redevelops and repositions hotels that are often impacted by market saturation. RealCrowd Co-founder Adam Hooper asked Mr Hu for his opinion on Airbnb. “There is certainly value in the Airbnb experience if you’re traveling personally or as a family, and you need more space,” Hu admits. This space often includes a kitchen to cook your own meals, a living room to lounge in, and outdoor space. This creates a different experience while traveling, and at a price point that by comparison, provides more value than a traditional hotel room. Hu also points out that Airbnb appeals to a younger demographic. A report by STR revealed that the average age of an Airbnb guest was 35, while over 50% of hotel guests range from age 35 to 54 according to a Lodging Industry Trends 2015 study.
This makes sense. Millennials crave experiences, even while travelling. Airbnb homes give them a sense of cultural immersion, affording them the option of staying among locals and avoiding the now dreaded tourist traps.
The primary advantage hotels have, and will always have over Airbnb is their consistency. Hu echoes this sentiment as well. “You may get better value with Airbnb, and it may be unique, but you also don’t know how that individual owner will take care of their property, it may not be nearly as clean as the property next door or in the same building,” he says. Hu has observed segments of the population—business travellers for instance, who prefer to bypass value for convenience and accessibility. “These travellers are not as price sensitive and prefer not to deal with arranging key pickup, and just want easy access to city centers so they can attend their meetings,” he adds. Consistency is not a promise Airbnb can make. It is a technology company after all, dependant on homeowners and renters to provide quality accommodation to travellers usings its service. This leaves a service gap, one which hotels can take advantage of and build upon.
Hu foresees hospitality products that will focus on and cater to unique customer experiences—dependant on the traveler and the particular trip they are taking. “The largest hospitality operators create multiple brands to give their customers choice,” Hu says. Hotel companies are now sensitive to the needs of a younger demographic who prefer unique experiences, rebranding themselves to cater to this demand—creating larger kitchens, offering modern yet affordable restaurants, and using content marketing to educate their target customers. Marriott is leading the foray into unique offerings—expanding their W Hotels, a luxury chain that targets younger travellers, acquiring Aloft, notable for its modern architecture and boutique amenities, and bringing AC Hotels, a european inspired brand to North America.“Whether it’s a limited-service resort in Southeast Asia, or boutique hotel in an urban center, or a getaway in the backcountry, each experience is unique,” Hu says. “Some hotels now offer extended stay, or serviced apartments, with a kitchen and a living room, and by having those additional amenities it’s almost like an Airbnb,” he adds.
There is no clear cut winner in the battle of hotel vs. Airbnb. Perhaps, this is because they are not enemies after all. The reality is that hospitality must be tailored to serve different needs at different times. And there is always space for brands that are sensitive to those demands. Hotels are learning from the success of Airbnb and leveraging existing strengths to create new products. The result is a better experience for travellers compounded by the consistency of traditional hospitality elements. Hotels have planted their flag in the ground, claiming their territory and redefining the industry as a whole.
Tyler Stewart is VP of Investor Relations at RealCrowd. All opinions expressed by Tyler and interviewees are solely their own opinions and do not reflect the opinion of RealCrowd. This article is for informational purposes only and should not be relied upon as a basis for investment decisions.