Can hotels and short-term rentals coexist?
Can hotels and short-term rentals coexist?
30 MARCH 2017 7:17 AM

Short-term rental agencies like Airbnb have become a popular accommodation option for travelers. But can they coexist with the hotel industry?

It is no newsflash that the sharing economy has successfully penetrated the hospitality marketplace in the form of short-term rental agencies, like Airbnb.

What is unclear is the extent to which short-term rentals are a real threat to the hotel industry. At least one recent study suggests they are not, and that hoteliers are situated to survive—and even thrive—in the wake of growing competition. This is certainly good news for hotels and resorts, which also benefit from regulatory obstacles that will likely keep short-term rentals in check.

This article surveys the landscape, with Airbnb as its focus.

Above the law: Not Airbnb
Many cities have enacted zoning laws and administrative ordinances restricting the rights of individuals to host paying guests for short periods. In some jurisdictions, interested parties must register and obtain permits or licenses in order to list properties for booking online, and in others, certain short-term rentals are prohibited altogether. Would-be innkeepers should not take the laws lightly; penalties, including significant fines, could be imposed for violations.

While enforcement varies from city to city and state to state, there is no question that the growing trend is toward more regulation of short-term rentals, not less, making it a more difficult playing field for hosts on Airbnb. Indeed, issues legal and otherwise that hotels and resorts face every day in the regular course of business—occupancy limits and taxes, parking restrictions, noise abatement, smoking prohibitions, child safety matters, handicap access and zoning, health and privacy concerns—are now a challenge to folks seeking to make a few extra dollars in the hospitality space.

No doubt, the more restrictive it becomes for these individuals, the less inclined they might become to participate in the paradigm. This is not to say that the long-term viability of Airbnb is uncertain. However, because hoteliers have systems and procedures in place to deal with the legal hurdles that confront the hospitality industry, they have a definite leg up against their markedly less sophisticated, albeit ever-expanding, competition.

By the numbers: Hotels vs. Airbnb
Beyond the legal barriers that may challenge Airbnb hosts, the available numbers support the conclusion that short-term rentals do not currently pose too great a threat to hotels and resorts. A look at competing studies revealing divergent statistics regarding the future of the hospitality industry in a post-Airbnb world is quite telling.

Despite some troubling news in a recent Morgan Stanley analysis, the data, once parsed, forecasts sunny skies for hoteliers. The study, which collected data from 2015 and 2016, noted a significant uptick in leisure travelers using Airbnb (19% of travelers in 2016 as compared to 15% the year prior, and a projected 25% in 2017).

Morgan Stanley’s report also showed a 24% percent drop from 2015 to 2016 in the number of compression nights—nights when more than 95% of a hotel’s rooms are occupied—likely attributable to the rise of alternative accommodations from providers like Airbnb. It is true that, in a vacuum, these results from Morgan Stanley (an Airbnb investor) foreshadow potentially troubling times ahead for hotels and resorts by virtue of Airbnb’s syphoning of travelers from traditional lodging.

However, a more recent report from STR offers a very different, and more realistic, outlook. (STR is the parent company of Hotel News Now.)

STR examined performance data from 13 global markets that Airbnb supplied from December 2013 through July 2016 and came away with a positive projection of shared marketplace growth. According to STR, hotel performance during the study period showed continued strength notwithstanding the fact that more hosts than ever were listing and renting their residences on Airbnb.

STR also found an upward trend in the number of compression nights in the top seven U.S. markets, this over a longer term than studied by Morgan Stanley (61 starting in 2013 and 71 in 2016). STR also pointed out that average daily rates charged by hotels reached an all-time high in 2016. All of these findings should be music to the ears of hoteliers.

The takeaway: Airbnb is accommodating incremental demand, rather than cannibalizing hotel business. Consequently, Airbnb may not appreciably threaten the hotel and resort model as the Morgan Stanley analysis indicates because, according to STR’s results, there is ample room for both hoteliers and Airbnb to flourish in the hospitality market.

The impact of competition: Hotels and resorts at their best
Clearly, the drumbeat of competition from Airbnb has the hotel industry on its toes, but this is a good thing no matter the perspective. The rise of Airbnb signals to hoteliers what today’s consumers want, including accommodations that are homier, more of a neighborhood feel and added technology, which is a particular selling point for millennials.

For their part, hotel and resort brands are beginning to respond in a big way, with new, social-oriented boutique lodgings, app-based sales and services, more in-room services and other amenities that exemplify the convenience and comfort unique to the hotel experience.

It is a win-win. To the extent Airbnb and other shared-accommodations providers have forced the hotel industry to focus on creating a superior alternative to the short-term rental market, everyone benefits—consumers and hotels alike.

The upshot: The hotel industry can breathe easy
If we read the tea leaves, competition to hoteliers by Airbnb is not necessarily a negative, nor an overwhelming concern. To be sure, the numbers confirm that hotels and resorts can live in harmony with short-term rentals given the projection of shared growth in the overall marketplace going forward—not to mention the strong grip that hotels continue to have on business travelers, the great majority of whom favor traditional accommodations over Airbnb. And then there are the increasing legal impediments in the form of regulations, zoning laws and the like confronting Airbnb hosts that might place a ceiling on—or at least slow the pace of—supply-side growth of the short-term rental platform.

While there may be other problematic issues on the horizon for the hotel industry, due to a surge in new construction and an associated increase in room supply, among other things, when it comes to hotels and resorts coexisting with Airbnb, there is definitely room at the inn.

Alicia C. O’Brien is an associate in M&R’s Los Angeles office. She is a member of the Commercial and Business Litigation Department, where she regularly represents hotel owners and operators, and other hospitality industry clients, in matters ranging from premises liability to intellectual property.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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