Hotel asset managers are more worried about how a wave of new hotels will impact their properties than outside disruptors such as alternative accommodations or online travel agencies.
WASHINGTON—Supply growth is a more pressing concern in the minds of hotel asset managers than alternative-accommodations disruptors like Airbnb, according to members of the Hospitality Asset Managers Association, and that’s in large part to successes in the industrywide fight to better regulate that sector.
Speaking with Hotel News Now during the association’s recent spring meeting, HAMA board members lauded the efforts of the American Hotel & Lodging Association in pushing city- and state-level regulations on Airbnb.
“There’s been a wave of legislation and regulations on those companies that list (on Airbnb) that do things like limit the amount of days and nights units can be sold,” said Kim Gauthier, SVP at HotelAVE.
In HAMA’s recent membership survey, 52.2% of respondents said they expected supply growth to “negatively affect (their) portfolio’s results over the next three years.” The top concern there was labor costs (92.2%).
Just 10% of respondents worried about the “expansion of Airbnb” and “growing market share of OTAs,” both of which have been commonly raised concerns by industry leaders in recent years.
Concerns about supply
HAMA members noted the national supply growth numbers in the U.S. have remained manageable—supply grew 2% in 2018 compared to 2.4% demand growth, according to HNN’s parent company STR—but those numbers don’t tell the full story.
“It’s still market by market,” said Larry Trabulsi, EVP at CHMWarnick. “The macro numbers are fine, but if you’re in a market with four or five hotels going up, and they’re all targeting the same customers, things could get ugly.”
Tim Dick, director at Duff & Phelps and president of HAMA, said an increasingly crowded field of hotel brands has led to exactly that—more hotels going for the same kind of guests in a relatively restricted geographic area.
“The creation of new brands has really facilitated supply additions,” he said.
Derrick Yee, VP at Watermark Capital Partners, said the crowded playing field is drastically changing how owners look at certain brands.
“It used to be you wanted to be the solid Courtyard, but now if it could be a Moxy or something else, maybe you’d prefer to be that product,” he said. “Except now it’s next door.”
Greg Kennealey, principal and head of hospitality at KSL Capital Partners, said from an ownership perspective that problem is only going to get worse.
“The brand conglomerates now have more muscle, so owners’ leverage went from almost none to none,” he said.
Dick said he hopes the major brand companies, such as Hilton and Marriott, ultimately consolidate their brand portfolios to make sure they’re “more clearly defined,” but Trabulsi said that’s not likely to happen.
“Brands don’t go away,” Trabulsi said. “Some have taken eight years to get traction, but they never went away. They don’t die. They linger. They’re like zombies.”
A look at alternative accommodations
As a host of major markets put important restrictions on how often properties or units can be listed on Airbnb and similar platforms, the playing field with hotels is being leveled somewhat, HAMA members said.
“Now they (Airbnb hosts) are paying taxes,” Yee said.
More municipalities now have incentive to pass similar rules, HAMA members said.
“Cities see this as a revenue source,” Dick said. “So they’re incentivized to do it.”
Gauthier noted the industry is in a much better place in its contentious relationship with Airbnb and similar companies than it was a couple years ago, in part thanks to the efforts of AHLA.
“(AHLA has) been great in generating awareness,” she said. “I don’t think (new regulations) would’ve happened if they didn’t drive the issue.”
Hoteliers still face concerns and obstacles in relation to alternative accommodations, HAMA members noted. The additional supply they bring to markets is still a factor, even if the growth of it isn’t as exponential as it was in the recent past.
“The scary part is the impact on compression,” Trabulsi said. Airbnb supply “is out there and we’re more used to it, but it can still increase dramatically, and that has an impact on ADR.”
Kennealey said his company has seen that impact around major events.
“That’s the only part of a city’s (rooms) inventory that can be truly flexible, so the premium you’re able to charge around something like the Super Bowl has eroded,” he said.
The industry has seen continued growth during the rise of Airbnb, and Gauthier noted it remains to be seen what impact it could have in an economic downturn.
“If there’s a downturn, that turns into a price war. Then we’ll feel it,” she said.