Research: Hotels hold pricing power amid Airbnb growth
Research: Hotels hold pricing power amid Airbnb growth
19 JANUARY 2017 10:00 AM

New research from STR shows hotels in 13 markets across the globe have largely maintained compression nights and rate growth even as Airbnb supply has jumped significantly.

REPORT FROM THE U.S.—Airbnb is already one of the largest players in the world of lodgings, and the company has enjoyed a period of exponential growth, but the hotel industry has been able to survive and even thrive in that environment, according to a new analysis of Airbnb data.

The new research from STR, parent company of Hotel News Now, examines data from December 2013 through July 2016 and sheds some new light on Airbnb supply and the performance of both Airbnb and hotels in 13 markets around the globe.

Among the top findings of the research is that hoteliers have been able to maintain the number and pricing power of compression nights even in the midst of spiking Airbnb supply, and Airbnb holds relatively little share in most markets and has lower occupancy while also lagging behind in pricing.

Jan Freitag, SVP of lodging insights at STR, said the hotel industry should take a measured approach when considering Airbnb, since it can be viewed as a competitor but also has driven new travel demand.

Airbnb “has increased the paid-accommodation marketplace,” he said. “To say Airbnb is disruptive to business travel serving hotel accommodations, specifically hotels that cater to group and meetings, I don’t think is fair. But our data seems to indicate that half the Airbnb rooms sold are for stays of seven or more nights, so they squarely compete with extended-stay hotels. The impact of that needs further study.”

The data also shows that, when viewed in absolute numbers instead of growth percentages, Airbnb’s supply growth has roughly mirrored that of the larger hotel industry, and the number of Airbnb listings that are truly competitive with hotels put the company among but not significantly exceeding the largest players in the industry.

The markets included in the research were Barcelona, Boston, London, Los Angeles, Mexico City, Miami, New Orleans, Paris, San Francisco, Seattle, Sydney, Tokyo and Washington, D.C.

Performance comparison
One of the top findings of the research was that in markets where hotel occupancy was high, Airbnb occupancy was also high, but hotels achieved much higher occupancy levels.

“In San Francisco, for instance, hoteliers sold more than eight out of every 10 hotel rooms available (84.6%), which was third highest among our 13 markets,” the report reads. “Airbnb hosts in that market, meanwhile, sold more than five out of every 10 units available (51.8%), which also was third highest.

“The above example underscores another trend: Airbnb occupancy was highest in markets in which hotel occupancy was highest, which might suggest Airbnb is accommodating incremental demand.”

At the same time, hotels in the study’s U.S. markets charged on average $16 more for a roomnight, and analysts warned that Airbnb rate numbers might have been skewed upwards because the Airbnb listings included in the calculations held up to six guests.

Freitag said this is evidence that hoteliers currently have a pricing advantage over Airbnb and “can extract more value from the traveling public.” It’s possible that could change as Airbnb hosts become more interested in yield management, but the small-time hosts could also remain less interested in micromanaging rate.

And the inherent difference between the two offerings still remains, Freitag said.

“There is a distinct difference in pricing, but there’s also a distinct difference in amenity level,” he said.

John Belden, CEO for Davidson Hotels & Resorts, said he believes the hotel industry could coexist with sharing-economy platforms like Airbnb, but that will be largely dependent on if the company operates in the same regulatory environment as traditional hotels.

“The laws and regulations that govern lodging development, operations, safety, security, health codes, insurance and taxation, just to name a few, all need to be applied in a highly consistent manner, therefore providing a level playing field,” he said.

Maintaining compression
Much like an earlier STR analysis of Airbnb data from New York, the newest research shows that Airbnb supply had relatively little impact on compression nights—calculated as nights occupancy exceeded 95%—in the markets studied.

The seven U.S. markets in the study experienced 71 compression nights from January to July of 2016, compared to 76 in the same period in 2015, 75 in 2014, 61 in 2013 and just 16 a decade prior in 2006. While it was true the number fell in 2016, the hotel industry was also grappling with a 1.6% supply increase and “a softening of several other macroeconomic indicators,” the report states.

“What’s more, U.S. hoteliers in those seven markets saw no degradation of their rate premiums during that same period,” the report reads. “ADRs on compression nights during 2016 were 35% higher than on non-compression nights, which represents a record high.”

Freitag said hoteliers need to be careful about the conclusions drawn from the data.

“After looking at the available data, it’s clear compression nights have declined for the seven (U.S.) markets examined,” Freitag said. “But it’s not fair to draw a straight-line correlation between Airbnb supply increase and compression decreases.”

A look at supply
The new research paints what could be the clearest picture yet of Airbnb’s supply.

In terms of raw numbers, Airbnb’s roughly 3 million global units puts it significantly ahead of any hotel company, but when examined through the lens of units that are truly competitive with hotel rooms, that number drops significantly.

By taking out units that are not truly available, shared and private rooms, or listings for seven or more guests, STR came up with a more accurate supply figure of just under 1.1 million, which puts Airbnb’s supply slightly behind Marriott International but still well ahead of other major players in the industry like Hilton Worldwide Holdings, InterContinental Hotels Group and Wyndham Worldwide.

Freitag noted that the supply data differed significantly from that seen by companies that scrape data from public listings.

Viewed market by market, Airbnb has seen robust supply growth numbers in recent years, with every market enjoying at least double-digit percentage growth for the 12 months ending July 2016 and two markets—Mexico City (+107%) and Tokyo (+252%)—into triple digits.

But Freitag said if you look past those gaudy percentages, the absolute growth figures have largely mirrored supply growth seen within the hotel industry.

“Over 100% in some markets for supply growth doesn’t mean Airbnb is flooding the market,” Freitag said. “It means there were a few, and now there are more.”

Some hoteliers shared concerns not just about the numerical growth but the type of properties entering Airbnb’s ecosystem.

Raymond Martz, EVP and CFO for Pebblebrook Hotel Trust, said beyond performance impacts, there are reasons to be concerned about Airbnb’s growth, including a tendency for some landlords to convert apartment buildings into what are essentially illegal hotel rooms and the resulting impact that has on a city’s housing stock.

“It’s impacting communities in many urban areas that are having an affordable housing crisis, and this is making it worse,” he said.

Belden shared similar concerns.

“At its core, Airbnb is a terrific premise, but through the perversion of unchecked growth, it has unfortunately impaired full value attainment for law-abiding hotel owners and changed the very character of our communities,” he said.

Is it affecting hotels?
Freitag was quick to point out that there seems to be a different profile for the typical hotel guest and the typical Airbnb guest.

Roughly half of roomnights booked were part of a stay of seven days or longer, according to the data provided.

As Freitag noted, that would put the sharing-economy service more directly in competition with extended-stay hotels.

“It’s fair to say extended-stay operators have to be very aware of the Airbnb inventory around them,” he said. “It could indeed be competition.”

But Tom Buoy, EVP of marketing and revenue management at Extended Stay America, said there are factors other than length of stay that are playing out in their favor.

“Travel managers tend to still prefer the consistency, safety and lodging expertise that we are able to provide, and that many alternative companies continue to find difficult to provide on an individual basis,” he said.

Airbnb also hasn’t been as successful at penetrating the business travel market, according to the STR analysis.

Buoy said he examined Austin, Texas, to make a comparison since the market has the highest concentration per capital of Extended Stay America properties and Airbnb listings.

“While Austin has approximately 6,000 listings, there are only about 200 properties that are non-share, priced under $150 a night and available for 30 nights or longer,” Buoy said. “At this point, we’re serving different markets and don’t believe that we’re working with directly competitive customers.”

According to the STR analysis, 17.3% of roomnights sold were part of a trip that lasted 30 or more days.

The research claims that Airbnb still holds a small piece of the market share in the markets reviewed, with less than 4% of demand and less than 3% of revenue.

Martz said from an owner’s perspective it can be hard to quantify Airbnb’s true effect.

“I think it has an impact in major urban markets like New York and San Francisco, and it’s also big in Miami,” he said. “But it’s hard to really track. It seems more noticeable around leisure-oriented events, things like marathons. … There can be a lot of units added at those times.”

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