Short-term rentals are undoubtably disrupting the traditional hotel segment. Broad availability, instant bookability, and minimal barriers to entry, combined with a changing guest persona cultivate a sustainable business model that is forcing traditional hotel companies to pay attention.
A look back in time
As long as there has been vacation, there have been vacation rentals. Just a short decade ago, peer-to-peer accommodations were often perceived as the budget-conscious option for travelers willing to forego standardized rooms and amenities for their vacation stays. They could be found in practically any part of the world and ranged from a couch or private room to spending the night in an entire home stocked with the necessities to facilitate the feeling of a home away from home. Most of the time, one had to contact the rental owner directly, hope that their intended accommodation would still be available by the time they got a response, make payment upfront to secure their stay, and take their chances that what was advertised was what they'd find when they arrived. 10 years ago, Airbnb hosted approximately 20,000 guests over the course of a year.
Fast forward to today.
Today, Airbnb hosts an average 50,000 guests per night and has over 6 million listings globally. According to Transparent, there were over 6.9M short-term rental or alternative accommodations properties worldwide in 2018, up 33% from 2017 estimates. In the US alone, there were just under 1.1M properties in 2018, up 30% from 2017.
In some of the top global markets, the alternative accommodation inventory is more than double that of traditional hotels.
Skift.com projects that alternative accommodations will make up 11% of US bookings in 2019, accounting for nearly $30 billion, growing more rapidly than the traditional hotel segment. Due to broader geographic coverage, stays offering "experiences," and a feeling of staying "like a local," short-term rentals are noticeably impacting traditional hoteliers' bottom line. Tarik Dogru, assistant professor at FSU's Dedman School of Hospitality, believes the short-term rental segment is impacting not only pricing, but also occupancy.
"The company's listings have grown more than 100 percent a year – Airbnb now boasts six million listings in 81,000 cities worldwide – and that dramatically larger supply of accommodations has significantly affected hotels' room prices and revenues."
Dogru found a 1% increase in Airbnb's supply lowered hotel revenues between 0.02 and 0.04 percent, which he estimated in New York City alone would have amounted to a loss ranging between $91 million and $365 million in 2016.
What is driving this growth?
A widely-held perception amongst travelers is that alternative accommodations lend themselves to more memorable, local, and experiential vacations. Short-term rentals provide more than just a place to stay – they offer unique accommodations such as yurts, cabins, treehouses, boats and even a stay in the original Spice Girls movie bus. Other perceived advantages of short-term rentals include:
- Privacy from staff and other guests.
- Personal use amenities such a hot tub, grill, or sporting equipment.
- Kitchen accessibility for personal food preparation, cutting down on the cost of eating out.
- Distinct spaces for guests, allowing the kids to sleep in one room while the parents sit by the fireplace in another.
Sophistication in Marketing and Distribution
Rapid growth in this segment is also attributed to savvy management. A large portion of available rentals are managed by professionals who oversee groups of rentals, lending revenue management expertise as well as carefully planned marketing and distribution strategies to maximize their occupancy and revenue.
OTAs are facilitating wide distribution of available rentals, rendering a custom website unnecessary. In the US, 1.1M properties are listed through major short-term rental OTAs. OTAs make short-term rentals instantly bookable, often with similar or lower rates per room per night, lending to higher conversion rates for properties that offer unique accommodations to vacationers.
Generation of Change
Another force propelling the growth of the alternative accommodation segment is the vacationer persona. A generation ago, vacationers were largely accustomed to staying in traditional hotels. Now millennials are driving a dramatic change in vacation demographics, as younger travelers and adventure-seekers long for a more local and personalized experience.
A survey conducted by Ipsos of US travelers revealed "accommodation preferences reflect the starkest generational differences among American travelers. Millennials are most likely (71%) to consider unique lodging options, such as boats or treehouses. They're also the age group most likely (25%) to take into account design and architecture when choosing a place to stay. Generation Xers voiced the strongest preference for having ample space for everyone in the party. And for baby boomers, noise level is more important when selecting lodging than for other age groups."
The Blurring of Lines
The alternative accommodation channel is seeing millions in funds raised to further develop and expand. Hotel companies are easing into the short-term rental space and vice versa, making it even more difficult to truly understand the competition. Additionally, real estate developers are looking to establish a stronghold in this segment, offering luxuriously appointed condos and apartments for short-term stays.
Many online booking sites are listing traditional hotels alongside short-term rentals, enabling a wider range of accommodations for bookings. Having a single platform that serves up a multitude of property and location types not only makes it easier for short-term rentals to be visible, but it also introduces the concept to guests that would traditionally shop for hotels. 40% of Booking.com's customer base booked a short-term rental in the last 12 months.
What does this mean for hoteliers?
Capitalize on Undisputable Strengths
While alternative accommodations are perceived to be more unique, hotels provide tried and true standards that are often unparalleled elsewhere. What traditional hotels offer consistently (standardized rooms, service, amenities), short-term rentals can't guarantee.
Ease of Booking and Full Transparency
Hotels have an online presence that far surpasses the quality of a single listing on an OTA. Through a well-crafted website, a rich visual catalog including video to showcase the property, its amenities, and room types – the intended guest enjoys a variety of options from which to choose. A simple yet dynamic booking engine can guide the guest through the reservation journey, and also enable up-selling of additional packages. And by adding in any special notes to the reservation, the guest can give the hotel a "heads up" on any celebrations or special requests. Once the reservations are made, payment information can be captured easily with no additional transactions needed. Hotels offer reliability when it comes to delivering what is advertised.
Security, Safety, and Service
Guests should expect that their personal information, safety, and privacy is secure at the time of booking, during their stay, and long after they have left. From the time the reservation is made, encrypted transfer of data ensures minimal risk of stolen credit card or identity information.
Hotels will also have code-enforced safety features such as fire sprinkler systems, evacuation routes, and properly maintained equipment and electronics throughout the facility. Regular housekeeping visits not only keep the room tidy and linens stocked, but staff are also able to quickly detect and address items in need of replacement or repair. In addition to physical safety, hotel guests can be reassured that there is staff available 24/7 should there be any issues or concerns about their room, amenities, or personal security.
Personalization and Recognition
Short-term rentals have yet to introduce a compelling loyalty program, whereas hotels continue to see guests come back for competitive rewards and incentives, as well as a unique level of personalization for first-time and repeat customers. Gift baskets, complementary upgrades, and simple recognition for a long-standing relationship all instill a sense of belonging for hotel guests. Even a quick email welcoming a guest by name or asking for feedback after their stay makes them feel valued. With guest management programs, hotels can anticipate their guests' needs before they check in and empower all staff with information to ensure that they are treated uniquely before they arrive, appreciated during their stay, and engaged post-departure.
So Much to Do
Not sure what to have for breakfast? "Take the elevator to the pool level for the complimentary breakfast buffet on the terrace" are words you'll rarely hear at short-term rentals. Hotels are undoubtably the frontrunners when it comes to activities and amenities for their guests. An indoor heated pool, on-site spa and gym, and food and beverage areas all make the guest experience more luxurious and convenient. Hotels with restaurants or bars onsite create an environment where guests can truly feel at home, with the bonus of ancillary revenue beyond overnight guests. Hotels can also host events for groups with meeting spaces and catering and provide concierge service and even transportation to nearby attractions, airports, local hotspots, or corporate office parks. Be it for business or personal needs, traditional hotel amenities and on-site activities are welcome benefits for all travelers.
There are many ways you can compete with short-term rentals. For starters, check out the new Alternative Accommodations Solution, which will enable you to analyze an entirely different segment of competitors in your area and comprehensively adjust your strategies beyond your immediate comp set. For the first time, you'll soon be able to gain even deeper insight into your entire competitive market by integrating the rapidly expanding world of alternative accommodations in your Business Intelligence suite. If you'll be attending HITEC, be sure to stop by booth #1807 to see firsthand how this solution can increase your insight.