Can hotels resist the invasion of the ‘room-raiders’?

room raidersmost-popular2One of the most pressing issues in the hotel industry is whether new short-term accommodation suppliers such as Airbnb are a genuine threat to the hotel industry. The answer, of course, is yes and no, especially now that the politicians have – belatedly – become involved.

When a new entrant like Airbnb can grow to over 40,000 listings across Australia in just seven years, including 16,000 in Sydney alone, it is clearly going to impact some hotels. But are they just taking the cream off the cake or does their emergence pose a major threat to hotel occupancies and rates?

In Australia, the stellar performance of the hotel sector in Sydney and Melbourne has camouflaged the situation. According to Tourism Research Australia1, over the 2014-2015 financial year, Sydney hotels averaged occupancy levels of 81.2%, but the city often recorded close to 100% occupancies – and that was without a convention and exhibition centre. Melbourne ranks second with average occupancy rates of 78.6% over the same period.

The crucial test for cities such as Sydney and Melbourne will be when the vast amount of new hotel supply comes onto the market. At the moment, Sydney’s hotels have been so constrained at peak times that the presence of 16,000 Airbnb listings hasn’t had a discernible impact. Yet the availability of such a vast amount of inventory must clearly impact a hotel’s ability to maximise rate in constrained periods.

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The change from ‘share’ to commercial landlords

What has changed dramatically in the short-term accommodation debate has been the evolution of the ‘room-raiders’ themselves. When it launched, Airbnb combined a unique ‘share’ concept with a dynamic online presence, but its success quickly attracted property owners who saw the channel as a great opportunity to sell full houses and apartments at daily rates far higher than weekly rates available through longer-term rentals.

This dramatic morphing was reflected in the latest research by Inside Airbnb2, which revealed that over 60% of listings in Sydney were for whole apartments or houses. In other words, there was no sharing involved, and while Stayz (now in Expedia’s ownership) and other organisations have offered similar product before, Airbnb’s presence in city centres and other areas popular with short-term travellers has elevated the competitive threat to the hotel industry.

A recently released STR Global report3 identified 5,385 Sydney listings on Airbnb as “real potential competitors” for the hotel industry, with 1,485 units (28%) in the Sydney CBD, followed by Waverley, Randwick and Manly. As the report pointed out, “Together, these four local government areas also have the highest concentrations of hotel rooms in the greater Sydney market.” Notably, these suburbs boast easy access to the Sydney beaches and in the case of Randwick and Waverly, are in close proximity to Universities and teaching hospitals.

The move away from sharing and towards commercial landlords was highlighted when Airbnb had to admit that they had removed some 1,500 of its approximately 37,000 New York listings in November, just before some of its data was made public. Critics used the case to suggest Airbnb was trying to hide the extent of the channel’s commercialisation, and Airbnb’s New York based public-policy executive, Josh Meltzer, accepted that the listings removed were “controlled by commercial operators”.

A lack of appetite to enforce regulations

Regulators across the globe have been caught napping by the growth of the unregulated sector, and while cities from San Francisco through to Sydney have talked about addressing the situation, in most cases professional operators are using the regulatory malaise to establish significant businesses renting short-term accommodation, often without building, strata, council or Government consent.

In Australia, court cases to enforce already-existing regulations preventing non-sanctioned short-term accommodation have been largely unsuccessful, with the Victorian Civil and Administrative Tribunal ruling that an owner’s corporation at Watergate Apartments at the Docklands, which had been turned into a ‘quasi-hotel’, did not have the power to make a rule prohibiting stays of less than 30 days.

Residents of Sydney’s Bridgepoint apartment complex were more successful last month in enforcing body corporate rules, but recent announcements by the New South Wales Government make the permanent residents of the apartment block fearful that the commercial operators will use legislative ‘grey areas’ to sell short-term rentals once again.

In March this year, New South Wales Parliamentary hearings into short-term holiday letting heard the cases from both sides of the battlefield. Parliamentarians were more concerned about the impact of noise and unruly parties on residents than the rise of commercial landlords.

The Tasmanian Government has proposed that homes could be rented out through websites such as Airbnb for up to six weeks a year without a permit and the UK has instigated a 90-day threshold period. Other jurisdictions want to restrict the new arrangements to resident-occupied properties only.

The bigger question, though, is how these new regulations will be policed. It was argued at the New South Wales Parliament hearings that rules already exist to prevent unregulated short-term accommodation in most council areas, but despite constant protests from permanent residents, few councils have been willing to prosecute unregulated operators.

Brand standards and safety guarantees crucial to hotels’ offer

Irrespective of what regulation is put in place across Australia – and it is likely to be State, rather than national – the hotel industry needs to address the issues that have contributed to the spectacular rise of the new sharing economy.

Leisure travellers clearly like the product being offered by the new operators, but some hoteliers have argued that the industry shouldn’t be so concerned because they have the higher-yielding and more reliable corporate market sewn-up. That might be a little premature, as Airbnb claims that 10% of their guests are already business travellers, and in 2014, they launched a dedicated area on their website to pitch for more business traffic.

However, this is where hotels need to champion “Fire Life Safety” because a company’s duty of care should ensure they opt for a hotel’s guarantee of safety, insurance coverage, reliability and accountability over the uncertainty and potential dangers of an unregulated short-term accommodation option.

Hotel brand standards have never been more important, and hotels that provide a smooth, tailored guest experience, backed up by a loyalty program that offers rewards that are relevant and meaningful to guests, will be well-placed to fight off the attractions of the newcomers.

If you can’t beat them, join them

While companies like Airbnb grew up in the online environment and boast savvy and intuitive sites, some of the newer hotel brands are beginning to match them. For instance, CitizenM, a small hotel chain in Europe and the US, offers an online platform which is all about the ‘experience’ – from the moment you go on the website, through to the warm communal lounge-style lobby and welcome you receive at the hotel.

The big hotel groups have responded to changing tastes with the roll-out of lifestyle brands such as MGallery (Accor), Aloft (Starwood), Canopy (Hilton) and Moxy (Marriott), where the hotel’s individual personality is prominent, and the corporate identity hidden. The emphasis is on distinctive amenities, genuine local food experiences, and hosts who can provide a ‘passport’ to the local area.

The Australian hotel industry has withstood many incursions in the past and managed to maintain its position, but with an extra 20,000 hotel rooms in the pipeline across Australia, and with double that number in unregulated short-term accommodation, the dramatic rise of the ‘room-raiders’ is finally persuading the hotel industry that it’s time for action.

References:

  1. Tourism Research Australia: http://tra.gov.au/Tourism_Region_Profiles/Region_profiles/index.html
  2. Inside Airbnb: http://insideairbnb.com/sydney/
  3. STR Global report http: hotelnewsnow.com/Articles/35252/Airbnb-and-Sydneys-competitive-accommodation-landscape

About the author

Ross Beardsell 1Ross Beardsell is Senior Vice President – Asset Management at JLL Hotels & Hospitality Group. He leads the Asset Management arm of Australia’s Hotels & Hospitality Group, providing management advice and strategic solutions across the Asia Pacific region to an array of hotel asset classes, spanning luxury full-service hotels through to pubs. His core responsibilities include hotel operator selections, Hotel Management Agreement negotiation, providing hotel project management solutions for refurbishments and new builds, and the development of hotel operational services. Prior to joining JLL’s Hotels & Hospitality Group in 2008, Ross boasts an extensive 20-year career working in various hotel General Management roles across the Asia Pacific region. Reach him on ross.beardsell@ap.jll.com.

 

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