Startups are mounting fresh challenges to both traditional hotels, whose forays into the home-rental space have met with mixed results, and to a maturing Airbnb, which is showing signs of evolving its property management role.
The dining room at one of Be Mate’s properties in Madrid.
The dining room at one of Be Mate’s properties in Madrid.
Once considered a novel alternative to the traditional hotel room, homesharing as a concept has very quickly come of age. Propelled by the pioneering efforts of Airbnb, the idea has evolved from a slapdash listing of spare bedrooms to a thriving multibillion-dollar industry, populated by a complex ecosystem of OTAs, property managers and real estate developers, among others. Not only has modern parlance fully embraced the usage of “Airbnb” as a verb (as in, “Should we Airbnb?”), but homesharing has even trickled down to our television screens, with one of Netflix’s recently launched original series, “Stay Here,” bringing home-improvement makeovers to the world of short-term rental properties.
According to Phocuswright senior analyst Douglas Quinby, “Airbnb took the original concept of the vacation rental and really blew it up. It didn’t have to be a beach home in Florida or a condo in Colorado, but basically anybody, anywhere, with a home or space to rent in their home could rent it out. It’s proven to be something that’s penetrated deeply into the mainstream. We’ve been saying for years now that the expression ‘alternative accommodations’ is out of date, because it’s no longer ‘alternative.’”
With maturation, however, often comes growing pains. Airbnb is expected to go public this year, and despite demonstrated success, the platform still has a lot to prove. Though the company recently reported a second straight year of profitability and says it expects to reach 500 million guest arrivals by the end of the first quarter this year, some industry analysts have questioned the company’s ability to maintain its momentum.
Daniel Guttentag, assistant professor of Hospitality and Tourism Management at the College of Charleston’s School of Business and director of the Department’s Office of Tourism Analysis, said he sees the market leveling off.
“Airbnb is continuing to grow,” he said. “But I don’t think that the growth in listings is moving at rocket speed anymore, especially in traditional markets where the service may have caught on earlier. Airbnb’s overall growth is starting to plateau.”
The homesharing landscape has also become significantly more crowded. Airbnb is now facing off against big OTAs like Expedia, whose VRBO and HomeAway vacation rental sites have steadily expanded in recent years, and Booking Holdings, which already claims to outnumber Airbnb in nonhotel listings at more than 5 million. Airbnb has responded in part by building up its inventory of boutique hotel and bed-and-breakfast listings, which the company says has grown in number by around 152% over the past year.
But while Airbnb, Expedia, Booking and others have focused heavily on what Quinby calls the “race for supply,” some argue that running that race has come at the cost of consistency and quality assurance. Last year, Airbnb attempted to address some of those concerns with the launch of its Airbnb Plus program, which highlights a vetted selection of accommodations that provide what the company calls “outstanding hospitality,” while concurrently adding curated Airbnb for Family and Airbnb for Work property collections.
“To be a four- or five-star hotel, you have to meet certain criteria,” said Quinby. “But there’s nothing really like that for the world of home rentals. There’s so much unpredictability in terms of cleanliness, whether toiletries are provided in the bathroom, how stocked the kitchen is, whether there are any kinds of recommendations on things to do or places to eat where you’re staying. There are no standards, and it has created this real gap between the rental marketplace and the hotel marketplace.”
Hotel hits and misses
Long accustomed to meeting a certain set of standards, hotel heavyweights have sought to carve out opportunity in the gap where homesharing has fallen somewhat short. Unfortunately, the recent forays made by some major hotel groups have ranged from underwhelming to downright disastrous.
Hyatt, which invested in home rental group Oasis in 2017, failed to make a splash in the space and quickly jettisoned its stake in the company last year. AccorHotels’ 2016 acquisition of Onefinestay has similarly struggled to get off the ground, with the luxury-leaning homesharing venture contributing to a $288 million write-off in Accor’s second quarter last year.
Marriott, meanwhile, has taken a more cautious approach, partnering with homesharing management company Hostmaker to launch a pilot of its Tribute Portfolio Homes platform in London last April. Though still in its early stages, the trial run appears to have had some encouraging results, with Marriott recently extending Tribute’s footprint into Paris, Rome and Lisbon.
Simon Lehmann, CEO and co-founder of private accommodation and vacation rental industry consulting firm AJL Consulting, sees a lot of merit in Marriott’s more cautious approach.
“At the moment, there’s no success story from any major hotel company,” he said. “None of the hotel chains really understand what this alternative-accommodation industry is all about. It’s early days, but the only one really creating synergies so far is Marriott, and I suggest hoteliers do what Marriott is doing in going through trial and error without buying other companies, and instead using partnerships and their loyalty program to drive traffic.”
Interestingly, one traditional hospitality player that has managed to get ahead in the homesharing space is a small player, the boutique Spanish chain Room Mate Hotels. The company was among the first hotel groups to throw its hat into the ring, launching its Be Mate home-rental brand back in 2014. With a current footprint spanning Amsterdam; Florence; Istanbul; Miami; and Barcelona, Madrid and Malaga, Spain, Be Mate has differentiated itself by offering guests access to the amenities of nearby Room Mate hotels. Room Mate, which says its Be Mate business is on track to break even this year, plans to add homesharing accommodations in Mexico City; Seville, Spain; Venice; Milan; Malaga; and Las Palmas on Gran Canaria by the end of 2019.
Be Mate general manager Gonzalo Ladron said, “When platforms such as Airbnb became a part of the tourism landscape, instead of fighting against it like most hotel brands did, we saw a clear business opportunity. Being the first hotel group to enter this market has benefited the Be Mate brand. Since the service we offer — the freedom of an apartment with the security and services of a hotel — didn’t exist before, we have been able to pave our own way.”
Tweaking the approach
Though Room Mate certainly seems to have a solid foothold, analysts predict that homesharing will continue to be an uphill climb for most traditional hospitality companies. The segment, however, is now too valuable to ignore, and hoteliers will likely continue to fine-tune their strategies.
AccorHotels, for example, has readjusted its strategy for Onefinestay, opting to grow inventory in a handful of key urban centers where they already have a strong foothold rather than entering new markets.
AccorHotels deputy CEO Chris Cahill said the key is to go where the demand is.
“You have to have enough concentration in a marketplace to make it work effectively,” he said. “So we’ve pared back a lot of locations we were going into and are focusing on the ones that we know have deep demand and building up from there. The key markets we’re focused on include London, New York, Paris and Los Angeles.”
The French hospitality giant has also made a recent investment in Properly, a startup offering vacation rental hosts and property managers web- and mobile-based management tools for housekeeping and maintenance operations.
Phocuswright’s Quinby said, “There is a very compelling case for why hotels need to have [homesharing], and it goes back to their whole multibranded strategy and why that’s been successful so far. The same person is a very different traveler on different trips, and the large chains, they need that home-rental supply for their loyalty program. If you’ve got your most coveted segment of loyalty program members who make a point of staying with you across your different brands, what happens when that traveler wants to do that big family vacation for a week or so and bring five or six family members along? If you don’t have anything in your arsenal, then you lose that traveler.”
While traditional hospitality companies have struggled to transition into homesharing, a wave of startups is attempting to combine the best of the hotel and homesharing worlds, working directly with real estate developers in urban markets to turn portions of or entire multifamily apartment buildings into amenity-rich, legally zoned hotels. These accommodations, meanwhile, then look to leverage a variety of major booking platforms, listing across Airbnb, HomeAway, Booking.com and others.
“Guests are looking for a product that’s a hybrid,” said Properly founder and CEO Alex Nigg. “They want to have the consistency of a hotel, but the location, space and other amenities of private accommodation.”
Among the many up-and-coming entrants developing this new hybrid model is WhyHotel, which forges partnerships with yet-to-be leased luxury apartment buildings and turns the empty units into temporary hotel suites, as well as the Guild, which leases longer-term, mixed-use residential real estate and converts apartments into hotel accommodations. Its reach spans Austin and Dallas, Texas; Miami; and Cincinnati. Airbnb has also put its own twist on the concept through a partnership with developer Niido, opening branded apartment complexes in Nashville and Orlando that have been specifically designed for tenants who want to sublease units to short-term guests.
More recently, hospitality startup Bode opened its first residence-style hotel building in Nashville late last year, while fellow newcomer Domio unveiled its inaugural apartment hotel in New Orleans earlier this year.
The emerging sector has also seen a significant influx in investment activity, making it clear that the apartment hotel concept appears to have major upside. WhyHotel, the Guild and Domio have all attracted sizable capital infusions in recent months, while Sonder, another apartment hotel player, made headlines when it secured $85 million in Series C funding last August, growing its total funding to $135 million.
Lehmann said, “Creating a hotel-like experience in serviced apartments is definitely a huge opportunity. The margins are lot higher, as you’re taking out a long-term lease and then you’re cutting that down into short-term rentals. And it delivers higher capitalization rates (rate of return) to the institutional investor who actually owns the property. That said, the exposure in terms of recession is massive, but as long as the demand is still high, it’s pretty safe.”
While much of the recent startup buzz has centered largely on urban opportunities, short-term rental property management group Vacasa is looking to bring a higher standard of service to more traditional vacation markets. Vacasa, which has raised $207.5 million in funding to date, manages 11,000 homes across 26 U.S. states and 16 countries, with the vast majority of its business focused on more rural beach, lake and mountain destinations.
Company founder and CEO Eric Breon estimated that “about 5% of our business is in urban ‘nontraditional vacation’ locations, like Portland and Seattle and others, so it’s a very small part of our business. With large cities, there’s regulatory complexity. So, when you look at the number of opportunities in cities where the zoning works, they’re relatively constrained. Plus, vacation rentals are all about bringing people together, larger groups and the like. And larger groups generally go to more traditional vacation destinations rather than urban destinations.”
Vacasa has also emerged as one of the homesharing industry’s most acquisitive players. According to Breon, the company made 52 acquisitions last year, including a takeover of Hyatt-backed Oasis.
With Vacasa and others working quickly to expand with a more service-focused, hotel-like concept, Airbnb in late 2018 took over French property management group Luckey Homes, sparking rumors that the company could eventually pivot away from its current OTA-like listings model and one day establish its own in-house property management on a larger scale.
“You have so many urban property managers nowadays who are solely depending on Airbnb from a demand standpoint,” Lehmann said. “And [they] are scared, wondering what it might mean for them and their listings. [The Luckey acquisition] scares the hell out of the entire industry.”
Though Airbnb’s further plans for potential property management remain ambiguous, the move would certainly be in line with the homesharing industry’s continued shift toward offering guests more curated and consistent stays.
Guttentag said that the homesharing business model “has very quickly become more about prioritizing multiunit owners, superhosts and basically the more professional operators that offer hotel-style features and not the random Joe who rents out a spare bed a few weeks a year.” He added that, while surprising, it “wouldn’t be completely shocking” to see Airbnb make management a larger part of its strategy. “All the moves Airbnb is making are toward putting professional operators and professionalized experiences first. And at the end of the day, it’s probably easier for Airbnb to move upmarket and shoot for more professionalized, slightly more uniform, quality-guaranteed experiences, than it is for hotels to move in the other direction.”