In face of Airbnb, supply growth may be key for boutique hotels


SANTA MONICA, Calif. — Lighthouse Investments Principal Ramin Kolahi, whose company owns the 37-room boutique Palihouse hotel here, minced no words when he was asked at last week's Boutique Lodging & Lifestyle Association's (BLLA) Leadership Symposium who he saw as his competition.

"Airbnb," he replied.

The home-based-accommodations listing service has been a topic of debate at hotel conferences all year, and the BLLA conference, held at the Fairmont Miramar Hotel here, was no different.

With Airbnb continuing to undercut pricing at upscale hotels, boutique and lifestyle hotel operators on the conference's panels differed on the question of whether independent, boutique properties would be more hindered than hotel chains by the growth of Airbnb.

But they agreed that Airbnb's growth and pricing were impacting hotel-room demand in many of the largest U.S. markets despite the fact that occupancy levels have reached record highs. And some suggested that a solution might be additional boutique and lifestyle room supply in a U.S. market in which overall hotel-room inventory is up just 1% in the past year.

"All of the hotel companies need to get a lot savvier about building more interesting and inspiring product," said BLLA panelist and Proper Hospitality President Brian DeLowe. "The best way to compete is by stepping up our game."

Proper Hospitality's principals founded Viceroy Hotels and are scheduled to open the company's first hotel in San Francisco by the end of the year.

Data presented at the conference suggested that offering more dynamic properties would be necessary, because boutique and lifestyle hotels clearly could not compete with Airbnb merely on price.

Citing data from Airbnb pricing tracker Airdna, HVS Managing Director Kasia Russell noted in a conference presentation that a single Airbnb home or apartment in New York, San Francisco and Los Angeles was going for $200, $220 and $139, respectively. Those rates are 20%, 2% and 13% lower than the average hotel-room rates in those cities through September, according to STR.

What's more, boutique room rates are usually comparable to upper-upscale rates, making those price differences even larger.

Both independent and chain hoteliers at the conference put on a brave face with regard to the prospect of guests being swayed by such lower rates.

"I'd be more worried about Airbnb if I were building cookie-cutter hotels that don't offer a unique experience," DeLowe said.

Panelist Michael Murphy, senior vice president, upscale brands, at Choice Hotels International, countered, "All of us are heavily diversified, so I disagree [that the chain hotels are more susceptible than independent hoteliers to losing guests to Airbnb]. They're a competitor, and we are responding appropriately."

Either way, panelists said the popularity growth and increased recognition of boutique and lifestyle hotels during the past 10 to 20 years has made it easier for independent projects to get financing, which in turn could lead to an acceleration of new inventory.

With about 430,000 rooms overall in the U.S. development pipeline, cities such as Boston, Chicago and Houston will reach all-time supply peaks next year, while 2017 will mark room inventory highs for Los Angeles and San Francisco, Russell said.

Much of that supply will come from large hotel companies expanding their boutique badges, such as Marriott International's Autograph Collection, InterContinental Hotel Group's Kimpton Hotels & Restaurants and Choice Hotels International's Ascend Collection.

Whether or not that will be enough to slow Airbnb's growth remains to be seen. Airbnb does not disclose revenue figures, but it reported in September that the number of guests who stayed with its hosts this past summer more than doubled from a year earlier, to about 17 million.

Meanwhile, the Wall Street Journal reported in June that Airbnb earlier this year secured a $1.5 billion funding round that valued the company at more than $25 billion. That's more than the market value of either Marriott International or Hilton, the two largest publicly traded U.S. hoteliers, and more than triple Hyatt's market value.

With that in mind, panelists were quick to lobby for increased regulations that they said would put Airbnb hosts on equal footing with hoteliers. The topic was especially relevant here in Southern California, where panel moderator and RockCheetah Founder Robert Cole cited data suggesting that 8% of Los Angeles-area Airbnb hosts accounted for 44% of the region's Airbnb revenue.

"They are valued at $25 billion, so they're not about [renting out] your extra bedroom," Kolahi said. "Airbnb is the largest hotel company in the world right now."
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