15 Jan 2020
Over the past decade, the short-term rental industry, now eponymised by Airbnb, has experienced meteoric growth.
This has been driven by the rise and proliferation of online travel agencies (OTAs) who have very effectively tapped into a vast pool of pent-up consumer demand; both from business travellers looking for a cheaper, more convenient alternative to a hotel, and from tourists and holidaymakers seeking a ‘home away from home’.
In parallel, to service this demand, we’ve seen the explosion of local management companies offering a hassle-free service to property owners, and a better, more standardised hospitality experience to paying guests.
It has frankly never been easier either to book short-term accommodation, or to rent out your property.
With Airbnb’s announced Initial Public Offering (IPO), 2020 is set to be a defining moment in the lifecycle of the alternative accommodation industry, heralding a new stage of maturity.
Growing demand to rent more flexibly will be met with growing demand from landlords to monetise properties more efficiently. Consequently, short-term rentals are now poised to shape the future of traditional estate agency and property management, with those who shun change risking being left behind.
In this article I aim to outline the key trends shaping the sector, and critically the opportunities that this offers estate agents and property managers.
2020 will be the ‘year of Airbnb’ and a tipping point for the alternative accommodation industry. Airbnb’s much-anticipated IPO, further bolstered by the news of its sponsorship of the Olympics, will force the industry into the global spotlight and cement it as a disruptive force within global travel, hospitality and real estate.
Consequently, the platform will win trust and adoption from new guests and hosts around the world, spurring an unprecedented phase of growth.
Due to the inherently multi-channel nature of this industry, however, the growth and increased awareness of Airbnb will drive new listings across all the major OTAs, creating a halo effect that will benefit the industry as a whole.
Further acceleration in the convergence of real estate, hospitality and travel. As Airbnb goes public and joins the likes of Facebook, Amazon, Google, eBay and Netflix, confidence in the platform will soar. Alongside driving adoption from new guests and hosts, a second major consequence will be the readiness with which real estate and hospitality players seek to embrace the multitude of opportunities offered by the alternative accommodation sector and short-term renting.
Expect increased demand from landlords to broaden their strategies in order to better capitalise on local short-term rental demand and explore more diverse rental channels across their portfolios.
Equally traditional hotel chains, large and small, will look to diversify and gain a foothold in this rapidly growing alternative accommodation segment.
Industry-wide standardisation and quality control. Consumer trust and confidence is core to the future growth of the alternative accommodation sector, so expect this to be a major focus area for 2020 as Airbnb’s business model comes under scrutiny from potential IPO investors.
While Airbnb has publicly pledged to verify its seven million listings by the end of 2020 in response to a recent tragic Halloween shooting, there are still pressing questions as to what its long-term strategies are for fostering and maintaining the levels of trust necessary to ensure the sustainable future growth of the platform.
Although the spotlight will shine on Airbnb, investors will also assess the strategies and initiatives pursued by its competitors (Booking, Expedia/VRBO, Google, etc.) in a bid to weigh up the market opportunity, the competitive threat, and ultimately Airbnb’s valuation at IPO.
Expect OTAs to focus their product strategies on 1) improving the quality and safety of the accommodation being offered, and 2) delivering a more consistent guest experience.
Regulatory 2.0: the rise of dedicated tech and data solutions to power more effective local regulation and compliance monitoring. Pre-IPO scrutiny of the risks and challenges impacting Airbnb’s future growth will shine a light on the legitimacy of its existing business and how susceptible it is to future regulatory change.
This will open up an opportunity for new technology and data solutions focused on solving existing regulatory challenges and limitations. 2020 will see regulators begin to experiment with solutions that enable them to objectively understand the social and economic impact of the alternative accommodation sector upon local communities, and for the first time empirically inform future regulatory decision-making.
These tools will consequently open the door to more effective monitoring and policing of local compliance by hosts and their property managers.
Opportunities for estate agents:
Demand for short-term rental management services is now set to explode. Savvy estate agents and property managers looking to capitalise on this trend by expanding their existing service offering will be able to tap into several opportunities that drive new revenue streams and add value across their core business. All you need is the right technology, tools and training.
1. Win instructions on Build to Rent schemes. Use short-term rentals to deliver greater value to developers of new-build schemes by providing them with a solution that optimally monetises the lease-up period.
Occupying these schemes from day one with high-yielding short-term guests generates much needed positive cash flow as long-term residents are then introduced and the scheme is fully stabilised.
By offering an integrated service you can set yourself apart from your local competition, winning transformational instructions on Build to Rent schemes.
2. Monetise voids between long-term tenancies. The short-term rental market is highly seasonal, with peak periods offering very compelling yields that typically outperform AST yields by 30%+ (depending on location).
Attract and retain landlords with an integrated solution that enables them to optimally monetise vacant periods between ASTs. This is particularly relevant when managing student housing, where holiday periods are typically vacant.
Significant value can be realised across entire portfolios, and a well-targeted proposition has the potential to rapidly grow your student management business.
3. Airbnb properties as they await sale. If you are operating in a slow sales market, win more instructions and delight vendors with a service that allows them to efficiently monetise vacant property on the short-term rental market as it awaits sale.
This has the added benefit of allowing the vendor to be defensive on price and bide their time until they receive the best offer.
4. Build your own holiday rental business. In traditionally strong holiday rental markets (Cornwall, Cotswolds, Devon, Lake District, Isle of Wight, etc.), increasing numbers of estate agents are leveraging their local brand and reputation to develop lucrative holiday rental businesses.
This helps them to combat the risk of losing clients to more established local short-term rental operators. Services include the buying, selling and end-to-end management of holiday rentals.
In the future we’ll look back on 2020 as a clear inflection point; the year the world experienced a fundamental shift in the way we live and travel. The alternative accommodation sector will experience a step change in growth and engagement from industry players who have so far been watching it from the sidelines, waiting to make their move.
Mark my words, this year will usher in the ‘roaring twenties’ of the short-term rental industry. How do you intend to capitalise on it?
*Guy Westlake is founder of Lavanda and Chairman of the Professional Host Alliance.