African-Market---Light-Blue Poses Only a Small Threat to Hotel Industry

March 27th, 2013
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MichelleGrantAnalyst Insight by Michelle Grant, Travel and Tourism Manager at Euromonitor International

The meteoric rise of, booking more than 10 million nights since its inception in 2007,
should not cause the hotel industry to worry about the vacation rental market.
Both business models have co-existed for a significant amount of time without
infringing on each other’s growth. It is likely that vacation
rentals will appeal mostly to leisure travellers with lucrative business
travellers firmly loyal to hotels, thanks to corporate travel policies, loyalty
programmes and the standardised experience a hotel offers. To compete for
leisure travellers, hotels have advantages over the vacation rentals that they
can emphasise to stem losses in the leisure traveller segment.

Vacation rentals step into the

Thanks to’s success
(and the launch of similar websites), there is greater awareness of the
vacation rental market, but it has existed for many decades. In fact, Wyndham
Worldwide owns one of the oldest vacation rental brands—the British Hoseasons
(founded in 1940). According to Euromonitor International, combined
self-catering and private accommodation (the two accommodation types that
compose the bulk of vacation rentals) accounted for US$77 billion in room
revenues in 2011 globally, up 98% from 1999. Total worldwide hotel room
revenues was US$429 billion in 2011 and grew 83% over the same time period.
Despite being a significantly larger market, the hotel industry turned in a
very strong performance against the vacation rental market. However, it does
seem that the vacation rental market may be more resilient to global economic
downturns as evidenced by growth rates in 2000, 2001, 2009 and 2010, because
it’s not as dependent on finicky business travellers as the hotel industry.
There may be a bit of a substitution effect with leisure travellers seeking out
less expensive accommodation options during times of economic distress—which
may be something hotels need to keep an eye on.

% Growth in
Global Room Revenues for Vacation Rental and Hotel Industries

% Growth in Global Room Revenues for Vacation Rental and Hotel Industries

Source: Euromonitor

Note: Vacation Rental Industry
includes self-catering apartments and private accommodation

Going forward, Euromonitor International
expects that both accommodation types will see similar growth, with hotel room
revenues growing by 20% over the next five years, and vacation rental revenues
growing by 19%. While the success of has elevated the profile of the
vacation rental market, it is a market that has always existed—its distribution
has merely improved with easy to use websites that encourage transparency
between guest and owner. As a result, the vacation rental industry isn’t
expected to significantly cannibalize hotel industry sales.

Hotels need to keep an eye on
leisure travellers

Leisure travellers is where
both accommodation types compete heavily. There has been a shift to more family
and multi-generational travel. Renting an apartment or villa provides more
space at a lower cost than staying at a hotel for these groups. Family members
can have their own rooms, so parents can stay up while children are sleeping.
Costs are even lower when families use the vacation rental’s kitchen instead of
dining out. It is this segment that the hotel industry will need to try a bit
harder to win over.

Hotels can respond to this by
promoting their extended stay brands to more leisure travellers and emphasising
the family friendliness of their properties—providing unique activities such as
specific outings for children that aren’t available at vacation rentals. Luxury
hotels, in particular, have responded to this shift. For example, the
anthenaeum in London has a “kid’s concierge” that will provide child-friendly
amenities and activities.

But overall, hotels must
leverage their greatest advantage over the vacation rental industry:
standardised service. The hotel industry must continue to provide excellent
customer service so that leisure travellers are confident that they will enjoy
their stay at a hotel instead of running the risk of having a horrible
experience with an individual property owner.

Local governments may be an
ally’s success has been
a double-edged sword, drawing the attention of local governments to the
vacation rental industry as a whole. In many cities, there are rules preventing
residents from renting out rooms for transient purposes. Additionally, the
owners of these properties may be subject to sales, occupancy or income taxes,
but many are not remitting these taxes to authorities. Furthermore, some
residences are in violation of local building codes. As a result, cities, such
as New York City and Amsterdam, are cracking down on illegal listings and
issuing fines that are in the tens of thousands of dollars. While most cities
admit that they do not have the manpower to go after everyone, they are finding
the most egregious offenders and will follow up on complaints from neighbours.
The risks associated with renting out a property or a room may dampen growth in
the vacation rental market, favouring hotels that are in compliance with local

For more market research on the travel and tourism industry, join Euromonitor's travel and tourism group on LinkedIn.

Have a question or a thought to add? Leave us a comment below.
  • Vikram

    This article is using a pretty misleading statement regarding the hotel industry. Highlighting “vacation rental growth ” data with “hotel growth data”, then deriving a conclusion that Airbnb is a “small” threat is a highly inaccurate way of reading the numbers. What Airbnb is doing is revolutionary compared to anything anyone has done in the online vacation rental business. They are turning home owners into entrepreneurs. Now that is shifting the entire paradigm in the traditional vacation rental business. Hotels need to be more worried about Airbnb than tradition OTA’s . Why? because unlike competing for finite number hotel room nights that can be sold in a city on a given day, Airbnb is adding to the entire demand/supply for available accommodations
    Last but not the least, counting on government/neighbors to stall a revolution in online travel is a folly. Companies that are targeting and building customer base with the internet in mind are not going away anytime soon.

  • Michelle Grant

    Thank you for your comment. I agree that has revolutionized how travellers access vacation rentals and in the process has brought about greater consumer awareness. My opinion is that both vacation rentals and hotels remain different business models, but do compete for certain types of leisure travellers (families, multigenerational, budget, etc) and to a lesser degree, transient business travellers. You do make a good point that is expanding lodging supply, which is especially true in large metropolitan areas. This could impact the hotel industry by shifting existing demand to vacation rentals, which would force companies to lower prices to compete. However, the moment this becomes a significant impact and the large metropolitan areas start seeing their hotel tax revenues decline is the moment that you see the local governments step up their enforcement of rental laws. This is already happening in New York City: A similar situation is happening to the online travel agencies—they are battling city by city, state by state over taxation issues. Here’s the latest example: These tax battles haven’t brought the online travel agencies down and I don’t think that the tax and legal issues will force out of business completely, but they could limit the company’s growth.
    I think poses a much larger threat to existing players, such as and VRBO. The company has greatly improved the way the existing vacation rental stock is distributed. Yes, there always will be competition between vacation rentals and hotels for some types of leisure travellers, but may have only increased that marginally. The hotel industry can combat this, as I mentioned in the article, by promoting their extended stay brands, their standardized service, family friendly amenities, etc.

  • Steve Dunn

    Airbnb will pose a massive threat to the hotel industry when they can solve the key distribution and key insecurity problem – see this blog here for more discussion

  • Fergal Mc Carthy

    Your focus on vacation rentals is somewhat myopic and disingenuous to the impact that Airbnb is having. The fact is that Airbnb is being seen, more and more, as a viable alternative to traditional accommodation providers and this is happening across market segments – business and leisure.
    Fergal Mc Carthy

  • Vikram

    A friendly rebuttal to this article-

  • Michelle Grant

    Thanks for sending me the link to the rebuttal, Vikram. I’m glad that my article has generated a lot of discussion about and its potential impact. My opinion still is that is an improved distribution channel for vacation rentals—an industry that’s always existed and is pretty mature in Europe (now where most of’s sales are from). It’s gaining space in a fairly fragmented vocational rental market and challenging existing websites such as As I mentioned, there is potential for to steal some travelers, especially on the leisure side of things, but I don’t think the hotel industry will feel a big impact.
    I doubt that a significant amount of business travel will migrate over to private accommodation types. Managed business travellers have to abide by their corporate travel policies. Maybe hotels will have to fight for some transient business travel, but they still have many perks that I pointed out in the article—standardized service, loyalty programmes, free breakfast, etc that I don’t think will cause a cratering of the hotel market. People have always have had less expensive alternatives to hotels, staying with friends/family, guesthouses, apartments, hostels, etc. It could be that more business travel may be up for grabs as more Americans shift to working for themselves as freelancers, consultants, etc, but on a busy business trip, some may still prefer the standardization of a hotel with free wi-fi, free breakfast, loyalty rewards and friendly desk clerk.
    And that’s great that you were able to find a cheaper lodging alternative in Phoenix where the hotels seemed to be virtually sold out during a certain time period and offering only obscene rates. I would imagine that the GM of the hotel understood that there were opportunities for his space since demand for lodging was clearly outstripping supply. It doesn’t sound like was hurting the hotel industry too badly and probably encouraged others to take the trip even though the hotels were booked up. Looking at data for the hotel industry for the week of the 2013 Superbowl in New Orleans shows that revPAR increased by 76%: It doesn’t seem like had a significant impact on average daily rate growth, but it could be a stronger competitor during mega-events.
    As I mentioned earlier, I don’t think the government would ever shut down wholesale, but it can increase the risks of renting out your place illegally. This would discourage people from renting out their places once they understand that what they are doing is illegal and the local government is enforcing the law to a better degree. The additional cash may not be worth risking getting a significant fine along with the legal hassles. This could dampen supply, especially in the metro areas where I can imagine is most popular, restraining the company’s growth. Furthermore, if becomes a true threat to the hotel industry, this means that the local government is likely losing out on a lot of hotel-driven tax revenue. This would likely propel the government to crack down even more to ensure that those renting their places out, if complying with the law to begin with, are remitting the proper taxes and if not, they will fine them (and I wouldn’t be surprised if the federal government pokes its nose into the business practice if it gets enough negative press, much like it did with Facebook about privacy practices). Local and state governments have not been shy about suing the online travel agencies for not remitting taxes on their hotel mark ups and the OTAs weren’t even in clear violation of the law. They will not be shy in shutting down a gray market for lodging to preserve their tax revenues if it becomes too large.