The meteoric rise of
Airbnb.com, 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 Airbnb.com’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
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 Airbnb.com 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 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
Airbnb.com’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.