Access Economy Provides View into the Future of Short-term Rentals

(A shortened version of this post was published on Skift.com in July 2018)

The travel landscape has evolved substantially since the dawn of the internet in 1991. Today’s tech giants – Amazon and Google – started between 1994 and 1996. In the travel space, Expedia and Booking.com (then bookings.nl) also launched in 1996. A big year for Chinese players was 1999, with Alibaba and Ctrip both launching. Online travel agents brought new opportunities for hotels, but also disrupted the traditional relationships between hotels, travel agents and Global Distribution Systems (GDS). Younger companies like Airbnb are now stepping forward as the next wave of disruption in the lodging industry.

Short-term Rentals are Booming

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We are at a stage today where it is unlikely to imagine a lodging landscape without short-term rentals. Often labelled as one of the biggest disruptors in the travel industry, Airbnb has moved into the mainstream. Short-term rentals have a long history in many countries, often unregulated and in the form of informal exchanges. Companies like HomeAway and Airbnb have paved the way for the short-term rental market to move online and have given homeowners an easier entry into the business of hosting. Today we see that short-term rental bookings are mostly made online using an intermediary. In this aspect, the short-term rental category is miles ahead of the hotel industry.

Hotels and short-term rentals are clearly different, which leads to different booking behaviours – you can’t just walk into a short-term rental and book it for the night. The impact of short-term rentals on hotels is also not very clear-cut. While individual hotels (especially in city centres or during major events) might feel the pressure of the added lodging stock, overall, the lodging industry is booming and hotels are benefitting from this today, just like short-term rental platforms. This is forecasted to last, although an uncertain future with Trump tariffs, Brexit and the situation in the Korean Peninsula, can all destabilise economic growth, and with it, squeeze the lodging industry. We might find that hotels will be squeezed harder than short-term rentals when times get tough.

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Introducing the Access Economy Index to investigate short-term rental potential

Short-term rentals are an important element of the Access Economy, in which consumers are willing to pay for access to someone else’s good or services. The travel industry has been revolutionised by the access economy, from booking lodging in privately-owned short-term rentals through Airbnb or HomeAway, to booking a taxi through Uber, engaging in a guided tour with Vayable, to dining with locals through EatWith.

Euromonitor has recently released its Access Economy Index for Lodging, scoring 58 countries based on their potential for sustainable growth in short-term rental supply and demand. It takes into consideration a wide range of factors, including:

  • Home and mobile connectivity, as digital infrastructure is an enabler of the access economy;
  • Urban and millennial populations, and homeownership, with the assumption that these impact the readiness of residents to take part in the access economy;
  • Sustainable destination ratings from the World Economic Forum;
  • Inbound and domestic flows and expenditure;
  • Regulation, as it can make or break the performance of short-term rentals.

The results are interesting. In 2017, the combination of strong GDP and consumer expenditure growth, a booming domestic tourism sector, as well as favourable stance by legislators towards short-term rentals, helped China to rise above the rest in the Access Economy Index. By 2022, however, Australia takes the top spot, helped by strong digital infrastructure, limited existing hotel stock, a large established short-term rental offering, and a stronger forecast performance for inbound and domestic arrivals. Between 2017 and 2022, Russia and India see the largest jumps up the ranking, 16 and 14 places respectively, highlighting the investment opportunities in these countries.

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Regulation is key, but very unpredictable

Globally, the regulatory landscape is a minefield of different directives at city, provincial and country level, with many countries lacking national legislation impacting short-term rentals, while city-level legislation can be very extensive. Take the example of Berlin, Barcelona, New York and Vancouver which are all trying to find a balance somewhere in between an overflow of tourists, strong hotel lobbies and housing crises. Meanwhile, in other parts of these countries, short-term rental platforms are allowed to trade freely as it can boost local economies. The Access Economy Index takes the regulatory situation into consideration when analysing future potential of destinations.

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Short-term rentals will form an increasingly important part in the accommodation mix of destinations. For local and national governments, it is important to find a good balance with a diversified offering of different lodging options, as this will be the most sustainable way forward for any destination. Short-term rentals have, and should have, a ceiling of growth. The Index is a first step towards a more sustainable and integrated approach to short-term rentals.

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