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As shifting consumer priorities strengthen the value placed on business and leisure travel, they will also significantly alter its structure. In no single sector of the travel industry will this change be more apparent than in lodging, where demand for greater flexibility will blur the lines between product categories and between competitors. Serviced apartments, a diverse product offering with the features of both hotels and short-term rentals will be at the forefront of this innovation. Additionally, two interrelated trends are shaping future demand for lodging: The gig economy and the growing influence of short-term rentals.
From a devastating Atlantic hurricane season, incidences of terrorism to the contentious US travel ban, 2017 brought with it an array of shocks to global travel. Looking further ahead, political concerns, such as the implementation of Brexit and tensions in the South China Sea, will heap significant uncertainty onto the future of the travel market. However, despite the damaging influence of man-made and natural disruptors, global travel remains resilient; forecast to outpace growth in the global economy through to 2022. By 2022, the global travel market is expected to rise to a total value of USD2.7 trillion, up from USD2.3 trillion in 2017. This will comprise 1.5 billion arrivals and approximately USD1.7 trillion of inbound receipts.
Underpinning this positive outlook are changing consumer habits and the growing influence of emerging market travellers. As household incomes improves in a number of emerging markets, consumers will be lifted into middle income status; empowering successive waves of eager new travellers. This trend is led by China which, after reaching the top spot in 2016, will continue on as the largest single source of global outbound travel globally.
Modern consumers place rising value on experiences versus material possessions. As such, the value of travel as a consumer demand has been cemented, then markedly enhanced by the desire to experience
more. Alongside resilient business travel, itself supported by increasingly efficient booking technology and more flexible lodging options, this dynamic will manifest itself in steady positive growth for travel sales into the future.
From USD691 billion in 2017, global lodging sales are forecast to reach USD812 billion by 2022. Behind North America, Asia Pacific is to remain the second largest market for lodging in the world; currently at USD188 billion, lodging sales in the region are set to reach USD222 billion by 2022, with 43% of this accounted for by domestic sales in China.
With business arrivals to record strong growth through to 2022, major ongoing change to the structure of business travel is obscured by its resilience to disruption by political and economic factors. The modern working world is increasingly characterised by short-term contracts, freelance and remote work. The global financial crisis was an essential stimulus to this development. During the recession, underemployed workers, particularly in knowledge industries, took on short-term contracts and freelance “gigs” to make ends meet; becoming accustomed to flexible and remote working.
As this “gig economy” becomes more pervasive across industries and job functions, work will be increasingly flexible. The distinction between professional and personal life will become markedly less clear, making the needs of the business traveller increasingly context-specific. This has already necessitated greater variety in the lodging options available to business travellers, thus boosting the uptake of short-term rentals.
With its first tools for business released in 2014, Airbnb has been relatively quick to target the changing demands of business travellers and employers. Following this, an overhauled Airbnb for business, including a centralised billing system and better tools for HR representatives to track spending, launched in 2015. Since then, Airbnb business transactions have boomed: a study by Morgan Stanley showed an increase in uptake of Airbnb amongst business travellers from the US, UK, France and Germany, from 18% in 2016 to 20% in 2017.
As a whole, corporate business travel has been far slower to modernise, restrained by legacy concerns over compliance. Corporate travel managers have thus continued to operate under restrictions imposed more by the fear of litigation than by efficiency. This has prevented faster integration of more flexible lodging formats such as short-term rentals into corporate travel programmes.
For businesses operating in markets prone to political instability, high levels of quantifiable risk justify more rigid controls on corporate travel. However, the administrative cost of these controls and the inherent inflexibility of long-term agreements with travel providers may not be an efficient use of resources for the majority of businesses. For many businesses, particularly those whose staff primarily operate in and around major urban centres, the potential benefits of offering greater flexibility in their corporate travel programmes may markedly outweigh the potential risks.
The experience of leading innovators such as Netflix, where staff are allowed to book their own travel and accommodation, provides a compelling example. It shows the potential for a highly flexible in-house corporate travel programme, when effectively managed and supported, to safely deliver greater satisfaction to staff and savings to employers.
Of all lodging formats, short-term rentals will enjoy the fastest sales growth, rising by a CAGR of 7% between 2017 and 2022. This growth is indicative of a long-run shift in consumers’ priorities. Consumers are prioritising spending on factors such as easy access to city amenities and events, digital connectivity or communal living spaces. As leaders Airbnb and HomeAway have extended into new services, like business travel, the category has become an increasingly credible threat to the market share of traditional hotels, pushing these players to respond with greater flexibility of their own.
Combining features of both categories, “aparthotel” brands have been launched or purchased by a number of major hotel players. An array of hotel players have also integrated aspects of short-term rentals into new or existing brands. For example, in 2017 Marriot’s announced plans to introduce communal and self-catered apartments to its Element brand. Similarly Airbnb’s 2017 move to develop its own purpose built apartments suggests an intention to capture a degree of the consistency in product and service offered by hotels.
Lodging that caters to new consumer priorities will lead to even greater blurring of the lines between short-term rentals and hotels. As travellers’ preferences are less clearly segmented by traditional categories, players will be pushed to seek an optimal blend of the features of multiple lodging formats. In the future, players across lodging are more likely to operate mixed use properties that pair extended with short-stay rooms, offering multiple levels of service and amenities for guests. In this increasingly complex environment, there is of course significant room for error and inefficient allocation of resources as former specialists extend into new areas. However, it is likely that serviced apartment operators, particularly larger players with institutional experience in catering for a wide variety of guests needs across multiple types of properties, may have a relative advantage in finding and maintaining this optimal balance.
Please note: All market data and analysis in this piece refers to Euromonitor’s Travel 2018 research edition. Please see www.euromonitor.com for more information on the most up to date travel research and other Euromonitor research projects.
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