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Challenges & Opportunities: Fair Play

CHALLENGE

The rise and rapid growth of the short-term-rental industry has been nothing short of disruptive for the hospitality and tourism industry.

A key reason behind the challenges is the pace of growth within this space. Earlier this year, Airbnb checked-in its 500-millionth guest. The platform currently offers more than six-million accommodation listings across more than 99,800 cities around the world. And, around the same time, major competitor Booking.com announced it had welcomed more than 750-million arrivals at alternative accommodations since 2007.

In Canada, the number of Airbnb hosts, units and revenue has nearly doubled between April 2015 and March 2017, according to CBRE research. The same study also confirmed most hosts are not utilizing the platform for true home sharing, with entire-home rentals making up approximately 70 per cent of the platform’s Canadian listings.

As this explosion occurred, regulatory bodies didn’t keep up with the industry. In many regions of Canada, short-term rentals are not subject to the same regulations, oversight and taxation as hotels and other traditional accommodations. This has created an imbalance within the sector and conditions that have allowed commercial short-term-rental operations to flourish.

In fact, the Auditor General of Canada’s Spring 2019 Report on Taxation of E-Commerce indicated the Canadian sales-tax system did not keep pace with the digital marketplace, with estimated losses of $169 million in sales-tax revenues on foreign digital products and services.

This inequality has been a major focus for the Hotel Association of Canada (HAC) in recent years. The association has created best-practice guidelines for regulating short-term rentals to help all levels of government cope with this new reality.

“What started as true home sharing has expanded into a growing trend of people using these platforms to become commercial operators,” says Alana Baker, director of Government Relations, HAC. She noted that between 2015 and 2017, “the commercial side of Airbnb’s business — those who are renting multiple units or entire homes — grew by 108 per cent. These entire-home rentals generated 83 per cent of Airbnb’s revenue.”

“The short-term-rental industry should not be exempt from the rules and regulations designed to build successful communities and keep travellers safe,” Baker adds.

Expansion of these platforms into other spaces typically dominated by hotels — including business travel and meeting/event spaces — adds pressure as competition grows ever steeper. In fact, according to Airbnb, “more than 400,000 companies actively manage their business travel with Airbnb.”

The fact is, these alternative accommodations have become a fixture within the travel landscape — one that’s resonating with travellers. “Approximately 40 per cent of our active customers booked an alternative-accommodation property at some point over the past 12 months,” says Olivier Grémillon, vice-president, Booking.com. “Unique accommodation experiences will continue to be at the heart of tomorrow’s travel, even more so than today.”

OPPORTUNITY

Clear consumer interest in this style of accommodations does present its share of opportunities.

“The hotel community has spent a long time — and perhaps quite rightly — bellyaching about Airbnb. Well, now let’s take a look at why Airbnb has been successful and try to mimic that,” says Greg Klassen, partner at Vancouver-based Twenty31 Consulting. “One of the areas where hotels have dropped the ball and Airbnb has picked it up is offering accommodation opportunities outside of core tourist areas in neighborhoods people have wanted to be in, or in homes that have their own cooking facilities, or [space] so the whole extended family can be under the same roof.”

Klassen points to Marriott’s recently launched Homes & Villas by Marriott International platform as a prime example of how hotel companies can capitalize on the short-term home-rental market. Following the success of the pilot project (Tribute Portfolio Homes), the company now offers 2,000 premium and luxury homes across more than 100 destinations. The brand was launched through partnerships with select property-management companies, which will provide guests with a professionally cleaned home, 24/7 support, high-speed Wi-Fi, premium linens and amenities, as well as family-friendly conveniences.

“Now they’re offering what customers are looking for,” Klassen says. “[This] might be the beginning of a new competitive set that may give [hotel operators] an opportunity to recapture some of the revenue loss [caused] by Airbnb.”

Rather than new platforms that directly compete within the home-sharing market, major hotel companies have launched new brands that incorporate key elements drawing guests to Airbnb. Last fall Hilton launched “urban lifestyle micro-hotel brand” Motto by Hilton, which incorporates rooms and booking options designed to accommodate group travel.

“Following extensive market research focused on consumers’ needs and wants, we discovered the opportunity for a brand that offers travellers a trifecta of centrally located, reasonably priced and less traditional lodgings that provide a one-of-a-kind experience,” says Jon Witter, Chief Customer Officer, Hilton.

In a similar vein, Accor’s JO&JOE brand is an “open-house” concept designed to combine “the freedom of a rental, the fun of a hostel and the comfort of a hotel.” The properties open and under development range from 160 to 400 beds and feature a combination of private and shared accommodations.

There is also an increasing number of apartment-style hotel offerings — such as Montreal’s Boxotel — and small, specialized properties popping up in less-dense areas. Toronto hotel, The Annex even describes itself as a hybrid between a design hotel and an Airbnb and lists its rooms on Airbnb’s platform.

“We’re in a unique position in that we built our hotel under the assumption that Airbnb would not only continue to grow, but eventually move its way into the boutique-hotel market — which it has,” says Andrew Peek, co-owner, The Annex. “As a result of this shift, we’re being assisted by the fact we’ve built a hotel product that slides in nicely next to the upper echelon of Airbnb experiences and has a service offering that’s familiar, but also value-add, to the people who browse Airbnb for accommodations.”

“We hope Airbnb continues to dominate the market,” adds Peek. “If we had a choice between serving OTAs versus Airbnb, we’d choose the latter.”

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