Over the past decade, the alternative accommodation sector has experienced huge growth. This has been driven by the meteoric rise and proliferation of online travel agencies, spearheaded by Airbnb, that have very effectively tapped into a huge well of pent-up consumer demand - both from business travelers looking for a cheaper, more convenient alternative to a hotel and from tourists and holidaymakers seeking a “home away from home.”
In parallel, to service this demand, we’ve seen the explosion of local management companies offering a hassle-free service to property owners and a better, more standardized hospitality experience to paying guests.
It has, frankly, never been easier either to book short-term accommodation or to rent out your property.
With Airbnb’s announced IPO, 2020 is set to be a defining moment in this industry’s lifecycle. Below are five key trends that will characterize the short-term rental industry in the next decade: From sweeping changes to the regulatory landscape to industry-wide professionalization and standardization, there will be significant challenges that the industry has to overcome - but there is no doubt, in my mind at least, that this coming year will usher in the “Roaring '20s” of the alternative accommodation industry.
1. Forget “Year of the Rat”; 2020 will be the “Year of Airbnb” and a tipping point for the alternative accommodation industry. Airbnb’s much-anticipated IPO, significantly bolstered by the news of its sponsorship of the Olympics, will force the industry into the global spotlight and cement its place as a disruptive force within global travel, hospitality and real estate.
As such, the platform will win trust and adoption from new guests and hosts around the world, spurring an unprecedented phase of growth. Due to the inherently multi-channel nature of this industry, however, the growth and increased awareness of Airbnb will benefit the global industry as a whole, driving new listings across all the major OTAs.
2. The Big Bang: We’ll see further acceleration in the convergence of real estate, hospitality and travel. As Airbnb goes public and joins the likes of Facebook, Amazon, Google, Ebay and Netflix, confidence in the platform will soar.
Pre-IPO scrutiny of the risks and challenges impacting Airbnb’s future growth will shine a light on the legitimacy of its existing business and how susceptible it is to future regulatory change.
Alongside driving adoption from new guests and hosts, a second major consequence will be the readiness with which real estate and hospitality players seek to embrace the multitude of opportunities offered by the alternative accommodation sector and short-term renting.
Expect the major global real estate players to broaden their strategies in order to better capitalize on local short-term rental demand and explore more diverse rental channels across their portfolios.
Equally, traditional hotel chains, large and small, will look to diversify and gain a foothold in this rapidly growing alternative accommodation segment.
3. You better shape up: Expect industry-wide standardization and quality control. Consumer trust and confidence is core to the future growth of the alternative accommodation sector, so expect this to be a major focus area for 2020 as Airbnb’s business model comes under scrutiny from potential IPO investors.
Whilst Airbnb has publicly pledged to verify its seven million listings by the end of 2020 in response to the recent tragic Halloween shooting, there are still pressing questions as to what its long-term strategies are for fostering and maintaining the levels of trust necessary to ensure the sustainable future growth of the platform.
Whilst the spotlight will shine on Airbnb, investors will also assess the strategies and initiatives pursued by its competitors (Booking.com, Expedia/Vrbo, Google, etc.) in a bid to weigh up the market opportunity, the competitive threat and, ultimately, Airbnb’s valuation at IPO.
Expect OTAs to focus their product strategies on improving the quality and safety of the accommodation being offered and standardization necessary to deliver a more consistent guest experience.
4. Regulatory 2.0: the rise of dedicated tech and data solutions to power more effective local regulation and compliance monitoring. Pre-IPO scrutiny of the risks and challenges impacting Airbnb’s future growth will shine a light on the legitimacy of its existing business and how susceptible it is to future regulatory change.
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This will open up an opportunity for new technology and data solutions focused on solving existing regulatory challenges and limitations. In 2020, regulators will begin to experiment with solutions that enable them to objectively understand the social and economic impact of the alternative accommodation sector upon local communities and, for the first time, empirically inform future regulatory decision-making.
These tools will thus open the door to more effective monitoring and policing of local compliance by hosts and their property managers.
5. Sorry, WeWork: Funding will dry up for operators taking out “master leases.” In light of WeWork’s fall from grace, and with a number of other over-valued SoftBank-funded businesses looking likely to follow suit, investor confidence in dubiously profitable, operationally complex business models relying on similar “lease arbitrage” plays for growth has ebbed.
As the supply of properties in the market invariably increases, competition to win occupancy will drive down nightly rates and further compress margins for operators. With heavy exposure to long-term lease liabilities, these businesses will soon be under significant pressure to adapt or die.
In the future, we will look back on 2020 as a clear inflection point: The year the world experienced a fundamental shift in the way we live and travel.
The alternative accommodation sector will experience a step change in growth and engagement from those who have so far been watching it from the sidelines, waiting to make their move.
Be sure to get plenty of rest over the holiday period, because the next 12 months are going to be busy.