A recent analyst report from Credit Suisse suggests that Airbnb has put downward pricing pressure on hotels in New York City.
The analysts identified the soft demand heading into the fourth quarter of 2014, which has led to weaker earnings for those hotel groups that have significant exposure in the city (such as Hyatt, which relies on the city for about 10% of owned/leased EBITDA).
Demand stayed soft throughout January, with an 18.6% drop in RevPAR alongside a 7.5% decline in occupancy and a 12% drop in rate. While the report called out the inclement weather as a factor in weaker demand, it also identified the increase in supply from alternative channels such as Airbnb, saying:
We believe this sudden shift stems...to a leassor degree, continnued supply growth, softer demand due to F/X headwinds, and emerging supply channels (Airbnb) that are creating pricing pressure.
Granted, the weaker Euro is dampening demand from European visitors, and the New York hotel market is seeing a surge of nearly 26,000 rooms added to its current 116,000 room count.
Even so, the impact of Airbnb on hotel prices is beginning to at least be considered as one of several valid points when analyzing the variations on RevPAR in New York City.
The Credit Suisse report continues in a subsection dedicated to Airbnb entitled "Airbnb pressuring pricing on the margin," focusing on how Airbnb is especially impacting those properties without healthy business travel bookings:
Recently, we are hearing hotel operators more often cite emerging sources of distribution/supply such as Airbnb as placing pressure on marginal locations, independents, and less well known boutiques … Bookings in three Manhattan districts including the Lower East Side/Chinatown, Chelsea/Hell’s Kitchen, and Greenwich Village/SoHo accounted for more than 40% of private stay revenue during a recent review period.With as many as 10k units or more available at a time, we can see that on the margin this excess capacity can place pressure on a number of hotel locations that rely on leisure demand for those with an appetite for value/adventure.As well, many Airbnb listings which thrive are priced in the $150 to $250 per night "sweet spot" that would appeal to leisure customers seeking relative value space, versus what might be a smaller hotel room with fewer in-room amenities.
The report also graphed data from the Attorney General's report on Airbnb, showing how the platform's revenue has grown.
When comparing the revenue growth to the growth in RevPAR, however, there are no indications of potential correlation. In fact, it looks like hotels are doing smashingly despite Airbnb's growth in New York City:
Even if hotels have managed to increase RevPAR despite the ongoing increase in supply from both other hotels and Airbnb, it would seem that they are still doing well.
Airbnb's growing impact is borne out by other analysts, namely Barclays (in this report), that project a doubling of Airbnb in the coming year. This means that room nights booked will continue to grow, and thus put pressure on the pricing competitiveness of hotels in the larger markets. Here's how that looks graphed out:
This growth in room nights would mean that Airbnb would double its threat to hotels, when measured by room nights booked, each year for the next two years.
This growth potential is bolstered by recent legal victories. Airbnb was just presented with a route to legal status in London, showing that the pace of regulation is increasingly in Airbnb's favor. However, much of this legislation limits the number of nights a host can rent out a room, which could also slow the company's growth in room nights booked.
NB: New York skyline image courtesy Shutterstock.