The short-term rental market has been booming in Europe.
A record 44.5 million demand nights were reported in the European Union in June, an 18.6% increase year over year, according to a new report from AirDNA. Available listings were up as well, to 3.8 million, a 14.8% increase year over year.
But the sector’s vibrancy isn’t all due to families looking for a home to stay in or travelers heading off the beaten track. In the United Kingdom, for example, urban (24%) and suburban (20%) markets saw demand growth that was significantly higher than that in rural, coastal and mountain destinations (ranging from 12-14%), according to the report.
Contributing to that urban growth are companies like Bob W and Nestor that seek to combine hotel services or standards with the flexibility of home-like apartments or other accommodations for the modern travelers they see as mixing business with pleasure.
Niko Karstikko, co-founder and group CEO at Bob W, and Fran Milsom, founder and CEO of Nestor, came together last month at Phocuswright Europe for an interview in the PhocusWire studio. They discussed growth opportunities for short-term rentals in general and the potential for companies like theirs to revitalize urban areas seeing a downturn in commercial office use.
“There’s a lot of space in this sector, and you can do that within the confines of a city,” said Karstikko, whose Finland-based company operates in 10 countries and 17 cities in Europe. “London’s an endless opportunity almost. We’re trying to balance between depth in the market as well as horizontal coverage as we are working [toward] Bob W becoming the brand that’s associated with this new hybrid category of hospitality.”
Milsom, whose London-based company operates boutique hotels and serviced apartments, said Nestor is focused on London for now.
Subscribe to our newsletter below
“In terms of operational efficiency, it works really well for us. We understand the market really well,” he said, adding, “It’s not to say we’re not going to explore other opportunities. We were in Spain before COVID, so I definitely think if the right opportunities come we’ll look to enter a new market.”
Karstikko was thinking along the same lines.
“You will see Bob W in new cities,” he said. “We will come to new markets. We will also establish pan-European coverage beyond the 17 cities today. But the other part will be adding depth to those markets and taking advantage of the existing structures.”
True to his word, about a month after the interview Bob W announced plans to develop between 1,500 and 2,000 apartments by repurposing hotel and office assets in Ireland, Portugal, Spain and the United Kingdom. The deal was part of a partnership with Osborne+Co Investment Management to launch an equity raise of £120 million.
The deal was also an example of how short-term rentals can aid cities, he said.
“The short-term rental space is by far the fastest growing segment in hospitality. It’s also a more flexible segment,” Karstikko said. “We can go to sub-sized properties — 10, 20-unit-plus properties — and make money on those, unlike hotels that have rigid structures of needing a front desk and gym here, and a restaurant there. That lends us better to the office conversions.”
The trend has been slowed, he said, by the pace of legislation in some countries, landlords’ reluctance to accept change and the cost of oftentimes difficult makeovers, though, as he said, “The math is starting to work out.”
For his part, Milsom sees officials in London taking strides in the right direction.
Certainly empty office buildings in city centers are not bringing anybody anything. … Cities are missing people.
Niko Karstikko – Bob W
“I think there’s some great regulation coming through in the city because office blocks are empty,” he said. “It’s really hard to sell or lease office blocks, so the local council [members] are making it really easy to change planning.”
Those zoning changes make it easier for hospitality companies to come in and convert the unused office stock. And as the short-term rental sector reaches a saturation point in cities like London, the flexible planning also opens other opportunities for reinvigorating the area, Milsom said.
“They’re opening up new opportunities for new restaurants, new cafes, new activities and events that are happening in the city to convert it from a typical office, Monday-to-Friday destination to make it somewhere you’d go on the weekend as well,” he said. “We need to rely on local councils to really incentivize [and change] that area.”
Karstikko applauded those efforts. “Certainly empty office buildings in city centers are not bringing anybody anything,” he said, adding, “Cities are missing people. They’re not going to the offices, therefore the cafes are not full, people are not going out to the shops, so what’s happening is this equilibrium is not working.”
He believes it will get better. “The great news is the market is massive,” Karstikko said, adding, “It’s a good place to be at, and there’s a lot of good momentum, so I think we want to take advantage of that, us and Nestor and everybody else in the space.”
Among other topics, the pair spoke of the ways artificial intelligence can be used in the sector, especially to enhance guest personalization, and on the importance of building direct relationships with customers who find their properties through online travel agencies.
Watch the full discussion below.
Phocuswright Europe 2024 Executive Interview: Changing landscapes for short-term rentals