How Vacation Rentals Are Affecting the Hotel Industry

Vacation rentals such as Airbnb and HomeAway are becoming increasingly popular. But how does this impact the hotel industry and hotel renovation contractors?

Vacation Rentals: The Statistics

Airbnb, founded in 2008, lists more than 5 million lodgings worldwide and earned $2.6 billion in revenue in 2017. Expedia’s Homeaway, which also operates VRBO, has more than two million listings in 190 countries and generated $193 million in revenue in the fourth quarter of 2017 alone.

Phocuswright reports that in 2017, 30 percent of travelers used private accommodations one or more times — and only 68 percent of travelers opted to stay in a hotel. Moreover, its experts predict that bookings of private accommodations will increase from 12 percent to 16 percent by 2019. While this might not seem like a lot, it’s a considerable — and fast-growing — share of the market.

The Impact of Vacation Rentals on the Hotel Industry

As short-term rentals by private owners, vacation rentals are — relatively speaking — lower priced than hotels. In addition, they cater to travelers who want to “feel like locals.” Because of this, they’re posing a growing challenge to the hotel industry and hotel renovation contractors. As the New York Times points out, hotels have had to lower prices during busy seasons and around events — times when prices should typically be at their highest. In fact, HospitalityNet cites a study by HVS that found that hotels lose approximately $450 million per year in direct revenue to vacation rentals. On top of that, there’s also significant revenue loss from hotel bars and restaurants, room service, spas, business centers and other hotel interior services.

Moreover, hotel brands can experience a loss of loyalty as customers make the switch to vacation rentals. This results in even more losses on purchases through loyalty programs.

Regulatory Complications May Slow Vacation Rentals Down

However, many vacation rentals are the property of individuals who own multiple listings but live in none of them. This essentially allows them to operate on a large scale, using their properties as commercial short-term rentals while avoiding complications such as taxes and zoning laws.

For this reason, an increasing number of municipalities are seeking to regulate them. For example, according to Investopedia, New York, San Francisco and Santa Monica have all imposed or are in the process of imposing stricter regulations. These include caps on the number of days that property owners may rent out their homes. Santa Monica even requires a homeowner to apply for a business license and to live on the property during the traveler’s stay. In addition, a 14 percent occupancy tax is payable to the city.

In the long run, as more municipalities follow suit, regulations and taxes are likely to raise the bar for new homeowners looking to enter the vacation rental market and make it more difficult for large-scale operators to abuse the system. It’s possible that these developments could once again level the playing field for the hospitality industry.

The Value of a Good Hotel for the Discerning Traveler

Ultimately, vacation rentals may be attractive to a specific share of the market — travelers who are budget conscious, who are looking for a homelier feel, who want a more authentic experience or all the above. Yet for many discerning travelers, private accommodation simply cannot compete with the convenience, luxury and service that a good hotel provides thanks to not only its highly-trained staff and outstanding amenities, but also its functional yet pleasing design.

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