As the debate rages on about Airbnb’s impact on New York City’s hotel business, the larger question continues to loom as to how Airbnb is affecting the hotel industry as a whole and what future ramifications it will have on the hospitality sector.
But while the industry as a whole searches for answers, the extended-stay sector –that which is most likely to feel the competitive heat from Airbnb—carries on enjoying steady growth rates in terms of both supply and demand, according to an STR “Extended Stay” report from March 2015, which found that from 2009 on, demand increases began outpacing that of supply for the upper-scale extended stay segment and by the end of 2014, the demand growth rate was 7.2% while the supply growth rate was 5%. Likewise, this segment has also enjoyed consistent growth in occupancy, ADR and RevPAR for three consecutives years, reaching their highest points to date in 2014, with occupancy of 78.2% ( 2.1%), ADR of $130.87 ( 5%) and RevPAR of $102.31 ( 7.2%).
It doesn’t appear that 2015 will prove anomalous to the segment’s progressive steady growth as Hilton’s Homewood Suites and Home2 Suites opened a collective 42 hotels in the first three quarters of 2015, for a combined pipeline of 387 hotels while Marriott debuted its 700th Residence Inn, the largest in the portfolio, in Chicago.
But Airbnb –whose executives declined comment for this article—is also well poised to give the extended stay market a run for its money. According to a report on “The Effect (If Any) of Airbnb on Hotel Companies,” published by Chilton Capital Management’s REIT team in October on Nasdaq.com, Airbnb has more than 1.5 million listings worldwide –a quarter of which are in the U.S.—and approximately two-thirds of the total listings are for the entire home.
That translates into a lot of apartment-style accommodations that could potentially meet some of the demand that extended stay supply has yet to appropriate, especially after Airbnb announced a major expansion of its business travel program in July. But industry experts don’t quite see Airbnb posing a significant threat to this hotel category.
“Extended stay hotels are disproportionately concentrated in the U.S. with little presence internationally and so Airbnb has a greater global reach than the extended stay segment,” says Mark Skinner, partner at Atlanta-based hospitality investment advisory firm The Highland Group.
Yet, that isn’t the only geographic instance in which Airbnb has an edge over the extended stay market. By sheer attenuation, Airbnb outperforms the extended stay category in U.S. markets that can support little to no transient lodging facilities. “Airbnb does well where there is limited alternative supply,” says Diane Mayer, Marriott’s vice president global brand manager for Residence Inn. She cites local beach communities that are rich in residential real estate, but with finite commercial zoning suitable for hotel development as one market where Airbnb will surely trump the transient hotel competition.
But in the markets where Airbnb and extended stay brands do coexist, there remain a number of marked differences that keep them from posing a credible threat to each other. For one, the aforementioned Chilton REIT team’s report finds that Airbnb’s average length of stay for business travelers is 6.8 days whereas Larry Korman, president of luxury extended stay brand AKA says his company’s sweet spot varies from two weeks up to three months. Additionally, AKA’s portfolio of just 10 high-end properties –five of which are in Manhattan—enjoy strong film industry partnerships, including one with Tribeca Film Festival, which houses cast, directors and producers at AKA properties for anywhere from a month to three months. “They’ll often have special tech needs that, because we’re small enough, we can customize for,” says Korman.
Along with the ability to cater to individual guest requests, it also goes without saying that the extended stay segment is selling a consistent product, complete with guaranteed services that often include breakfast and a business center and those are features that business travelers staying at Airbnb properties are going to miss out on.
So as the Residence Inn brand is celebrating its 40th anniversary this year, the product has evolved to target Millennial business travelers with a new suite and lobby design and, announced earlier this year, a new evening social hour called “The Mix” that includes a partnership with Anheuser Busch, showcasing a more upscale beer selection. “You need to be a little more adventurous and have a somewhat different psychographic profile for Airbnb to appeal,” suggests Ted Mandigo, owner of hospitality consulting firm TR Mandigo & Company, based in Chicago.
Mandigo also points out another key difference that separates Airbnb from the extended stay market: availability. “Transient lodging is consistently going to be available, but even if I’ve found an Airbnb unit that I’ve stayed in before, the availability is going to depend on the host,” he notes.
So while consumer media like USA Today and Conde Nast Traveler are reporting on the trendier designs that extended stays now boast as a means of competing with Airbnb, the extended stay segment can never compete with what Scott Shatford, CEO of Santa Monica-based Airbnb data analysis company AirDNA.co refers to as “real estate porn.” “People love browsing other people’s homes and something that the extended stay companies can never replicate,” he says.