Hotel Ownership in an Airbnb World | Riverdale Funding

Hotel Ownership in an Airbnb World

Aug 31, 2017

Research and ongoing education are of paramount importance within the commercial real estate market – you don’t need to be actively seeking commercial real estate funding to benefit from learning. Trends can change the outlook on an investment property or on the entire market of a metropolitan area, and success requires a diligence to understand how—and why—the market and current commercial mortgage rates change.

With this reality in mind, each quarter Riverdale Funding releases a comprehensive market analysis which dives into the raw numbers and sector outlooks, synthesizing the best research from experts in and out of the commercial real estate market.

This quarter’s analysis, the Riverdale Funding Q2 Market Roundup, explored the many facets of a central question: “Is Commercial Real Estate at Its Peak in 2017?” Seeking an answer to this question meant exploring the trends within each sector, including the recently underperforming hotel sector. Commercial real estate investors and brokers can review our hotel sector analysis below, then download the full market report on our Market Reports page.

The Threat of Airbnb

Unfortunately, the hotel sector’s biggest headlines in 2016 and 2017 haven’t been due to its success. Rather, negative investor outlook, sector competition about who controls which rooms, and corporate travel pressure have taken center stage. Add to that the popularity of a rapidly maturing San Francisco-based hospitality company, Airbnb, and it’s no surprise hotel owners within the commercial real estate sphere are concerned.

Airbnb has checked in. And they’re here to stay.

Airbnb serves as a marketplace rather than an actual hotel, connecting renters with private hosts for short-term lodging at vacation rentals, homestays, hostels, hostels, or apartments. A snapshot of their performance as of Q2 in 2017 proves their unique concept has found traction. Airbnb boasts 3,000,000+ lodgings in 191+ countries, with 160,000,000+ total guests.

Impressive, given Airbnb owns none of these properties and carries none of the property upkeep costs. However, hotel owners with costly overhead aren’t the only party with concerns. In 2016, the Federal Trade Commission also became interested in Airbnb’s impact on housing costs (and plenty has been written on the subject).

Does Airbnb really mark the beginning of the end for hotels? What are the risks or advantages of the hotel sector in 2017?

Risks of the Hotel Sector

There’s no question that Airbnb’s model brings some distinct threats to traditional hotel ownership, but what it really represents is a shift in consumer preference. Younger consumers prefer tailored accommodations, personalized interactions, and to have experiences more like locals and less like tourists.

Most major hotels aren’t very good at that, but the dangers of rental marketplace sites such as Airbnb to the lodging industry may be overinflated. Many compare the disruptive impact of Airbnb to the disruptive impacts ridesharing services such as Lyft or Uber on taxi companies. And yes, close to 1 in 5 leisure and business travelers used Airbnb at least once from November 2015 – November 2016; however, research also confirms that only about 1 in 3 Airbnb listings are comparable to traditional hotels. A rider choosing a Lyft over a taxi is still getting a comparable experience, but a rider choosing a Lyft over a bus is not – and neither is a traveler choosing to stay in a guest house over a Sheraton.

For most major hotel chains like Marriott and Hilton, corporate travel still makes up a significant portion of their business. They haven’t ignored the consumer shift, but perhaps have been slow to act when taking steps toward providing a new spin on their traditional offerings. For example, Marriott has transitioned its existing membership rewards program into an “experience marketplace” where travelers can use points for other destination experiences. The independent luxury chain, Loews Hotels, is now focusing on personalized service and the unique qualities of each individual location, rather than a homogenous luxury experience.

Advantages of the Hotel Sector

Airbnb and traditional hotels could coexist peacefully. As hotels scramble to meet changing consumer demands and as Airbnb settles into its more regulated role (in large part due to hotel lobbying), there are opportunities for both to learn and serve travelers better. Modern hotels need to create a richer experience for travelers, while Airbnb needs to create a more professional experience for theirs.

Hotel owners aren’t new to dips in the hotel sector, but it’s not a stretch to imagine a revitalization of certain hotel properties, especially should Airbnb choose to expand its current offering to include traditional lodging options and independent hotels.

Finding the path out of the hotel sector’s commercial real estate slump means keeping an eye on the properties, people, and companies who are taking steps to welcome new clients in new ways. The advantage will always fall with those who are willing to find it.

Read More in Our Q2 Market Report

While the hotel sector is changing rapidly, it’s just one of many of the types of commercial properties we’ve covered in the Riverdale Funding Q2 Market Roundup. To understand the CRE market cycle at large, we’ve broken down the major happenings within the industry in Q2-2017 and analyzed them from top to bottom. Now that you’ve had a peak at the coverage, take a minute and visit our CRE Market Reports page, download the full report, and enjoy!


This article is a part of our Getting a Commercial Loan: Complete Guide, a comprehensive resource for anyone looking to secure a commercial loan. Read more at the link.