Merilee Karr, Chair of the UK Short Term Accommodation Association and CEO of UnderTheDoormat presents her thoughts on how the relationship hotel brands have with the short-term rentals sector is likely to change radically this year.
It’s hard to believe it was almost two years ago at IHIF in Berlin, sat on the CEO’s panel, that I predicted that in five years’ time (by 2023), it would be the norm for hotel groups and brands to have a ‘home’ brand in their portfolios via partnership or acquisition. At the time, it seemed a world away from the reality but, as we all know now, market demands and the industry’s structure have changed rapidly.
Since then, and even pre-COVID, Marriott launched its Homes and Villas proposition, AccorHotels acquired onefinestay and hotel groups began increasing their offering in the ‘residences’ space alongside their traditional hotel offerings. But it is COVID that has accelerated this trend, driven by emerging changes in customers’ behaviours.
Potentially one of the most lasting impacts COVID will have on our industry is that it has jolted a change in attitudes from consumers about their accommodation requirements. There has been a noticeable change in perceptions. ‘Homes’ are now seen as a much safer option than other types of accommodation. And this is going to have significant implications for investors in the hospitality sector and further afield.
The recent Airbnb IPO demonstrates that investors recognise and understand the changing landscape too. Airbnb is essentially the ‘go-to’ OTA for ‘homes’ and its successful IPO, in the midst of COVID, paints a clear picture of where investors see the market going and where future growth and value can be found.
At a moment where so much effort is focused on preserving capital and retrenching to ensure long term sustainability, this is one area where the companies who are strong, have cash and are in the market for the long term can make strategic plays to ensure they come out stronger for the recovery.
There are two key factors that will drive the hotel sector’s interest in incorporating a short term rentals offering into their portfolios.
- Consumers are looking for more ‘socially distant’ accommodation options. Travel will return in 2021 and, even if a full recovery takes longer, data from global hospitality benchmarking and analytics consultancy, STR, shows that in last Autumn’s bounceback, short-term rentals bookings recovered faster than those with hotels. Looking specifically at London, it found that in October the short-term rental sector reached its highest occupancy level - 62.4% - since February, which was noticeably higher than the 29.2% occupancy level for hotels.
There are of course other factors at play as short-term rental supply may also have decreased and prices might flex more, but it indicates a shift where traditionally hotel occupancy would be noticeably higher.
In the past, it’s fair to say that the management teams of many hotel groups and some consumers perceived that short-term rentals were of lower quality and less ‘safe’. With the growth of the luxury and professionally managed segments of this young market starting to mature and with industry cleaning protocols and accreditation in place, the short-term rental market has demonstrating that it can provide a credible alternative to consumers who traditionally opted for hotel brands. In fact, such has been the change of heart that many now perceive short-term rentals to be safer as they have their own space, independent of other guests.
- Hotel groups still want to grow and ensure their customers stay loyal. Marriott realised this with its Homes and Villas brand, as did AccorHotels which has now launched its Apartments and Villas website. But what about all the other hotel brands - particularly the more independent ones? Who will they partner with and what models will emerge in 2021? These are questions that I expect will be answered quickly because they will not want to miss out on a relatively easy step into a new sector that is likely to recover strongly and continue to grow at pace over the coming years.
2021 is promising to be an exciting, fast-moving year for any number of reasons. But when we look back on it this time next year, or the year after, it wouldn’t surprise me if we recognise it as the watershed period where shifting consumer demands resulted in a seismic shift in the structure of the hospitality and accommodation markets. We can expect to see the lines blurring between what traditional hotel brands offer and even where those businesses rooted in the short term rentals market move the other way towards an (apart)hotel proposition like we have done at UnderTheDoormat with the launch of 3 Sloane Gardens. We will also see further integration of offers on the OTAs with hotel rooms sold alongside apartment or homes products so consumers can compare and select their preferences.
I see three key ways this change will happen:
- Hotel groups will invest in, or acquire, short-term rental companies that align with their geographic footprints and brands
- Hotel groups and short-term rental companies will partner to share customers and integrate loyalty offers
- OTAs will increase their home offerings (one of the bright spots in their financial results) and display products side-by-side so that consumers can compare the products and select the most appealing based on trip requirements, mixing between hotels and homes more freely, making consolidation across the different asset types more likely
With surveys showing there is a huge pent-up demand for post-COVID holidays and travelling, the entire accommodation sector is in a position where it can recover with a hopefully much improved year. But the bigger prize is achieving a very buoyant next few years for those traditional players and innovative companies that can work together and adapt their business models quickly to the new demands of consumers who will be equally comfortable considering short-term rentals alongside more traditional accommodation types.