How will the burgeoning vacation rental sector affect serviced apartments?

George Sell By George Sell
Uploaded 01 July 2014

Spearheaded by Airbnb, the vacation rental sector is posing a genuine threat to the hotel industry, and by extension serviced apartments.

It's tempting to dismiss the likes of Airbnb, Homeaway, Housetrip and their ilk as a novel way for millennials to have a holiday adventure, and confine them to the leisure travel sector. But this is a shortsighted and outdated view. As I wrote back in April, Airbnb is actually among the fastest growing accommodation options on expense reports submitted by business travellers who use the automated Concur system, which processes $50 billion worth of expense reports a year for 20,000 corporations. Concur executive vice president Mike Hilton says his customers' use of Airbnb has quadrupled every year since 2010 and is on track to hit $5 million per year. "That's still a very small share, but if you look at the trend line, it's not too many years away from getting into multiple percentage points. This is starting to become a meaningful alternative for business trips," he adds.

Airbnb founder Brian Chesky said of the extended stay sector: "Ten per cent of our business is long-term stays, and it's growing. I could easily see that being 15 to 20 per cent. Airbnb is even better than the competition on stays of 30 days. Try staying at a friend's house for 30 days and see how they feel. Try staying at a hotel for 30 days and see how you feel."

And Chip Conley, the former hotelier who is Airbnb's head of hospitality, says: "In some cases we're competitive with the hotel business. In some cases, we are creating new opportunities for people to stay, and stay longer. Our average length of stay is 5 to 5-1/2 days where in most markets the average length of stay is less than half that," he says.

So what can the hospitality industry do to react to the threat and minimise the risk from vacation rental?

Ed Watkins, editor-at-large of HotelNewsNow, recently wrote that some operators are adopting an 'if you can't beat them join them' stance: "Anecdotally, I hear of an increasing number of hotel operators-typically economy or budget properties, some independents, some chain-affiliated-putting parts of their inventory into the Airbnb system. Why not, especially if it is excess inventory and the pricing is competitive with other Airbnb hosts in your area but doesn't differ greatly from your prevailing pricing structure?"

If you look at this alternative on a pure commission cost basis it would seem a no-brainer - rather than the 20 per cent charged by many OTAs, Airbnb charges hosts three per cent of the total booking, although it charges guests a service fee that ranges from six to 12 per cent, and it's essential to build all relevant taxes in to your prices to avoid any nasty surprises down the road.

Furthermore it is clear that vacation rental site users are actively looking for serviced apartments, and hosts are filling that need. If you enter the term "serviced apartment Airbnb" in to Google, the first four results are Airbnb listings for serviced properties in Kuala Lumpur, Bristol, New Delhi and Singapore. These aren't units owned by industry operators, but small scale owner/investors who have seen a gap in the market and used relevant key words in their listings to address that gap. The same process for Home Away brings up properties in Sydney, London, Oxfordshire and Hong Kong, so it's not an isolated example.

However if you Google "serviced apartment vacation rental", the only operator who comes up on the first page is Cheval Residences, which is clearly using the term vacation rental heavily in the  SEO strategy for its property in Knightsbridge, London. Hats off to them for spotting the opportunity.

Of course, for the bigger global hospitality operators who have a serviced/extended stay offer, there is the option to set up your own vacation rental platform and put some of your serviced inventory there. Wyndham Worldwide - parent company of the Hawthorn Suites brand - is a major player in the vacation rental sector, owning more than 30 brands including Hoseasons, James Villa Holidays, ResortQuest and Kaiser Realty. It wouldn't be a major issue for Wyndham to add Hawthorn Suites inventory to some of its rental brands.

At the upper end of the market, Four Seasons Hotels and Resorts has just launched Four Seasons Vacation Rental. The service offers high-end homes, villas and condos in the Americas, Africa and Asia with the level of concierge services a guest would find in a traditional Four Seasons Hotel.

"We're seeing a steady increase in multi-generational and small group travel guests who want to get away with children, grandparents or groups of friends to celebrate holidays or mark special moments and these guests are looking at residential options," said Jose Soriano, vice president, worldwide residential operations, Four Seasons Hotels and Resorts. "Whether a pied-a-terre in the city or a holiday villa, our new website takes the guess work out of finding a Four Seasons vacation rental that offers the privacy, space and freedom of being at home with an ideal base from which to explore a new destination, relax or entertain all while having full access to Four Seasons signature service and amenities to deliver every comfort and luxury."

Interestingly, there is some convergence between the likes of Airbnb, which are expanding the types of accommodation they offer, and traditional OTAs such as booking.com which has ventured in to the vacation rental market with the launch of villas.com. Booking.com CEO Darren Huston recently said it is inevitable that Booking.com will eventually enter the private home rental sector and encroach on Airbnb territory.

And in any market where you find generalists, you will also find specialists. In India, former Google employee Ashish Agrawal has set up RoomLion, a web marketplace solely for serviced apartments.

Users can search for serviced apartments in a particular destination, browse details, and book online. However, it isn't an instant booking, the host has to either accept or reject the booking request - in much the same way as Airbnb works.

Agrawal says: "The short-term rentals and serviced apartment market in India has never looked so good before. With favourable government policies, increased mobility and the foray of international giants, the current market in India alone stands at over $600 million at 50,000 rooms. This number goes up by at least ten times when you account for South East Asia and the Middle East. The global number has enough zeros and digits to make us not think about the market size too hard."

"There is a huge market for short-term rentals. But the entire discovery and booking process is fraught with problems. Many people just give up and compromise by staying at hotels, or pick a suboptimal place that does not meet their preference or budget. RoomLion is the answer for anyone who is looking for a short-term accommodation and wants the closest possible experience of staying at home," he adds.

Agrawal is also confident that the mainstream serviced apartment sector and the likes of Airbnb will never be comfortable bedfellows. "Even in the US and Europe, which are AirBnB's strongest markets, serviced apartments do not want to list on AirBnB. RoomLion fills this huge void which often gets misunderstood and marginalised," he says.

Here in the UK, David Nicholson has launched Visit Rentals - which described itself as the world's first real-time online booking portal dedicated to aparthotels and serviced apartments. Nicholson says: "Serviced accommodation is a great alternative to the standard hotel and will fast become a preferred option. We identified a gap in the market and developed VisitRentals.com to bring convenience and transparency to the aparthotel sector. No one in the industry can currently offer what VisitRentals.com does - the vast property portfolio and the sheer number of room rates available are unmatched.

"From conception we aimed to dispel two myths: that serviced accommodation is costly and that booking is longwinded and difficult. VisitRentals.com offers the best rates in the business and excellent savings. The portal's real time availability means hassle free booking and instant confirmation so we feel confident that the next 12 months will see great things for the brand," he adds.

The fluidity and speed of change that the internet has brought to the travel and hospitality sectors is only going to become more intense. The convergence of the serviced apartment sector and the various online ways it is brought to market is well and truly under way, and the future is bound to hold some interesting and surprising new developments.

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