You'd think a shrinking supply of short-term rentals would be a big boost to hotels. But it's not at all clear how it will play out, and some will benefit more than others.
New York City’s short-term rental regulations could slash up to 70% of Airbnb’s 23,000 active listings in the city after September 5. Experts are divided on how the move might affect hotels, and their forecasts are foggy. Yet the analyses reveal interesting details about this critical lodging market regardless.
- If supply of the city’s short-term rentals truly gets throttled, hotels would gain pricing power on peak demand days, such as during September’s U.S. Tennis Open in Queens, October’s Comic Con gathering, and November’s city-wide marathon.
- Already, New York City hotel searches over the Christmas holiday (December 15 – January 2) are up 11% year over year, with hotel prices up about 5% on average, on price-comparison site Kayak.
- However, some analysts don’t expect any meaningful effect, believing this is too small of an inventory change in too big of a market and that enforcement will be difficult.
- If there is an effect, some hotels might benefit more than others. For example, a potential winner would be hotels that cater to leisure travelers, especially families, groups, and youth travel for student or sports events. These properties have customer bases that overlap most closely with Airbnb’s.
- The new rules forbid all reservation sites and apps from processing payments for unregistered short-term rental listings, not just Airbnb. But Airbnb has the most share in New York City and has received the most criticism for not policing its listings.
Why Some Hotels May Gain
Some analysts think hotels have reason to be optimistic.
“At the end of the day, if Airbnb supply actually comes down, it’ll be positive for many hotels,” said C. Patrick Scholes, who oversees equity research at Truist Securities for the lodging sector.
“Where Airbnb hurts hotels in cities the most is on so-called ‘compression nights,’ which is the professional way of saying high-demand nights, like New Year’s Eve or when Taylor Swift is in town,” Scholes said. “Those are the nights where hotels make their money.”
For example, a property that ordinarily charged $300 a night might have charged $1,200 on a super-demand night before Airbnb came along. But now Airbnb offers cheaper rooms, siphoning off demand. So the hotel can only charge, say, $800.
Some other analysts agree.
“In my view, Airbnb growth has had a far bigger impact on hotel pricing than demand,” said Richard Clarke, managing director at Bernstein Research. “In the years up to 2019, hotel occupancy increased every year, but pricing was impacted. This can be explained largely by the impact of Airbnb on compression nights, which dropped even as average demand increased.”
“I would, therefore, expect that hotels will refind much of that pricing power on the big event dates, and prices will skyrocket,” Clarke said.
A Case for Skepticism
But not everyone agrees. CBRE, which provides valuation and advisory services to hotels, has studied the market in New York City as closely as anyone, and it doesn’t expect an impact.
“New York is a very large market, and a slight decrease in Airbnb supply is not likely to be impactful,” said Edward Eschmann, director at the New York office of CBRE. “I do not expect any significant change in data, and we are not modeling any difference in our forecasts because of this ruling.”
Historically, it’s hard to detect a pattern in Airbnb’s impact on New York City, and other factors may be at play.
“Even as it was reported to increase room rental inventory in New York City by 9%, statistically, hotel statistics continued to remain quite strong through 2018 and 2019,” said Eschmann. “While the market flattened a bit then, that appeared to be a function of a significant increase of traditional supply of mid-market development in the second half of the decade after the great financial crisis, rather than an Airbnb effect.”
In addition, hosts may find other ways to list their properties.
“Enforcement will be a challenge for the city,” said Makarand Mody, associate professor of hospitality marketing and director of research at Boston University School of Hospitality Administration. “Though Airbnb does say it will turn off calendars for ineligible properties, I wonder if they actually will — and to what extent. Also, in general, in a market like New York, I anticipate hosts — particularly professional ones — will find workarounds and inventory will come back to ‘normal’ in the near future.”
What the Data Says So Far
For the classic “compression dates” of Christmas, New York City hotels are seeing average daily rates up 31% compared to the same period in 2019. Total hotel occupancy for the week beginning December 24 is on pace with 2019 bookings and higher than 2022. That’s according to Amadeus Demand360, which provides hoteliers with on-the-books data from over 35,000 data providers.
How about in early September?
“Although it is possibly still early to measure the impact of the new regulations imposed on Airbnb in New York City, the data shows how there is a turning point in the week of September 4 in which average hotel prices clearly rebound compared to the same dates last year,” said Carlos Cendra, marketing director at Mabrian, which analyzes data to anticipate tourism trends.
“This change in trend is seen in all hotel categories, but the rise in 3-star hotels stands out, with a cumulative 37% in the first two weeks of September,” Cendra said, citing a sample of average hotel prices for 670 hotels listing on Expedia, Booking.com, and Tripadvisor. “Possibly, this category of hotel is the one that can benefit the most from an increase in demand if the reduction in supply through Airbnb is confirmed.”
Which Types of Hotels Might Benefit?
It’s unclear which hotels may gain the most from an Airbnb slowdown.
“There is little to no research that has specifically examined the interaction between traveler type (business versus leisure) and inventory type (X-star hotel properties) in terms of how Airbnb impacts hotels,” said Mody.
But educated guesses can be made.
Nicer hotels that focus on corporate travelers would likely be the least affected. All things being equal, Mody said, business travelers tend to prefer hotels over alternative accommodations for a few reasons: Road warriors perceive hotels to be more reliable. They tend to be less price-conscious than leisure travelers. And they like earning points in hotel loyalty programs.
That leaves hotels focusing on leisure travel clients as potentially facing the most benefit from an Airbnb implosion.
Scholes noted that New York City stands out for having so many neighborhoods that are lively at all hours of the day, while many other U.S. cities have districts that are quiet on nights and weekends.
“That means New York City has more potentially available short-term rental supply and demand,” Scholes said.
One X factor is that it’s unclear if the city will enforce its rules in a meaningful way.
“When I look [at Airbnb listings in New York City] in the coming months, I still see plenty of choices,” Clarke said. “So perhaps hosts and property managers feel that only gross overreach will be enforced.”
Guests may also look to parts of New Jersey, Connecticut, and New York state outside of the city but within commuting as alternative places to stay.
“Anecdotally, I also expect we’ll get some very strong Airbnb performance in neighboring states to New York City,” Clarke said.
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Photo credit: An Airbnb host in New York City. Source: Airbnb.