Airbnb and the Hotel Industry sees Demand for Investment Properties Increase
Over 32 million visitors came to Thailand in 2016, a year-on-year growth of around 9%. Not surprisingly, this saw occupancy rates in hotels increase by 1.9% taking the average occupancy up to around 77.5% across all sectors. These impressive occupancy rates have naturally led to a 3% Y-o-Y increase in the average daily rate charged by hotels taking the ADR to over THB3,300. This has obviously opened the eyes of investors who now see the opportunity to purchase units in hotels and Airbnb properties as an opportunity to take a slice of the cake.
For those of you who are unaware, Airbnb is an online portal that gives property owners the opportunity to rent out their properties to tenants on both a short-term and a long-term basis. It has enjoyed tremendous success since its launch back in 2007 and is now a global concern with properties listed all around the world.
The appeal is obvious for both landlords and tenants as property owners can rent out their properties easier and renters get to enjoy a more “native” or “local” experience. Rates with Airbnb tend to cheaper than those charged in traditional hotels and the rooms tend to be comparable in size with many often being larger.
These moves have obviously raised eyebrows in the hospitality industry with some fears that Airbnb may “cannibalise” the professional hotel industry. On the face of it, both hotels and Airbnb offer the same product – rooms, bathrooms and a place to sleep but as you delve a little deeper it becomes obvious that they are in fact very different propositions offering different services and facilities that appeal to distinct groups.
Business travellers, tour operators and holiday makers looking for an “all-in” solution will always prefer to opt for a fully serviced hotel in a prime location where they know exactly what to expect due to the association with a well-known hotel brand. Airbnb cannot reach out to this market simply for the fact that every property will be unique and therefore standards may vary.
Of course, Airbnb has a place in the market appealing more to expats, families and those looking at longer stays. In these cases, tenants are looking more for home comforts and a place to relax where they have a little bit more freedom and independence. Another market that Airbnb would appeal to would be those looking at specialist holidays – an exclusive island, a private beachfront villa or something of that ilk, basically something that isn’t mainstream.
Some research carried out recently by PKF Hospitality Research noted that Airbnb is likely to grow within niche markets and did offer a legitimate alternative to hotels. However, the research noted that the chances of Airbnb capturing a sizeable proportion of the business travel and tour operator market remained slim. Indeed, the biggest threat to hotels seemed to be those operating in the budget market and not the branded hotels.
The main problem that Airbnb will encounter in Thailand is the resistance that they will face from the traditional hotels. The Thai Hotels Association (THA) has resorted to taking legal action against those renting out their properties on Airbnb and the Tourism Ministry has also made it clear that renting individual properties out to tourists is in fact illegal. All the law suits have been small in number, it is certainly intended to act as a warning.
This has proved to be little deterrent to many landlords but tenants are now starting to do more investigation into the units they are renting and standards and consistency are being questioned. High-end units and unique properties certainly have a big future both via Airbnb and through more traditional real estate agents and investors should investigate these avenues when they are looking to make large investments.
However, most investors, even those with larger budgets, should be looking deeper at the excellent opportunities offered within some of the major hotel chains. Rental guarantee concepts remove a great deal of risk whilst at the same time giving investors the opportunity to purchase units in 5-star hotels in prime locations. Thailand is a wonderful place to invest and the fantastic opportunities that present themselves only make the country an even more viable option.