Is Airbnb Affecting the L.A. Hotel Market?

LOS ANGELES—The Los Angeles hotel market is the latest sector to pop, with loads of hotels under development and reports of rising revPAR growth—but there is a looming competitor. At the Lodging Conference last month, developers and investors were buzzing about the Airbnb phenomena—or what some are calling the alternative hotels market—saying that is a major threat to hotel operators nationally. Back in Los Angeles, we sat down exclusively with Lauro Ferroni, the global head of hotels and hospitality research at JLL, to find out how Airbnb is competing in this market—which has yet to bring legal action against Airbnb like New York and San Francisco have. Ferroni says that while Airbnb is part of the conversation, it isn't having a major impact on the market—and he doesn't expect it to in the future. Here, we talk to him about how the company is competing with hotels in L.A., what is driving the shift and where he sees this dynamic in the future.

GlobeSt.com: How is Airbnb competing with hotels in Los Angeles?

Lauro Ferroni: This is a topic that a lot of investors are thinking about and asking questions about. More broadly, we look at this topic as the alternative accommodations market, because there are some other players in the space, even though Airbnb is the largest one. It is certainly a big topic at the moment. I think overall, it is very difficult to look at lodging markets like Los Angeles and really point to this type of activity having a significant impact. Los Angeles is still seeing very healthy revPAR growth levels for three quarters of this year, and the average daily rates are up 8% and revPAR is up 9%. Those are healthy growth rates that exceed the national average and exceed a lot of other large gateway cities. So, it is still a positive story in terms of how the lodging market is tracking. That said, of course it would be incorrect to suggest that there is not any impact at all on the performance of existing hotels, but the phenomena that we are seeing with the alternative accommodations market, and it is difficult to quantify, but we are seeing some induced demand with people taking trips and staying in these alternative accommodations that would have otherwise not taken that trip because the hotels were too expensive or because they had sold out.

GlobeSt.com: What is the primary motivation for staying in an alternative unit versus a hotel room? Is this a economic or cultural issue?

Ferroni: For both people renting their units out and for people staying in these alternative accommodations, the primary motivation seems to be to money, either to make some money or to spend less money than you would in a hotel. There is a lot of talk about people seeking out unique experiences in neighborhoods where you don't have as many traditional hotels, and while a lot of that is true, it really seems that the number one motivation is financial for the prevalence of this business model as a whole.

GlobeSt.com: What is the demographic difference between hotel and alternative accommodations users?

Ferroni: It still seems to be spanning a broad spectrum, because you can rent these units that do go for $1000 a night, but there are definitely some distinctive differences. The first and foremost is that there is a notably longer length of stay in alternative accomodations. The average length of stay is three to seven nights, where in a downtown urban market, the average length of stay is one-and-a-half to two nights. So, it is leaning very heavily toward leisure travelers, at least for now. It is hard to suggest and there really isn't any data that you can point out to suggest that there is a meaningful share of business travelers using the accommodations market. That is really where it differs. Finally, there is a larger number of guests who stay in these alternative accommodations units. It is usually two or more people, which again suggests a higher proportion of leisure travelers.

GlobeSt.com: Is this a part of the conversation among developers and investors?

Ferroni: When it comes to developers who are building new hotels, it isn't a point that comes up often. They are not concerned about the outlook for hotel performance because of the activity in the alternative accommodations market. It gets talked about a lot more in existing hotels that are already open and operational, and investors are looking to get feedback from their operators, who are running the day-to-day management strategy, to see the impact. But, if you really look at the market as a whole, there is really nothing that you can point to at this time that suggests that the L.A. MSA is seeing a slow down in growth or occupancy. It really seems that while the prevalence of the alternative accommodations market is growing, it is still not a tremendous piece of the pie. That is how we are framing it and what we see investors are saying about the topic.

GlobeSt.com: Airbnb is only a few years old. What about 10-15 years from now? How much do you see this market competing then?

Ferroni: It is certainly a competitor that is very nimble and that can scale up very quickly, of course, because they can tap into the existing infrastructure. From that stand point, we definitely see more runway for the alternative accommodations market to scale up some more, but what is interesting is that markets like New York, Los Angeles and San Francisco is where this market has grown the most. There is some research to suggest that the growth in the number of the people who are using or sharing their homes is already slowing. It is still growing but it isn't growing at the pace that it was one or two years ago. We believe that only a certain percentage of the population is going to be willing to make their living unit available to guests who they do not know, and that will result in a cap to further future growth of this business model.  That is kind of a structural cap, and we think that will hit more quickly in markets like Los Angeles.