Canadian Lodging Industry Overview - Hospitality & Gaming

A Cushman & Wakefield Valuation & Advisory Publication Alternative Accommodation Alternative accommodation providers like Airbnb and HomeAway increasingly compete with the hotel industry. Airbnb now operates in over 191 countries and recorded over 200 million guest arrivals since 2008. Arrivals in 2016 equaled those recorded in all previous years combined, perhaps illustrating just how rapidly this sector is growing. While accurate numerical impacts on hotel occupancy and ADR may be unclear and vary by market, Airbnb has recently begun advertising to business and extended-stay travelers. Interestingly, alternative accommodation providers are also increasingly competing with OTAs. In response to the competition from these alternative accommodation providers, some hotel chains have entered into or expanded into the home-sharing sector, such as Accor Hotels purchasing three companies under OneFineStay; Hyatt investing in Oasis Collections; and Wyndham acquiring Love Home Swap. Alternative accommodation providers are currently subject to few regulations, including those regarding insurance and health/safety. In an effort to control the sector, various steps are being initiated in an effort to level the playing field. The Hotel Association of Canada is advocating for an amendment of the Excise Tax Act to impose HST and income tax for alternative accommodation providers. Meanwhile, municipal governments are drawing up their own regulations; in Toronto, a report to council suggests both the platforms (Airbnb, VRBO etc.) and unit owners pay a registration fee and perhaps a booking fee, while also limiting the available rental units to those only within the primary residence. The City of Vancouver is considering a similar regulation but, as with other jurisdictions, is trying to sort out exactly what constitutes a primary residence. In the end, it appears as if these alternative accommodations will continue to compete in the hotel industry, although it seems likely that some degree of regulation will be imposed at the local level. Airbnb Airbnb continues to be a hot topic in the hotel industry, with antagonists suggesting that this alternative accommodation provider cuts deeply into the domain of hoteliers. There are clearly ‘issues’ associated with Airbnb, primarily a lack of regulation in such matters as licensing and insurance, but also the occasional consumer criticism regarding the product not matching the description, a lack of responsiveness from the host, or even units being rented out without the knowledge of the owner. It is likely that the frequency and extent of these issues will decline as

regulation and self-regulation impose controls for the common good. There is clearly an active interest by many travellers to seek alternatives to the traditional hotel stay – in much the same way as people choose Uber over traditional taxis. They are often considered to be less expensive and offer a more appealing product, in spite of some of the inherent risks. In order to better understand the extent of Airbnb and its appeal across Canada, Cushman & Wakefield commissioned reports from AirDNA, the company most commonly regarded as the authoritative source of data on the performance of Airbnb. As a backdrop to the information presented below, it is important to note that the Airbnb supply is very fluid, with units moving in and out of inventory as various circumstances dictate. As a simple illustration, a home owner may elect to list a room for rent with Airbnb for a week at a time through different times of the year – so the unit is in and out of the available inventory. Given this fluidity, it is common to see significant swings in listings from month-to-month; home owners and unit owners generally tend to make product available when the opportunity exists to maximize revenues. As shown below, the number of listed units available (units actively listed or booked) across Canada ranged from a low of 294,000 in February 2016 to 779,000 in December 2016. The data shows an upward curve in both listings and booked units, with a 123% increase in listings between year-to-date September 2016 and the same period in 2017, while booked units increased by 125% over the same period. In 2016, AirDNA reports almost 1.9 million room-nights of what is deemed ‘hotel comparable’ demand stayed at Airbnb locations across the country; however, for the first nine months of 2017, the volume had increased to 2.5 million room-nights, up almost 90% from the 1.3 million room-nights in the same period in 2016. It is unclear, at this time, how the future will shape up for these alternative accommodation providers. While there is a huge appetite from consumers, and the rate of growth has been extraordinary, this growth will likely temper as municipal governments and other agencies strive to impose controls over what product can be made available and when, combined with the much-needed imposition of regulations, including licensing and insurance requirements. The following graph illustrates the number of Airbnb unit nights available, by month, since October 2015, with comparison to the number of unit nights occupied and the resulting occupancy factor.

Airbnb Nights Availability & Occupied Trends

20% 30% 40% 50% 60% 70% 80%

100,000 300,000 500,000 700,000 900,000 1,100,000 1,300,000 1,500,000

Jul-17

Jul-16

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Jan-16

Jun-16

Oct-15

Mar-17

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Oct-16

Sep-17

Mar-16

Feb-17

Apr-16 Supply

Sep-16

Dec-15

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Dec-16

Nov-15

May-17

Aug-17

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Aug-16

Demand Occupancy

15

Source: AirDNA