Likely IPO has Airbnb shy to pick a fight

(Amsterdam in the summer)

Airbnb, whose homesharing platform boasts more than 500,000 hosts globally, continues to defend itself against a salvo of city regulation and reprimand. And, for its part, has been cooperative, with cities such as New York and San Francisco—though the latter's mayor is now giving Airbnb a reprieve.

In Europe, Airbnb announced that it would limit the number of nights hosts can rent out rooms in London and Amsterdam.

It is thought that the strategy could be repeated in jurisdictions around the world, bringing to an end the company’s ongoing travails ahead of a potential IPO and giving clarity to the hotel operators that seek to compete with it.

This is what the move means in the two well-traveled European cities: Starting in January, hosts will be prevented from renting out their homes for more than 90 days and for 60 in Amsterdam. The new restrictions do not apply to rooms within homes. “This is a way of saying, you can trust people to paint within the lines, because we’re going to help with that,” said Patrick Robinson, Airbnb’s head of public policy in Europe, the Middle East, and Africa.

The Issue at Hand

The move comes in response to concerns over affordable housing supply in a number of cities around the globe. It was backed by a study using data from Airbnb, from think tank IPPR, which reported that, although London’s housing shortage was predominantly the result of failure to build enough homes to keep pace with growing demand “the rise of homesharing also presents a concern: If landlords are removing homes from the private rented sector in order to offer them for short-term let, and are doing so in sufficient numbers, homesharing could be exacerbating London’s housing shortage”.

Despite this, it concluded that in some high-pressure markets, such as Camden and Islington, there was potential for homesharing to worsen the situation and that it did not believe that policymakers should be complacent, with the main issue being “the enforcement of existing rules, not the creation of new ones.”

Neil Baylis, of international law firm K&L Gates, told us: “This is a difficult one to read. It is a compromise between fending off the risk of legislation being put in place to formally restrict their business and taking steps that do not materially harm revenues. If it satisfies politicians that it will address the concerns about Airbnb’s effect on the rental market capacity in these cities, then it will be a smart move. As others have noted, the timing prior to the proposed IPO is hardly a coincidence.”

The issue for legislators has been focused around the impact on the property market in crowded cities, but, for the sector, the fear is the growing usage of the sharing platform by potential hotel guests.

A paper published by Morgan Stanley last month described Airbnb as “a threat," adding: “Airbnb will gain most of its market share at the expense of traditional hotels. Further, since Airbnb is mainly used by college students and millennials, Airbnb's future impact could be materially larger as these users may stay with the sharing economy and therefore not book traditional hotel rooms as frequently as their current user base.”

The study said that it had previously under-appreciated the risk of Airbnb on both hotels' occupancy and pricing power. Its data show that around 50 percent of Airbnb users had shifted demand from traditional hotel stays and Airbnb usage was growing faster than it had thought, supporting weaker-than-expected RevPAR growth, which should continue into 2017 “and beyond."

In a more hopeful tone, Morgan Stanley said that there was growing optimism that positive macro drivers would "re-accelerate RevPAR growth for hotels, irrespective of Airbnb.”

James Bland, director of UK consultancy BDRC Continental, told us: “Publicly, of course, the big brand house leaders are still reluctant to acknowledge the threat to their business that Airbnb and the ilk represents, preferring instead to paint them as ‘lodging’ companies, rather than ‘hospitality’ providers. Strictly speaking, they may be right, but since when have customers spoken strictly? They just vote with their feet.

“Aware that government is not going to intervene from an unfair competition standpoint (London just didn’t care, while Amsterdam probably enjoys the tax revenue Airbnb collects on its behalf, too much), another line of attack was needed pronto. An alleged inflationary impact on housing stock became the weapon of choice, and it had the potential to be a pretty powerful weapon; emotive, broad in appeal and with the added benefit of being highly credible; echoed by voices outside of bruised competitors. It also is probably true, which can be helpful in any sort of campaign (if, alas, no longer essential in a “post-fact world”).

“Doubtless older and wiser from experiences in NYC, Airbnb seems to have decided it doesn’t really want to pick a fight with any more lawmakers and has made a very clever move introducing this policy, which probably will only impact on a minority of its owners. They’ve given themselves the flexibility to vary the length of term; shorter for those cities more likely to push back or more seriously afflicted by unaffordable housing, longer or non-existent where it’s less of an issue and the result is an instant defence; just add water! ‘Not us guv, we limit our landlords.  Best blame someone else for your housing crisis.' With this driven away through the covers for four, it’ll be interesting to see what the next delivery brings.”

With the focus now moving to other European cities, the news came as Colliers International, Hotelschool The Hague and AirDNA reported that, in 2015, Airbnb was responsible for 5 percent of all booked overnight stays in Madrid and 9 percent in Barcelona. It addition, its market share is expected to increase by around 12 percent in 2016.

Jeroen Oskam, head of research at Hotelschool The Hague, told us that, in Barcelona, although policies toward Airbnb were very restrictive, “Attempts to restrain Airbnb are not very productive. This is an arms race in which Airbnb offers concessions to cities, but as limited as possible.

“We haven’t seen many violations of the rules in Amsterdam, but that can mean a number of things—if a host reaches the limit of nights on Airbnb, then they can list it on a rival such as Wimdu. The restriction is across all platforms, but the authorities rely on Airbnb to give them the information. It is one thing to make the rule, the other is the enforcement.”

There has been hope amongst the operators that Airbnb will see supply start to falter, but Oskam said: “We see huge demand growth and supply is growing everywhere. Everybody is trying to get on board and make some money.”

Marieke Dessauvagie, hotels consultant at Colliers International, added: “The one thing which may limit supply is if Airbnb starts sharing personal data, which may scare some people off, if they think they make have to start paying tax.”

Rumours continue to swirl that Airbnb is prepping for an IPO next year, with CEO & Co-founder Brian Chesky confirming to Wired that the company was preparing to be IPO-ready “as soon as possible,” but not “in the near-term.”

In the week prior to the announcement, the company launched Trips, a product which, in the short term, offers guests a range of local experiences when booking their stays, but with the ambition of adding restaurant bookings, flights and additional services, such as grocery ordering.

Airbnb has plans to own the consumer throughout their stay, lucrative plans of the sort to quicken investors’ pulses.

Katherine Doggrell is an editor at Hotel Analyst, the UK-based news analysis service for hotel investors.