The future of letting is up in the Air(bnb)
The property sector has watched Airbnb with intrigue for quite some time – Leigh Gallagher, Assistant Managing Editor at Fortune magazine, was quoted stating that Airbnb has the “cocktail party factor”, in that, whenever the company is mentioned, everyone has an opinion.
The company crashed onto the scene in 2007 with one of the most powerful social, business and cultural disruptions the property market has seen, maybe ever. Since then, the founders have gone from renting their own mattress out to cover their rent, to owning a company which lists more than 3 million lodgings in nearly 200 countries, worth $31 billion.
But for me what is most interesting is the company’s latest move into the branded apartment sector – the organisation’s first attempt to specifically create Airbnb-branded accommodation, in an effort to broaden its revenue streams.
Airbnb’s relationship with owners of apartment complexes has been a difficult one. To address the frequent tensions between building owners, residents and Airbnb hosts, the company launched a revenue-sharing scheme two years ago, which allows apartment buildings to collect part of the revenue from Airbnb rentals – the initiative can be seen as a way of ‘making nice’ with landlords. But it also comes at a time when real estate developers across the world are changing their approach, and their offerings, to adapt to the rise of the “sharing economy”.
The new Airbnb branded apartments won’t be owned by the company, but they will carry its brand – renters will have the opportunity to let through the site for up to 180 days a year. The premise behind the development is that young businessmen and women who travel a lot, or who find themselves based in one place for only part of the year, can benefit from being able to let their properties when they’re not in town. The deal with Airbnb will allow these individuals the freedom to move as they would if they were renting in each city they lived in, but still have a place to return to, and all without losing money on renting an apartment full time that they are often not living in.
The Airbnb brand will effectively be franchised to buildings which are owned and operated by other parties, with Airbnb providing the booking platform and marketing clout. If the initiative is successfully rolled out, it will be interesting to see whether building owners – and indeed investors and lenders – will begin to welcome having Airbnb’s name above their door rather than shying away from it.
Airbnb will not play a role in providing hospitality services and nor will it charge Newgard (the developer working on the project) for the use of its brand – which says a lot about how considerably the company anticipates the project succeeding. However, it would be surprising if this did not come in the future with Airbnb becoming an operator to be reckoned with.
“People resent renting because our economic system is stacked on the side of homeownership and renting is seen as a second-class option…”
I recently wrote an article that looks at Generation Z and Millennials and how the industry must start thinking creatively about catering to the needs of these demographics. The move into branded apartments shows that Airbnb is thinking ahead, not only delivering on customer wants and needs now (they have introduced more services like “experiences”) but also looking further down the line and using their agile “tech start-up” mentality to be nimble and keep creating and delivering their customers’ desires.
At a recent panel discussion I participated in, Matt Hutchinson, Communications Director for SpareRoom, discussed the outlook for renting and the stigma attached: “People resent renting because our economic system is stacked on the side of homeownership and renting is seen as a second-class option. However, people also expect to rent. It isn’t actually a bad option, it is just a bad option in the current environment. The shift in customer demand is providing developers with an opportunity for innovation – this could be Gen Z, Millennials, movers, downsizers – if we are to succeed in catering for the needs of renters, we need to truly understand how the space is going to be used and bring that forward in the development process.”
Airbnb is doing just that in this recent move into branded apartments. The company has reviewed and understood the target demographic and is prepared to alter its offering to suit. It will be interesting to see whether the rest of the industry is prepared to be as malleable as its future tenants.