The vacation rental business is currently worth $100bn but Airbnb is reportedly still not profitable, and the competition is growing. Sally White reports

Cities may be fighting to restrict it, but the Airbnb genie is out of the bottle! London and Amsterdam have just become the latest cities to push back on Airbnb growth ambitions. In New York a deal was struck a few days ago to curb hosts’ large-scale rentals that are in effect unofficial hotels. Canada and Japan are among the many other countries seeking to enforce limits (or impose taxes). Yet, with more and more peers emerging, will this really limit the squeeze on badly needed city housing ease the competitive pressure on hotels?

‘Airbnb’ is becoming a generic term, the list of companies in the vacation rental market growing all the time. Even in a tiny capital city as far away as Tbilisi in Georgia, Airbnb has over 30 competitors!

In every country a vast array of companies and brands are becoming active in this space - large, quality competitors with networks and websites listed in industry reports from Research & Markets include: 9Flats, Tripping, Windu, FlipKey, House Trip, OnlineVacationRentals, Rentalo, VBRO, House Trip, VayStays, VacayHero, Roomorama, Villas International, Villas.com, At Home Abroad, PerfectPlaces, OneFineStay, FlipKey and Couchsurfing.

And more and more travel groups are seeing the market as one to get into, ranging in size from Priceline to Choice Hotels. Across all research, however, Homeaway (bought last year by Expedia for $3.9 billion) usually comes up as Airbnb’s largest direct competitor.

…the global vacation rental industry is currently worth around $100 billion and it expects this to almost double in the next few years

Research & Markets says the global vacation rental industry is currently worth around $100 billion and it expects this to almost double in the next few years, reaching $170 billion in 2019. Currently, the US is the largest single market, taking around 25% of the total.

One reason companies, but especially Airbnb, have been able to expand so rapidly is their access to money. (Airbnb only started in 2008!) Airbnb is thought, according to Research & Markets, not actually to have made a profit as yet. Of course, Airbnb is a private company so does not have to disclose its figures. However, thinks Research & Markets, it is in the red, and gives a 2015 loss guesstimate of around $150 million.

Yet Airbnb has pulled in billions of investment dollars on the strength of its soaring bookings. Rumours persist that it will (always ‘any time now’) come to the US stock market, and currently a valuation north of $30 billion is suggested. That makes it bigger than the Marriott and Hilton hotel chains.  However, its gross booking numbers in 2015, according to the analysts, were still a long away behind those of the major OTAs - Expedia, Priceline and Ctrip.

Airbnb has been spending its money on building its systems, marketing, and, of course, fighting its case in the courts. It has spent little on its acquisitions, most small and some sounding a bit weird!

This year it bought Trip4Real, which offers tours and activities organised by locals, and ChangeCoin. The latter is an interesting minnow which specialises in online micropayments using the digital currency bitcoin - Airbnb wanted to know more about bitcoin! The former, thought to have cost under $10 million shows the new direction in which Airbnb is now (prudently) going to drive growth: providing activities. Last year it bought Vamo,a service that helps in the process of booking trips with stops in multiple cities. It promptly shut it down as it was the team it wanted.

HomeAway’s 2016 acquisition was Turnspace, which has been working on using phones to create 3D models of interior spaces.  In 2015, however, its purchase of Dwellable was for the group’s 300,000 rental sites.

Settling with the regulators in the London, Amsterdam and New York was uncharacteristic of the Airbnb we know. No one seems sure if this is because it is really imminently seeking a stock market listing, or whether it knows it cannot fight regulations in all of its 190 countries. Previously it resisted, saying it could not be responsible for policing all the different rules in the 34,000 cities where its services are used.

Runaway growth

However, the industry’s rapid growth is threatening its future. Cities could crack down on vacation letting much harder and could jack up taxes. London and Amsterdam have asked for limits of 90 and 60 nights a year on whole houses and Airbnb has agreed to enforce this. Showing that it is concerned that owners are using its services to break the law looks like a strategic step.   In San Francisco, where it has been under particularly heavy fire for breaking restrictions, it says: “It is likely there are many cases where (the necessary) planning permission for a change of use has not been obtained.

Of course, it is cutting its own inventory. In London, it admits in its own report, more than a fifth of Airbnb-rented homes (as opposed to rooms) were let for more than the legal limited of 90 days last year. London is one of Airbnb’s top revenue producers, according to The Wall Street Journal (along with New York and Paris.) It puts the number of London guests in the year to end-September at 1.5 million, and hosts at 35,000. A typical host in London had guests for 50 nights in 2015.

Right now the industry’s rapid growth, according to sales channel manager Leisurelink, is creating a ‘stampede’ into vacation rentals that includes the big names as well as many new small ones.  Certainly, Homeaway has stated that it believes the sector to be under-penetrated when it comes to families and groups.  While vacation rental adoption is high in Europe and North America, despite awareness of the concept, there is still plenty of scope for growth in other regions.  

Until this year, the market has been, as Markets & Research comments in its report, ‘largely unregulated’. As 2016 closes that is changing. At the moment Airbnb’s high media profile has made it seem the regulators’ prime target. However, the strength of the vociferous voter and hotel group lobbies are likely to ensure that wide peer-to-peer rental laws are drawn up in 2017.