The Sharing Economy Checks-In

The sharing economy has become a prominent though not well understood phenomenon over the past several years.

Airbnb is the market leader as it relates to the temporary accommodations industry. The company’s presence in key markets throughout the U.S. is growing at a rapid pace, with users spending $2.4 billion on lodging in the U.S. over the past year.

Over our study period of October 2014 – September 2015, more than 55 percent of the $2.4 billion generated was captured in only five U.S. cities (New York, Los Angeles, San Francisco, Miami and Boston), represents a significant portion of the lodging revenues in these markets.

Airbnb Revenue Chart

With this in mind, we then compiled information for hundreds of U.S. markets to assess the relevancy of this sharing platform to the traditional hotel industry. From this data, we developed the ‘Airbnb Competition Index’. This measure incorporates a comparison of Airbnb’s Average Daily Room rates (ADR) to traditional hotel ADR’s; the scale of the active Airbnb inventory in a market to the supply of traditional hotels, and the overall growth of active Airbnb supply in that market, into a measure of potential competition.

New York was identified as the number one domestic market at risk from the growth of Airbnb, with an ‘Airbnb Competition Index’ of 81.4, followed by San Francisco, Miami, Oakland and Oahu.

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Going forward, it seems reasonable that Airbnb will impact the hotel industry in two ways. For existing hotels, the growth of average daily rates will most likely be curtailed. The fluid nature of Airbnb’s supply suggests that traditional hotel’s historic price premiums realized during peak demand periods will be mitigated.

The other impact may be on new hotel construction. Airbnb may be an impediment to traditional hotel construction and could reduce traditional hotel supply growth in many markets.

By Jamie Lane, Senior Economist, CBRE Hotels.

Reports detailing the estimated performance of Airbnb facilities covering 59 U.S. cities, encompassing 229 submarkets, can be found here.

To download the full CBRE report click here.