Sometime in 2007, two young men had just moved from New York to San Fransisco and were having trouble paying their rent. During this time, they noticed that all the hotels in San Francisco were fully booked for the Industrial Design Conference.
AIRBNB – HOW IT ALL BEGAN
An idea forms. They decide to buy 3 air mattresses and rent them out for $80 a night. They advertised this service in a blog and three people make reservations. Encouraged by this response, Joe and Brian mull the idea of setting up a website where people can advertise unused space in their homes to accommodate guests. They roped in a former roommate, Nathan.
Together they built AirBedandBreakfast.com. The website, however, performs dismally. For months they were not even breaking RM800 per week. After some contemplating, they deduced perhaps the photos of the accommodation listed on AirBedandBreakfast. com were not good enough. Hence they flew down to New York, where most of the listings were located, and went from door to door offering to take attractive photographs of listings.
This proves to be the turning point.
Within a few weeks, their revenue doubled and it kept increasing. They obtained funding and AirBnB, as it is now known, grew exponentially. By 2010, AirBnB was a multi-billion ringgit company. Its value today is well over RM120 billion.
AirBnb is the world’s most valuable accommodation provider with 640,000 hosts spread over 57,000 cities in 191 countries. AirBnB has completed over 80 million bookings and today has 2.3 million listings.
This is a phenomenal achievement given the time frame. AirBnB is a game changer that is impacting the property, tourism, and hospitality markets. AIRBNB’S IMPACT
ON THE PROPERTY MARKET
It is increasingly difficult to find tenants today. In certain segments of the property market, high supply exacerbates the problem. In areas like KLCC, the occupancy for condominiums is in the region of 62%. This brings down rental rates even more:
Here is what is happening in the rental market:
AirBnB is cushioning the impact above and is providing some relief to many property investors. Given AirBnb’s outreach, the pool of potential tenants for a property on AirBnB is in the millions.
A listed property on AirBnB which is priced correctly would only need a 60% occupancy on average to cover its mortgage and other fixed costs. AirBnB also has the potential to absorb some of the oversupplies in the property market as it creates demand for property rentals.
The revenue potential from listing on AirBnB can be very profitable. In many cases, it is better than long term rentals. Property investors have the opportunity to ride against the downward trend in rental prices and create more value for their investment properties.
This in turn, makes their properties attractive investments. In the near future, many property investors will look at products offered by developers and ask, “Would this property be suitable as an AirBnB listing?”
Developers are going to respond by tailoring products that are conducive as vacation rentals.
AIRBNB’S IMPACT ON TOURISM
Malaysia is currently the 11th most visited country in the world. In South East Asia, Malaysia and Thailand are in a close fight for the #1 spot.
In 2015, Malaysia had 25.7 million tourist arrivals, this figure almost equals the Malaysian population. It equates to roughly 70,000 tourists coming in every day. If you look at the cumulative average growth rate (CAGR) for tourism between 2005 to 2015, it has been 6%. If this CAGR continues, we will be welcoming 35 million tourists by 2020. That is very close to the government’s target of 36 million tourists by 2020.
For a country that has such excellent tourism prospects, AirBnB is a boon to Malaysia.
AirBnB is providing travellers with the ability to experience better vacations at a lower cost. A family of 4 that would have required 2 hotel rooms in the past, can now stay in one AirBnb apartment, which comes with a kitchen and all the other facilities the average family would need.
Going beyond costs, studies have shown that 91% of travellers want to live like a local and 78% want to explore a particular neighbourhood. AirBnB is fulfilling this need.
Tourism revenue is positively influenced by AirBnB. The typical AirBnB guest stays 2.1 times longer than a hotel guest and spends 2.1 times more. Recently, AirBnB commissioned a study on its impact in Italy. The study conducted by Sociometrica found that AirBnB’s contribution to the Italian economy was 3.4 bilion Euros or 0.22% of GDP. It supported the equivalent of nearly 100,000 jobs.
AIRBNB’S IMPACT ON HOSPITALITY
In the past, if you wanted to visit another country, your choices for accommodation were typically a friend/ relative’s house or a hotel. These accommodations were pretty generic. AirBnB has brought in accommodation diversity like never before. Today, you can book accommodation on a boat, a tree house, a sea-shell house, or a caravan. The diversity in choice is literally unbound.
Cultural exchanges between AirBnb hosts and guests gets a whole new dimension. Holidays in impersonal accommodations have now become personalised. The typical AirBnB guest is greeted by his host, provided with many insights that are unique to locals, and is under the “patronage” of his host – a big advantage when you are in a foreign country.
Essentially, AirBnB is reshaping the hospitality industry by providing not only more cost effective accommodations but more personalised hospitality and richer experiences as well.
Regardless of the negative sentiment from some parties, AirBnB will not likely put hotels out of business. Hotels have their own niche but more importantly, AirBnB is creating new demand.
It is not cannibalising existing demand. This is very much like the airline industry. Budget airlines did not put the big carriers out of business. Instead, they created new demand and served areas that were not cost effective for the big carriers.