Airbnb – in one crisis the winner in the other the loser

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Part of this para hotel industry is the well-known best-performing startup Airbnb. The holiday home provider, which itself emerged from the financial crisis in 2008 as the new winner,

In the wake of the corona crisis and the lack of hotel bookings, the para hotel industry in the cities is also suffering. But does this slump perhaps also have a reverse, positive side?

Part of this para hotel industry is the well-known best-performing startup Airbnb. The holiday home provider, which itself emerged from the financial crisis in 2008 as the new winner, is now itself affected by the corona crisis. With a drop in turnover of almost 50% between mid-February and mid-March of this year (source: Spiegel), turnover in Germany fell from €31 million to €16 million. However, not only the turnover and thus the 20% commission that goes to Airbnb itself per booking, but also the number of apartments on offer fell by 10% in Germany’s capital Berlin within four weeks. While in February about 25,200 Airbnbs were still listed online, in March only 22,552 could be counted. (Source: Taz)

So far, the American start-up has been considered one of the most highly regarded in the world. The last Airbnb valuation was 35 million US dollars. The IPO was planned for 2020, but whether or not it will take place is not clear from today’s perspective. Figures from the Austrian city of Vienna show the steady, steep growth: while 4,961 offers were listed by Airbnb in Vienna in July 2015, the number had risen to 13,157 by January 2020. In February the number rose to 13,162 and in March by 62 more – a total of 13,224 listings (source: insideairbnb). In Vienna, too, the first negative effects will certainly be felt soon. Airbnb is also having to contend with massive cancellations due to the current situation and limited travel and even curfews. According to various statements by analysts and politicians, significant restrictions in the freedom of movement are expected over a period of at least three to six months; in some scenarios this could even be as long as twelve to eighteen months. As a result, leisure travelers, an essential part of Aribnbbs’ target group, will be canceled in the long term. Then there are the business travelers who are absent. It can, therefore, be assumed that the Airbnb market will initially fall into a kind of “spring slumber”.

As a result, Airbnb has so far decided to waive cancellation fees in full for guests who booked before 14.3.2020 for the period from 14.3.2020 to 14.4.2020, which has caused considerable discontent among landlords, whose income for this period is now completely eliminated.

The market for hosts is divided into private and commercial providers. Not every host is actually the owner of the property. Many Airbnbs are rented by the host from the actual owner and then sublet to guests through the agency service. If guests are absent, important revenues are lost. So the question arises here whether in such a case the obligation to service the loans or rents continues to exist for the main tenant if the rental income from Airbnb is lost. At this point, however, the so often criticised “grey area” becomes apparent: In such a case, where the payment of loans could be suspended, it is to be assumed that both the bank and the housing community and/or the tax office have been informed that the relevant apartment is being marketed by Airbnb. Do hosts who have played with their cards on the table have an advantage here?

But the mood at Airbnb is in any case not as positive as we are used to from the startup: Due to the company’s failure to pay cancellation fees, some of the landlords feel a “breach of trust”, so there is a possibility that in the future many Airbnb hosts will look for alternatives and will soon offer their property on several websites at the same time. This would lead to greater diversification across multiple providers and have a long-term negative impact on Airbnb’s revenues. If a host/tenant moves their property to the rental market, the home sharing provider (Airbnb and/or others) will obviously suffer, but the housing market in many cities will ease slightly. In 2019, Emperica published that in 2018 some 2,600 apartments in Berlin were to be classified as housing units that are really taking housing away from the capital. This corresponds to 1.5% of the future demand for new housing. A “withdrawal of residential space” occurs when short-term letting is more profitable than long-term letting. There is a small, but at least not insignificant proportion of dwellings that are classified as “misappropriated”.

In general, Airbnb hosts prefer short-term bookings, as these can generate much higher revenues. If this market dries up, long-term or residential rents could once again become an attractive and realistic option, as opposed to no rental at all. After all, long-term rentals offer a more reliable source of income and include fewer expenses, such as the cost of accessories like toilet paper and the service fee for Airbnb. Under these circumstances, there is therefore a high chance that hosts will bring their properties back into the housing market via long-term leases to avoid liquidity bottlenecks. It is clear that Airbnb’s corona crisis could show its good sides for the housing market, which would certainly be welcomed positively by many cities. The influx of supply on the housing market combined with the lack of demand (and limited opportunities) after a move will put some pressure on rents.

If necessary, this crisis can bring about more changes in the housing market than many a political regulation – such as the ban on misappropriation in Berlin. The taz reports that in Dublin the supply of housing listings has risen by 64% in the last month – in particular, there has been an increase in apartments with one or two rooms (source: taz). However, this positive-sounding phenomenon may only be short-lived.

The home-sharing host will in fact be keen to rent for a period of no more than six months at a time, so that he can return to short-term rentals when the market calms down. But is this a sensible model driven by sufficient demand? How can this variant work if the inventory of apartments is to remain in place but the long-term tenant does not want to take it over because he has his own facilities? At first glance, a complete return to the housing market seems questionable. However, if the financial pressure on the host becomes too great and the short-term tenants stay away for too long, there is a realistic chance that he will resort to alternative, long-term rentals on the housing market.

Could this possibly also have positive effects for the hotel market? If Airbnb offers decline, and hotels also offer better conditions with cancellation terms etc. for the guest, and rates are initially below normal levels, hotels could also benefit from a decline in Airbnb offers.

It is still unclear what impact the currently absent leisure and business guests will have on the market. Nevertheless, there is hope that the corona crisis will bring about positive changes or impulses, at least in part. We will have to continue to follow developments and see for ourselves which assumptions will prove true and who will possibly emerge as the winner from the current crisis.