If you can’t beat them, join them. Faced with increasing competition from holiday homes and short term rentals, hotels all over the world are beginning to expand operations with vacation rental offerings and opening their doors to short stay travelers with attractive incentive packages and deals.
The race begins
Indian hotel company Oyo has just joined several US companies in a bid to grow its holiday home rental segment. Oyo currently operates about 50 vacation homes in the U.S., and is now looking to expand by targeting a wider range of travelers. Last year, Marriott International decided to expand its home sharing segment to a full-fledged division by partnering with third party companies to offer homes with unique designs in scenic locations. Choice Hotels International, a leading global hotel chain, is currently offering a bonus of 13,000 Choice Privileges points for travelers who book a rental home or condo with Vacation Rentals by Choice Hotels.
Dubai pitches in
In Dubai, the holiday home market is catching up, with growth driven by the increasing number of tourists that visit the city every year. A report on Dubai Holiday Homes by Knight Frank states that Dubai’s holiday home market accounts for 2.0% of Dubai’s total households, the highest proportion of all other key global hub cities. ‘When comparing achievable rates between Dubai’s holiday homes and hotels we continue to witness the holiday home market outperform the hotel market by 64% year-to-date June 2018,’ the report states.
Interestingly, when the holiday home concept was initially launched, hotels in the region were skeptical about its success, but they quickly revised their opinion and began to acknowledge that platforms such as AirBnB managed to create a significant dent in their revenues. Cashing in on this trend,Gallery Suites Vacation Rentals LLC, a subsidiary of the UAE-based IBC Group, announced last August that it has joined hands with OYO Rooms for a deal valued at US $5 billion (AED 18 billion) to furnish & manage 10,000 premier holiday homes in Dubai. Together, the partnership will manage a portfolio of 10,000 elite properties in Dubai, as premier and uniquely furnished holiday homes.
Need for caution
However, research shows that not all hotels need to panic and hurriedly venture into the holiday home segment.Hotel News Middle East mentions a study by Zervas, Proserpio and Byers of Boston University, which came to two critical conclusions. The first is that the impact of the holiday home market was much more severe for lower priced hotels, leisure-oriented hotels, hotels with fewer facilities and hotels without international operators in relation to the remaining stock. Then again, holiday homes restrict the ability of hotels to scale up prices during peak season, because hotel room supply is fixed and the incremental cost of developing supply is very high, while the holiday home market can scale appropriately to demand with negligible marginal costs for additional supply. However, as the Knight Frank Report states: “it is becoming increasingly more important for hotel owners to view the short term rental market as directly competitive to hotels rather than a business model that targets a different demand demographic.”
But then, hotels need to strike a better balance between holiday rental offerings and conventional rooms, as studies show. Short-term rental data provider AirDNA points out that between June 2018 and June 2019, active home listings in Dubai grew 69.5%, compared to a 7% growth in hotel rooms during the same period. Here again, “although Dubai is the 5th most expensive city in the world to book a vacation rental, its ADR (Average Daily Rate) has actually slipped 7.1% from last year, to $229. The decrease in rates is partially attributed to new hosts who are trying to attract guests and solicit initial ratings by launching their rentals at sub-market prices,” the report says.