How Much of an Impact Airbnb Has on Hotel REITs

chart01The San Francisco Board of Supervisors, who are responsible for the city’s policies, recently approved a legislation requiring short-term renters (who advertise their properties on sites like Airbnb) be a primary resident registered with the city. If the renter isn’t registered with the city, they could face large daily fines. In addition, renters are only allowed to register one property. While the registration requirement may be viewed as a minor nuisance, it has helped propel the share prices of several hotel REITs over the last week.

Following the news, the Dow Jones U.S. Hotel & Lodging REITs Index went up by 6% this month. Some shares, such as DiamondRock Hospitality Company, Host Hotels & Resorts, Inc., and Ashford Prime, increased by more than 6% last week.

This shows just how much of an impact Airbnb and similar websites have on hotels, at least in some major cities. According to the site ‘Inside Airbnb’, which shows the impact of Airbnb on neighborhoods, there are more than 8,000 listings in San Francisco. On the other hand, there are over 33,000 hotel rooms for rent in the city.

In fact, Airbnb isn’t the only website where you can find places to rent. A quick search in San Francisco turned up 2,500 available listings on HomeAway and 1,300 on FlipKey, among others. It isn’t unusual to find property managers listing their properties on several rental sites.

While the legislation only affects San Francisco, there is a good chance other major cities may follow suit. Currently, Airbnb has 37,000 listings in NYC, 21,000 in Los Angeles, 6,000 in Chicago, and 2,500 in Boston.

Although it is undeniable that short-term rental websites have influenced the hotel industry, the business of renting out homes and rooms dates back to the beginning of time. The legislation may lead to some reduction in room supply, but it won’t change the fundamentals altogether. GDP growth and discrepancy between supply and demand will continue to be the main drivers in this industry.

Source: Dow Jones U.S. Hotel & Lodging (^DJUSHL), http://www.sanfrancisco.travel/san-francisco-visitor-industry-statistics, http://insideairbnb.com/, DiamondRock Hospitality Company (NYSE:DRH), Host Hotels & Resorts, Inc. (NYSE:HST), Ashford Hospitality Prime, Inc. (NYSE:AHP)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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