Airbnb seeks to shake up urban travel with a new offer

Short-term rental platform Airbnb (ABNB -0.16%) has made every effort to get more hosts to join the platform. And on Nov. 30, the company aimed to further reduce friction by partnering with select apartment buildings in more than 25 U.S. urban markets.

Here’s how Airbnb’s new program works and what it could mean for investors.

How Airbnb’s New Program Works

According to The Wall Street JournalAirbnb has partnered with 12 apartment owners, including a public company Residential Equity (EQR -1.04%), to list apartments on its platform. Anyone looking for an apartment to rent could just hop on Airbnb’s platform like any other property listing aggregator.

Why would someone search for an apartment on Airbnb? Well, many apartments don’t allow renters to share their space as a short-term rental — contractually, you’re not allowed to list the apartment you’re renting on Airbnb. However, if you know you’d like to be an Airbnb host, these apartments are already approved for short-term rentals.

Tenants who decide to be hosts will have varying limits on the number of nights they are allowed to share their apartments as short-term rentals. And owners will get a discount on the total booking value – 20% in most cases. While these are downsides, it might make sense for someone looking for an easy setup process and the chance to earn some extra income.

According to Airbnb’s official press release, it will soon expand its program to more cities and apartment buildings.

What could all of this mean?

This may seem like a small update for Airbnb, but I think there’s a wide range of potential implications for hosts, renters, landlords, and the business.

Consider that some Travel agencies have very similar business models to this new product from Airbnb, including probe (SOUND -7.69%). For its part, Sonder directly manages reservations and operates its properties. However, he does not own his lists. Instead, he signs leases with landlords, often seeking special upfront concessions to help him better manage his cash flow.

But it’s not just Sonder. According to short-term rental research firm AirDNA, there were 660,000 multi-family listings on Airbnb and Expedia Group‘s Vrbo, at the end of Q3 2022. Multi-family listings include apartments like what Equity Residential will be offering through Airbnb. In other words, it’s already a big thing.

The strategy is called rental arbitrage – renting a property for one price but earning more revenue as a short-term rental on Airbnb or another platform. However, many rental arbitrageurs approach it like Sonder – they are looking for rent concessions in order to increase cash flow up front. And landlords often agree to this to avoid having a vacant space.

Airbnb is always up to date its platform. And right now he is actively trying to increase his number of active hosts so that he can expand his business. In Q3 2022, the company saw a rebound in travel to cities with a 27% year-over-year increase in high-density city night bookings. Therefore, it must stimulate supply growth where demand is increasing. That’s why she is launching this apartment platform.

However, Airbnb runs the risk of upsetting existing hosts who engage in rental arbitrage. If landlords are already allowing Sonder and others to rent space and offer upfront concessions, it may make more sense for those landlords to join Airbnb’s new apartment platform. They would avoid giving free rent, and they would be income up to 20% of the value of the reservation when the spaces are reserved.

Therefore, Airbnb’s new apartment platform looks like a good value proposition for landlords. But for Airbnb, this could have a somewhat muted benefit in driving supply growth. Yes, it can make it easier to onboard new apartment hosts, but it could upset the applecart for existing rental arbitrageurs.

Airbnb’s new apartment platform also looks like a good value proposition for landlords. The platform is touted as a way for renters to earn a side income, potentially allowing them to save for a home. However, it looks more like a way to help tenants make ends meet in the face of historically high rental prices.

Bob Faith is the CEO of Greystar Real Estate Partners, and according to The Wall Street Journal, Faith said tenants might think her prices were too high. But letting tenants share their spaces as short-term rentals will help offset their rent and might make prices easier to accept.

In other words, Airbnb’s apartment platform may be better news for landlords than renters.

For now, I’d say this news doesn’t make the Airbnb stock more of a buy or more of a sell, as it’s still unclear what the exact outcome will be. If Airbnb’s supply and demand continues to grow in urban markets over the next few quarters, I would say that would signal that this is a good strategy for the company.

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