Is the Sharing Economy Hurting CRE?

Rauch: “We need to innovate as quickly as Airbnb and Uber have innovated and maintain constant research and development to stay ahead of the curve.”

SAN DIEGO—From Airbnb to Uber , there’s a new competitive element in town, but that doesn’t mean the commercial real estate industry can’t learn from this newcomer’s strengths and still win the game, RAR Hospitality ‘s CEO Robert Rauch tells GlobesSt.com. In a recent company newsletter, Rauch said, “Airbnb has become a lightning rod for debate and could become one of those aforementioned factors that pushes hotel industry revenue and net income growth into negative territory.” We spoke exclusively with Rauch about the sharing economy, how it is affecting commercial real estate and how the industry can turn this seemingly negative influence into a positive. GlobeSt.com: How are the hotel industry and other sectors of the CRE industry being affected the sharing economy (e.g., Airbnb, Uber, Lyft)? Rauch: The combination of Airbnb, new hotel supply, an economic slowdown and potential global economic decline put the hotel industry in jeopardy during any major, publicly attended event. In San Diego specifically, Airbnb’s effects are most noticeable during city-wide events such as Comic-Con . They have impacted other real estate sectors like apartments, condos, townhomes and rental homes as well as cities that issue permits to the various CRE sectors. Uber and Lyft have negatively impacted taxis more than anyone but have had a beneficial impact on the hotel industry, especially in cities where service is allowed to and from the airport. Hotels that have traditionally had challenges with parking can now take advantage of these newfound synergies with ride-sharing companies to provide a better guest experience. GlobeSt.com: What can CRE do to stay relevant and compete with this economy? Rauch: One thing that can be done is to insist on leveling the playing field. There is no process to becoming an Airbnb host, and the organization encourages strangers to rent commercial real estate units daily. This impacts affordable housing in some cities, and at the minimum this encourages real estate owners to break the law and/or their own condo- or apartment-unit leases or by-laws. Airbnb impacts the housing industry by creating both a shortage of housing units and potentially an increase in rents from those units remaining in the normal apartment rental pool. GlobeSt.com: What can the hotel industry in particular take away from the strength of the sharing economy and use to strengthen itself? Rauch: The system set up by both Airbnb and Uber or Lyft is incredible in that the communication between host and guest or driver and rider is efficient, effective and fast. This is what we have been trying to do with advanced registration and check-in for decades. It is 2016 and we are just starting to test check-in via smart phone. We need to innovate as quickly as Airbnb and Uber have innovated and maintain constant research and development to stay ahead of the curve. Taking a cue from Uber, hotels should ensure their product remains current and fresh, so utilizing the expected record performance of this year to invest in your property will be crucial to ensuring success when the economy inevitably pulls back at the end of the current cycle. GlobeSt.com: What else should our readers know about the sharing economy and CRE?  Rauch: With a $25.5-billion valuation, Airbnb and other short-term rental companies are avoiding taxes and regulations. In addition, Airbnb is big business. According to a recent study by Penn State University , in New York City 72% of the rental units are illegal, and in San Francisco 18% of their revenues are derived from “superhosts” who have multiple units. To date, it appears the major cities with significant Airbnb impact are New York, Miami, Boston, DC, Chicago, Austin, Los Angeles and San Francisco. No matter how hard some people may fight it, Airbnb, Uber and the likes are here to stay. Hotels should innovate and provide quality alternatives with the same appeal to the maximum extent possible. Mobile/digital check-in, easily accessible and plentiful outlets in all areas and reliable and fast Wi-Fi are some of the amenities desired by those who utilize Airbnb and HomeAway . The hotel industry should not take its cues from the music and taxi industries that could not embrace change and continue to implode. More disruption is unavoidable and this is a crucial time for the industry to remain innovative.