Airbnb Still A Plus For Austin's SXSW, For Now

During the clamor of one of the busiest lodging weeks of the year, CBRE Hotels Director Jeff Binford suggested hotels owe a debt of gratitude to short-term rental options such as Homeaway and Airbnb.

SXSW is a mammoth $325M event for Austin, something akin to the Super Bowl in terms of economic impact. And that economic benefit is spread far and wide, from concert venues and local clubs to the guy who rents out his spare room.

Last year's SXSW Conference, with two-dozen tracks and 5,000 speakers, attracted more than 285,000 attendees, according to the festival organizers. The event hosted more than 2,000 music acts and 133 world-premiere movies, along with more than 1,000 parties at venues either in or near downtown.

The festival organizers estimate more than 50,000 hotel room nights were booked across 70 hotels in the city in 2017. Another 11,000 room nights were booked through Airbnb, Homeaway and other similar services.

The combination of Austin's major events — SXSW, Austin City Limits and F1 — have made this midsize city one of the Top 10 most active short-term rental markets in the country, right behind San Diego and Seattle.

Many listings, including Airbnb and others, can compete head-to-head with top-tier hotel brands in Austin, at a better price.

"In many circles in the hospitality industry, of course, Airbnb is considered a disruptor," Binford said. "I've talked with a lot of the hotel folks who were upset with them just for the mere fact that they are what they are, and they take away some business."

Hotels offer a lot of reasons for disliking short-term rentals, Binford said. The two products are not on the same playing field. Short-term rentals do not have to meet the kind of health and safety inspections required of hotels.

So why does Binford suggest the SXSW Festival — as well as Austin hotels — should be thankful to the short-term rental industry?

"I would argue today that many large-scale events either would not happen, or would not be as successful as they are, if not for the temporary accommodations provided by Airbnb," Binford said. "There's no way SXSW could be this large without them."

Kevin and Varsha Kapadia make their living off of SXSW, and events like it. The couple run Guest Spaces, a property management company and concierge service for high-end and close-in short-term rentals.

A Guest Spaces house is typically larger than most short-term rentals, a second home that the owner is willing to rent out for weekends, or even weeks at a time. The Kapadias and their contractors prepare and market the home and provide concierge service upon request.

March through June are busy, but SXSW generates top dollar for Guest Spaces and its clients. In the last year, Guest Spaces has doubled the number of properties it manages.

"I think this is still a very nascent market," said CEO Kevin Kapadia, who left his job as an asset manager of a student housing portfolio to start his business. "I feel like today, we're not directly taking away from the hotel market, but I think that's going to change. There's no way it won't if we're charging 50% of the cost of a downtown hotel property."

Kapadia wants to make his clients, and their clients, happy. So an add-on concierge service will deliver groceries and liquor, book wine tours and restaurant reservations, or even show up at the front door with a bike.

And every neighbor has Kapadia's cell phone number, in case a party gets out of hand. One call from a neighbor, and the guest is gone from the short-term rental unit.

"We're not looking to permit party houses," Kapadia said, responding to the frequent complaints about absentee landlords. "We're not ever going to be the cheapest guy in the market; we don't want to be."

It is a pretty good business for short-term rentals. The number of available listings in Austin has just about doubled, to 8,000, between October 2014 and January of this year, according to AirDNA, which tracks Airbnb rentals. Revenue per available room was $188 for an entire home on Airbnb, compared to $105 a night for a comparable hotel room. AirDNA reports this weekend's average rental rates are between $450 and $495 a night. Three-quarters of available rentals are booked.

But that does not hurt the Austin hotel industry, Binford said, based on the Airbnb trend line on events like SXSW in Austin and the women's march in Washington, D.C. Both showed spikes in rates and occupancy during large-scale events, but the Airbnb market contracted as soon as the event was over.

"So those folks that have an extra room may not be renting it 11 months out of the year," Binford said. "But when SXSW comes, they're going to be ready."

That does not particularly bother the Texas Hotel & Lodging Association. General Counsel Justin Briegel said the association has opposed owners who have developed entire commercial buildings as Airbnb-only, but the association is far less concerned with a homeowner trying to make some money on the side by renting out a bedroom during SXSW.

"It's certainly not our association's position or place to argue that people shouldn't be allowed to open up a new hotel option in a community just because the room rates are lower than what we would like right now," Briegel said. "We represent all lodging properties. I have short-term rentals in our membership."

What the trade association did want during the last legislative session was for short-term rentals to meet all the standards set out by the respective municipality, whatever those requirements were. Despite a proposed bill and some early discussion on the topic, nothing passed.

"Our hotels are adopting some of the same marketing and advertising that Airbnb did so successfully, to go out into the millennial markets," Briegel said. "We're seeing the hotel brands be pretty savvy about that, catching up in that regard."

What would turn the tide? When hotel occupancy drops enough to be a threat to financing — long-term occupancy is 67% — hotel owners are likely to push back against short-term rentals, according to Binford. 

But for now, despite adding thousands of rooms in the last four years, Austin has yet to catch up with the demand for hotel space, and both sectors of the market are looking healthy.

"We anticipate the Fairmont will do well. But will the market go down?" Binford said. "Of course it will go down, but it will also recover quickly."

The addition of hotel rooms and the increase in demand are fairly comparable trend lines, Binford said. Because those lines are moving in tandem, Airbnb can even complement the market and keep RevPAR in check.

"Supply is growing at 3.5% and demand is growing at 4.5%. You're going to have more demand in the supply chain to support more occupancy," Binford said. "When it goes back down, the market will be correcting itself."