Is Airbnb stunting festival hotel growth in Edinburgh?

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Edinburgh Fringe has often driven success for the capital’s hotels. As an influx of visitors flock to see the festival’s performers and comedians in action, hotel occupancy and rates increase.

According to STR, a provider of premium data benchmarking, analytics and marketplace insights for global hospitality sectors, during the 2016 and 2017 Fringe festivals, Edinburgh hotels reported increases in revenue per available room (RevPAR), +8.0% and +11.1%, respectively, as both occupancy and average daily rate (ADR) grew. This was predominantly driven by year-over-year increases in hotel rates, with ADR rising 7.2% in 2016 and 9.2% in 2017 as it reached an average of GBP165.45 for the latter festival.

However, during the 2018 Fringe dates, a 2.0% decline in occupancy and softer ADR growth (+3.9%) led to RevPAR growth of just 1.8%. Is this trend set to continue in the 2019 festival? And with a rising number of Airbnb and other short-term festival lets available in Scotland’s capital, as well as increasing hotel supply, what does the future hold for hotel performance during the Fringe?

Hotel demand pacing behind last year

As of 29 July, just 4 days prior to Fringe 2019, hotel bookings were trailing behind 2018 levels on 22 of the festival’s 25 nights. With one night on par in terms of forward-looking occupancy and only two nights ahead of the previous year, there is indication that occupancy during the festival will decline in comparison with 2018.

Are Airbnb and other festival lets to blame? Possibly, yes. It has been reported that there are 12,000 Airbnb properties in Edinburgh, half of Scotland’s total, and in 2018 60% of these listings were for fewer than 30 days. 

In comparison, the Edinburgh hotel market comprises 15,894 rooms across 239 properties. Inventory increased in each of the 8 quarters leading to Q1 2019, growing at an average rate of 4.9%, which also has its own impact on hotel occupancy. STR’s latest Market Forecast report projects that Edinburgh supply will grow more aggressively between Q3 2019 and Q3 2020—at an average rate of 7.9%.

“Having the world’s largest arts festival on your doorstep every year is an enviable proposition as a hotelier in Edinburgh. As travellers increasingly seek unique, authentic and affordable experiences, Edinburgh has seen a surge in supply of alternative accommodations,” said Sean Morgan, STR’s Director of Research.

“During the month of August, when the population of the city doubles, Airbnb supply has grown significantly to absorb the additional demand, much to the dismay of hoteliers. However, as the Scottish government considers a range of measures to curb the growth of short-term rentals, there may be light at the end of the tunnel for hoteliers and some easing of competition from this burgeoning sector.”

Analysing the dynamic between the two forms of accommodation, STR’s ongoing Edinburgh Visitor Survey shows that approximately 55% of leisure travellers have stayed in hotels over the past 12 months whereas 20% have opted to stay at Airbnb or other short term rental properties. However, for the first time the survey shows that during the key tourism periods of Q2 and Q3 2018, the proportion of leisure visitors staying in hotels fell below 50%.

During a period of economic and Brexit uncertainty, it is possible that festival goers are waiting last minute to book their accommodation and Edinburgh will see a late uplift in demand. Furthermore, year-to-date performance in Edinburgh has been muted so there is evidence that the market is undergoing a period of flux. But, is it possible that Edinburgh’s trend for an occupancy decline that has been witnessed in five of the first six months in 2019 is also affecting the festival period? Only time will tell whether attendees are waiting last minute or if there are legitimate grounds for concern among hoteliers in the long run.

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