Should travel sellers pivot to second tier cities to benefit from Airbnb bans driving up ADRs in other cities?

Following last year’s short-term rental ban in New York City, reports showed “staggering gains” in neighbouring cities like New Jersey.  And it’s not just short-term rental owners that are benefiting, the diverted tourism to these areas is rubbing off on other industries too. 

It’s clear that consumer appetite for short-term rentals remains high, so should the travel industry now be focusing its attention more on ‘second cities’?  Could there be lucrative opportunities on both the corporate and leisure side for savvy travel companies?  We spoke with a range of travel technology professionals to find out what they think.

Gareth Matthews, CMO at global travel distribution provider Didatravel,points out that the demand for second tier cities is driven in part by price: “This is not so much about people wanting short-term-rental properties and going to New Jersey to find them, and more about people wanting accommodation that is affordable.  For companies selling lodging, having a wide range of directly sourced, competitively priced accommodation in more than just the typical well-known destinations is therefore really a big key to success.  Often, the yields can be higher in second- and third-tier cities, as there isn’t as much competition.”

But the ban shows how volatile the hospitality industry can be – price fluctuations can make income more unpredictable for hoteliers.  Alex Barros, Chief Marketing & Innovation Officer at hotel revenue management expert BEONx says the key is in diversification. “Based on what we’ve seen, the ban in New York City has driven up its hotel prices – perhaps in surrounding regions too.  Hoteliers need to be aware of this as bans happen in real time, being prepared for sudden market changes can help inform pricing strategies in advance.  And this could work the other way too: if a ban is lifted, hotel prices are likely to fall again.  These price fluctuations make it more difficult to rely on income from room rates alone, hoteliers should position their properties as more than just a place to stay – offering other guest services that can increase revenues, like food and beverage, or unique experiences.”

For some the growth of tourism in New Jersey has shown how much travellers value short-term rentals, so travel companies should be focusing on them more – not less.  “Gaining access to a big supply of short-term rental properties in any city, whether first- or second-teir, will be difficult for travel intermediaries dealing with multiple destinations,” says Ayşe Yaşar, VP of Sales from B2B accommodation booking platform Bedsopia.  “So, it is important to have in place the right third-party supplier partnerships and also the technology to handle and process these too.  The demand for short-term rentals isn’t going away; the situations in New York City and New Jersey have proven that.  Short-term rentals are only likely to become increasingly important for travellers, so B2C sellers need to make sure they can offer this option if they want to remain competitive.”

To seize this burgeoning market, however, hoteliers in ‘second cities’ must also cater to the unique needs of those guests who are day-trippers to the bigger cities nearby. “For example, in the case of New Jersey hotels catering to NYC tourists, early breakfast hours and bundled transit passes can help enhance a hotel’s offering, ensuring tourists can make day trips to their main destination and get the most out of their day,” says Chris Hovanessian, Senior Product Manager at leading hospitality tech platform Cloudbeds. Chris, who oversees the company’s guest experience product, continues: “Digital guest guides — accessed online via a mobile link, not through an app that must be downloaded — with useful links to maps, sightseeing tips, dining recommendations, and local neighborhood guides are also a nice touch for guests that are typically on the go. These tailored offerings will help create a memorable experience that could spark repeat visits and positive word-of-mouth recommendations.”

As a final thought, tapping into this theme, Manuel Núñez from Servantrip, a leading B2B hub for tours & activities used by travel agents and tour operators, points out that when it comes to second or third tier cities people don’t just want accommodation – they also want something to do when there. “Offering tours & activities as an ancillary option not only gives the intermediary a commission, but in many cases can also make or break a sale in a retail environment and even online if you can package it well. Make sure that your suppliers of experiences have a wide geographic range of options, too often they’re just focused on the obvious cities and products.” comments Manuel.