Airbnb Disrupts the Paris Hotel Market

Paris has become the number 1 destination for Airbnb users, giving the city’s luxury hotels cause for concern.

Paris becomes the number 1 destination for Airbnb users

Few start-ups have welcomed such a rapid expansion as Airbnb, the website which connects private property owners with paying guests. Since launch in 2008, it has grown to over 1.5 million listings in over 34,000 cities across the world. It has seen particularly rapid growth in Paris ? now the number 1 destination for Airbnb users ? with listings surging from 7,000 across the whole of France in 2012 to around 50,000 just in Paris. The number is so high that this summer it topped the number of people who actually live in the city (66,320 to 64,795).

Paris is also seeing a rise in wealthy renters with the plus €500 per night category significantly growing. For example, current listings include a penthouse with views of the Eiffel Tower at €2,150 per night, a 3,300 square foot apartment in the Latin Quarter at a little under €10,000 per week, and a 5 bedroom apartment looking over the Park Monceau at €12,500 per week, or €40,000 per month.

Originally seen as a cheap option for backpackers ? in the same genre as, say, Couchsurfing ?, Airbnb has generally been excluded from official controls such as local taxes or business registration. But as it becomes an increasingly dominant force in the hotel and accommodation industry, the disrupter is under pressure from the establishment to conform.

Luxury Paris hotels complain of unfair competition

Luxury Paris hotels are particularly concerned. Already suffering a downturn for reasons more global than Airbnb (e.g. a growth in supply; a slow in Russian tourism; the impact of the Charlie Hebdo terrorist attacks; resulting rumours of rising anti-Semitism), in the first half of 2015 the five star Bristol Hotel occupancy rate dropped from 69% to 61% and revenues dropped 20%, the Four Seasons George V saw a 5% drop in occupancy to 66%, and five star Plaza Athénée was forced to cut prices by a fifth.

The rising competition from Airbnb is seen as a grave threat. Didier le Calvez, managing director of the Bristol and head of the French Hotel Union UMIH, wrote in an open letter to France’s Prime Minister Manuel Valls: “Airbnb is a menace that enjoys an unfair advantage”. He called for rental sites to pay VAT “from the first euro”, compulsory registration at the City Hall “for all commercial accommodation”, an “obligatory classification for any type of accommodation”, and consent from each apartment block’s homeowners’ association. He also called for prohibiting single night stays, proposing a minimum seven day rental.

Laurent Duc, president of the French Hotel Federation, went further: “You can’t call this a sharing economy anymore”. “This is an underground shadow economy.”

Airbnb encourages tourism in Paris

Sensing unrest, Airbnb’s CEO Brian Chesky visited Paris’ deputy mayor Bruno Julliard to put forward the case that Airbnb was in fact encouraging tourism in the city. A 2013 Airbnb report claims that in one year the company generated $240 million (€185 million) of economic activity in Paris, supported 1,100 jobs in the city, and offered a lifeline to locals during the recession. The report also claims that Airbnb guests in the capital stayed an average of 2.9 nights longer (5.2 nights) and spent more money over the course of their trip compared with hotel guests (€860 to €439). 27% said that they would have not gone to Paris or stayed as long without Airbnb; nearly three quarters said Airbnb makes a return trip more likely.

The study also shows that almost 70% of Airbnb rentals in Paris are located outside the typical luxury hotel areas (the 18^th is the most popular arrondissement, the 15^th is the fastest-growing). Rather than competing with established luxury hotels, this instead opens up non-traditional neighbourhoods to tourists, and creates additional opportunities for local business owners.

Airbnb introduces a Paris tourist tax

But keen to avoid an Uber style drama, Airbnb is willing to negotiate, recently announcing the introduction of a Paris tourist tax of $0.95 (€0.83) per person per day. The scheme will come into effect on 1 October, before being rolled out across the rest of France. Airbnb has already made similar deals in San Francisco, Chicago, Portland, Philadelphia, Malibu, San Diego, Washington D.C, San Jose, and Amsterdam.

An Airbnb spokesman said collaborating with city governments is at the centre of its future business model. Chesky adds: “This is how we partner with cities… We’re not here to bend the rules”. “I don’t think for us to win [that] anybody has to lose”. And it will certainly be an advantage to this disrupter if it appears to be playing by the same rules.