Issue 6, 2016. December-January



Airbnb and similar services have found a niche in Tbilisi, where the number of tourists has challenged the hospitality industry.

Sally White

Location, location, location... Love it or hate it, Airbnb's image depends on where you look. In Barcelona, Paris, Berlin and San Francisco, people have protested against it. In New York and other cities across the U.S., as well as in in Paris, hotels have lobbied strongly to restrict it. Yet in Amsterdam and London, the governments have welcomed it with open arms (if also with taxes). What will its impact be in Georgia?

In Georgia, the informal accommodation sector seems to be rising exponentially. Apart from Airbnb, there are now,,,,,,,,, etc. Just how many rooms are on offer is hard to see as there are many duplicate listings across sites.

Should hotels fear the rapid growth of Airbnb and its look-alikes? According to a 2016 Boston School of Management study entitled The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry, the answer, in general, is "Yes!" The hit could be as much as 8-10% of hotels' revenue.

Airbnb's impact has various dimensions. As Hospitality & Tourism Research from Canada's Ryerson University stated in May, it also "limits hotels' ability to employ dynamic price strategies at peak times since their rates must be competitive." Ryerson puts the hit as high 13% of hotels' revenue, especially as Airbnb is now marketing to business travellers.

Anger has become so strong in Europe that the European Commission put out guidelines for sharing-economy companies this summer, stressing the sector's economic importance. These state that implementing bans on sharing-economy services like Airbnb and Uber "should only be a measure of last resort."

Relatively, the impact on Georgia's hospitality industry is probably small, as yet: Airbnb lists just 300+ locations each for Tbilisi and Batumi, and even in Kutaisi the number is 179. However, Airbnb (now valued at $30 billion, with 23 million users) has a record of fantastic growth. Increases in Airbnb growth of hundreds of percent per year are currently the norm in Asian countries in which Airbnb has newly established itself, for example.

On the demand side, tourism growth in Georgia has, as brokers Galt & Taggart comment, shifted into "high gear." In the first half of 2016, international numbers were up 12.9% at 2.64 million visitors, and this follows on a 7% rise for all of 2015 to 5.9 million. Thus, the Georgian Tourism Strategy 2015-2025 target of 11 million international visitors (11.2% compound average growth rate) seems reachable.

Yet, Georgian tourism is bigger than that—Georgians also take holidays in their own country. The number of domestic tourist visits last year was 12.4 million. These domestic tourists also need accommodation—24% went to Tbilisi, 8% to Kutaisi and 7% to Batumi.

On the supply side, hotel room numbers are also rising—the Georgian National Tourism Administration register shows 1,475 hotels and guest houses, with 51,404 beds in all. Many more beds are coming down the line, with major international hotel groups seeing the opportunities for new hotels in Tbilisi, Adjara, Samtskhe-Javakheti, Imereti and Kakheti. The government has just put on the market a wide range of old buildings across the country suitable for conversion to hotels. In all, a minimum of 8,500 more beds are likely by the end of next year.

Airbnb, similar competitors and the hotels should be able to co-exist happily here.

Key is that Georgia is still very short of beds for visitors. Last year, Georgia had 8.7 beds per thousand visitors, (down from 16 in 2010), far below the average of 42.8 in Eastern Europe. As TBC Capital commented: "Since 2010, the number of beds in the hospitality sector increased by 59% to 51,400, while the number of visitors increased by 1.9 times, to 5.9 million in 2015."

Many visitors have no desire for the hotels. Georgia's tourism is addressing challenges which leave the market open to the sharing economy. Many tourists don't spend much money—most make short visits and come from poor countries, with over 70% from Armenia, Azerbaijan and Turkey. The majority come to see friends and relations (55%) and most stay with a friend or relative (65%). The average of receipts has not changed much over the last eight years, according to World Bank and Georgian National Tourist—the range is $325-$500, compared to $750 on average for Eastern Europe.

This, and the sharp rise in high-end hotel beds, has not been lost on hotel investors, as Galt & Taggart comments. "We have seen the first signs of hotel investors in Georgia recognizing the probability of oversaturation in the international upscale segment in the medium term, and consequently shifting attention to the international midscale segment" its analysts wrote in a Georgian Tourism Sector Review published in June.

Yet, this still leaves opportunity for Airbnb and others to price below the hotels' floor level, especially in Tbilisi.

Elsewhere, there could be scope for stress, particularly, TBC Capital notes, in Batumi, where hotel occupancy rates have been falling. However, the government is investing in infrastructure along the coast, including the new port at Anaklia, which should increase demand.

Politically, of course, the government welcomes the sharing economy to help boost tourism (and owners' incomes). Travel inflows were 13.9% of GDP in 2015, up 8%. Yet, the government must also keep an eye on any possible squeeze on the residential housing market bringing, as in U.S. cities, protesters onto the streets.

In Georgia, peace should reign here, as well. For a start, there is an active housing development market. Then, Georgia Today reported in September, after talking to local estate agents, that the residential market "has not experienced any considerable price increase compared to the same period last year." International agents Colliers wrote in June that, since 2015, because of adverse internal and external economic and currency factors "demand on the residential property market decreased by 10%," and prices had also fallen. Transactions, though, have been recovering since the election.

Thus, while "bad for hotels, but good for tourism and the economy" is the Boston School of Management's rating of Airbnb, that does not look true in Georgia. Or, at least, not yet.