Tourism is a great thing because it not only delivers lifelong memories and experiences, but it also promotes cross-cultural understanding and is vital to our economy. According to the United Nations World Tourism Organization (UNWTO), travel and tourism is one of the world's largest industries, surpassing that of oil exports, food products and automobiles.
Although positive, this continued growth comes with its challenges, such as over-tourism, where too many tourists are overwhelming some destinations. The more popular destinations are feeling the pressure, resulting in social and environmental issues including overloaded infrastructure, damage to nature, threats to culture and heritage, alienation of local residents and a tarnished tourist experience. While over-tourism may be considered a negative phenomenon, the consequences are not all doom and gloom. Authorities are at the very early stages of the policy cycle, enacting measures to combat these challenges related to over-tourism.
Tourism Taxes: Maintaining the Appeal
There are currently more than 40 countries in the world which have imposed tourist taxes, and this number is anticipated to increase.
Tourist taxes may be viewed negatively, especially by accommodation providers, since it can reduce their net income. However, many highly sought-after destinations cannot sustain themselves and notable financial resources are necessary to maintain their appeal and infrastructure. Therefore, taxes aimed at raising necessary funds can be beneficial for businesses by ensuring that it continues to generate returns in the long-run. However, the funds are not always used by authorities efficiently and sometime not even fully reinvested in tourism related initiatives.
From the investor perspective, it will become increasingly important to understand the existing and potential tourist taxes in the respective markets, analyze the ability of demand to absorb them and gain a better understanding for how those funds will be used.
Hotel Supply Restrictions: Increasing the Value of Existing Hotels
In an attempt to cope with the ever-growing tourism sector, several destinations such as Barcelona and Amsterdam have recently established bans on hotel developments, while other markets including New York and Charleston, South Carolina are tightening restrictions. Such measures effectively create barriers to entry, which could, in turn, increase the value of existing hotel real estate – a positive sign for hotel owners.
However, implementing a ban on something does not necessarily mean that it disappears. More often than not, it simply re-emerges in a different and sometimes, unregulated form. More specifically, restrictions on hotel development may encourage unregulated home-sharing businesses, as privately-owned accommodation can be converted into short-term rental supply almost overnight. For example, research by AirDNA found that in Barcelona, limiting the licenses of all tourist accommodation (including hotels and hostels), led to an increase of the number of Airbnb listings in the city1. This proves to be counterproductive to over-tourism management measures. According to a recent global survey by the UNWTO on the perception of residents towards city tourism, only 16 percent of respondents believe that limiting the number of tourism establishments is adequate to deal with an increase in the number of tourists in a city. Accordingly, banning new hotels is unlikely to halt over-tourism issues, and the solutions should be sought elsewhere.
Regulation of the Home-Sharing Sector: Constraining Unfair Competition
With approximately 150 million Airbnb users in the world, the WorldBank and European Commission recently issued reports identifying the home-sharing sector as a likely contributor to over-tourism in many markets. Several cities have been introducing tighter restrictions on such platforms, with Barcelona, Paris and Santa Monica, California implementing some of the strictest regulations, and Palma on Majorca Island and Singapore banning short-term rental of private apartments altogether.
In San Francisco, the number of Airbnb listings fell by half after tighter regulations were implemented2, while Japan introduced a new private home-sharing law in 2018, which forced Airbnb to axe nearly 80 percent of its listings in the country. This tightening and increasingly effective restrictions of home sharing is likely to have a positive impact on the hotel performance and values.
Tourism Flow Management: Reducing Seasonality and Unlocking New Opportunities
In most destinations, over-tourism is a seasonal occurrence. Therefore, effective destination management strategies that focus on dispersing demand throughout the year, rather than simply reducing it all together are important. According to a recent survey by Travelzoo and ITB Berlin, up to 65 percent of consumers are willing to travel at less busy times of the year. This is good news for owners as the seasonality fluctuations are a major operational challenge for hotels in many destinations.
Another possible way to tackle over-tourism is to spread the demand from overcrowded locations which not only reduces the pressure, but also potentially unlocks new investment opportunities outside the major city centers and popular tourist areas. The value of real estate in these locations is thus likely to appreciate, making them highly attractive targets for investors. Regeneration plans are increasingly looking at hotels and other tourism products as key accelerators to invigorating neighborhoods outside prime areas. Trendy hotel brands such as The Standard Hotels, CitizenM and The Hoxton are specifically targeting these locations as part of their DNA.
The geographical spreading applies not only for new neighborhoods within already popular tourist destinations but also as a catalyst driving the rise of new tourism hot-spots. Travelers today are increasingly willing to pay a premium to stay away from overcrowded destinations.
Focus on Value: Shifting from Quantity to Quality
Shifting from quantity to quality is a familiar strategy for hoteliers. Limited room capacity means that when hotels reach higher occupancy levels they usually move from driving volume to targeting higher-paying customers, in order to maximize revenue. However, many destinations continue to pursue the growth of visitors as their primary goal, without considering that they too have constrained capacity. One of the good consequences of over-tourism is that it has brought this paradox into the spotlight and destinations are changing their approach. This alignment of strategies between the hotel sector and destination authorities is a positive trend for investors, as effective revenue management is not only about increasing prices, based on capacity utilization, but also positioning and segmentation. This is when all parties need to be on the same page.
Improving Infrastructure and Facilities: Enhancing Accessibility
According to the UNWTO survey, the most popular solution to dealing with the uptick in tourists is for the affected cities to improve the infrastructure and facilities, with some 72 percent of respondents selecting this option. Such a measure allows both visitors and the local population to benefit from improved transportation, as well as better cultural, entertainment, and/or sport facilities and events. This would enhance the accessibility of hotels and the attractiveness of their immediate area, thus increasing their real estate value. Therefore, owners and investors should work with local authorities and support such initiatives to create more value for the destination and themselves.
Overcoming Over-Tourism One Day at a Time
There is no one-size-fits-all solution to over-tourism. The industry is still in the early stages of assessing the impact and understanding the effectiveness of various measures to manage it. It will require a comprehensive and long-term planning strategy, and a mix of measures that will entail the engagement of all the stakeholders.Being prepared and proactive is essential. One example is from Amsterdam, where a tourism taskforce was enacted in 2017, which included representatives from hotels, museums, tourist attractions, and the Amsterdam Marketing authority, with the objective of finding solutions to manage the rapid growth of visitors.
While most of the current tactics to manage over-tourism are likely to have a positive impact on hotel real estate, there are certain threats that need to be monitored and managed proactively. But at the end of the day, the excess of demand is certainly lesser problematic than the lack of it.
