Airbnb has become a market leader in Kenya’s Short-Term Rentals (STRs) sector, with investors specialising in these accommodations. The number of listings in Kenya has grown significantly, with 6,500 in 2018, a 121% annual growth rate, 40% higher than the global rate. The COVID-19 pandemic significantly reduced the number of listings to 5,554 in 2020. However, post-pandemic, the listings doubled from 5,554 to 10,902 in 2023 due to economic recovery.

In Kenya, smaller intimate spaces are the most preferred, with 46% of the total listings being one-bedroom facilities. Most of the users prefer intimate spaces, with studios making up 7% of the total listings. Despite the rapid growth of Airbnb listings in Nairobi, occupancy rates are below the global average of 56.4%. As of 2023, occupancy rates in Nairobi and Mombasa were lower than the global average at 31.0% and 47.0%, respectively.

The average monthly revenue per listing is around $298, but this is not always guaranteed due to the competitive nature of the industry and low daily and occupancy rates. Airbnb consumers’ locational preferences have impacted their geographical position, making popular locations like Kajiado, Kilifi, and Ngong easier to find. This has led to landlords converting their properties to Airbnb to tap into changing consumer patterns.

Drivers of change for the future of STRs

Political drivers

Government policies, regulations, and laws play a crucial role in shaping the economy and influencing organisations and their business operations. Traditional tax law institutions may struggle to keep up with the rapidly evolving technological world, leading to a conflict between traditional hotel industries and STRs. The American Hotel and Lodging Association has started opposing Airbnb and lobbying for equal treatment in taxes and regulations. The rise of Airbnb has also led to negative externalities like gentrification, where housing units are turned into vacation rentals, displaced residents, and a shortage of affordable housing. Political drivers are increasingly influencing the future of STRs in Kenya, with proposals to establish a structure to regulate them, including clear security standards, accommodation tax, cybersecurity, and online booking requirements.

Economic drivers

Macroeconomic factors control demand within the economy, while microeconomic factors focus on consumer spending patterns. STRs like Airbnb have become popular due to their fair prices, sharing economy features, and reduced operational costs. However, challenges like unruly behaviour and regulatory requirements are affecting their popularity. The Kenyan Revenue Authority’s digital service tax, which mandates VAT on earnings, is expected to increase the costs of acquiring STRs listed on Airbnb websites, further levelling the playing field for conventional hotels.

Sociological drivers

Sociological drivers, or socio-cultural factors, influence consumer preferences and behaviour, including population growth, age distribution, health consciousness, and attitudes. In the United States, the shift towards “new luxury” and increased mobility to marginalised groups is driving a shift towards unique experiences and personalised experiences. Demographic factors, such as the Generation Z cohort, play a significant role in shaping tourism industry decisions. In Kenya, sociological drivers have increased the preference for sharing spaces like Airbnb among consumers, as they are seen as disruptive and technologically sound. The flexibility of STRs allows users to experience places without fear of lacking accommodation, making them an attractive option for young, rebellious consumers. However, conservative religious principles and negative incidents of promiscuous behaviours may hinder the popularity of STRs in Kenya.

Technological drivers 

Technological advancements, such as the Internet of Things (IoT), are transforming the hospitality and tourism sectors. These innovations impact society, economy, transport, healthcare, security systems, tourism, and education. In Kenya, STRs like Airbnb, which use internet technologies to create content and make booking easier, are supported by digital innovation. With many middle-income users being educated and technology-savvy, these STRs are expected to gain popularity and preference.

Environmental drivers

The sharing economy, like Airbnb, has a significant environmental impact due to sustainable development, resource scarcity, and pollution targets. By allowing individuals to use spare capacity in their homes, sharing economies (STRs) can reduce the need for new construction, thus lowering environmental impact. However, in Kenya, the exclusion of STRs in the Public Health Act has made it easier for hotels to meet environmental and safety guidelines. Lobbying by conventional hotels may lead to a regulatory framework guiding STRs towards sustainable environmental practices, reducing the financial burden on hotels.

Legal drivers

The issue of STRs has led to political and legal challenges in cities like Barcelona, New Orleans, and New York. Legal proposals to regulate the sector include the Operationalization Act and the Occupiers Liability Act. The Operationalisation Act requires STRs to seek permits and registrations to legalise their operations. According to the Occupiers’ Liability Act, hosts must ensure visitor safety on the premises. These legalities are expected to increase the complexity and cost of STR operations, reducing their appeal to potential investors. Future legalities will create a pathway for the government to monitor STRs and enforce tax proposals.

Future opportunities of STRs based on e-commerce and taxation

High taxes – low e-commerce

1. STRs may consider collaborating with local businesses, such as restaurants and tour operators. Additionally, they may invest in traditional marketing channels, such as print advertising and radio, to reach more customers.
2. Hosts may improve guest experiences through personalised services, tailored experiences, and unique in-room amenities that meet guests’ needs. This can increase competitive advantage and encourage repeat business in a low-tech environment. 
3. Promoting local tourism by offering special deals for regional travellers. This can boost occupancy rates, drive domestic tourism, and reduce the impact of high taxes on pricing.
4. STRs might consider implementing efficient cost management practices, including energy-saving initiatives and waste reduction programmes. This can help manage operating expenses and offset the financial burden of high taxation. 
5. Due to the consistent demand and premium pricing associated with these accommodations, they can generate substantial revenue for the government through taxation.

High taxes – high e-commerce

1. STRs can explore additional revenue streams beyond accommodation, such as offering curated experiences and partnerships with local businesses. This will leverage the high e-commerce technology to market and sell and reduce the impact of high taxation. 
2. With advanced e-commerce technology, short-term rentals can implement dynamic pricing processes that consider demand fluctuations, market segmentation, price differentiation, competitor pricing, and taxation factors to optimise rates and maximise revenue despite high taxation. 
3. STRs can personalise services and guest experiences to specific demographics by using advanced data analytics and customer segmentation tools offered by high-tech e-commerce. This may increase customer satisfaction and loyalty. 
4. Short-term rentals can target international travellers by leveraging high e-commerce technology. This facilitates global market reach, tapping into a broader customer base, thus easing the impact of high taxation. 
5. The increased investment will result in high government revenue.

High e-commerce – low taxes

1. With low taxation, short-term rentals can offer more competitive pricing, attracting budget-conscious travellers and increasing demand. 
2. STRs can form partnerships with local businesses, such as restaurants and tour operators, to offer package deals, enhancing the overall guest experience and attracting more customers. 
3. In a low-tech environment, short-term rentals can excel by providing personalised services, tailored experiences, and unique amenities, creating a niche market, and encouraging guest loyalty.

Low Taxes – low e-commerce

1. With high e-commerce technology, short-term rentals can easily tap into global markets through online platforms, attracting guests from various parts of the world and diversifying their customer base. 
2. Advanced e-commerce technology enables efficient management of bookings, payments, and guest communications, allowing short-term rental hosts to streamline their operations and enhance overall efficiency. 
3. High-tech solutions provide access to vast amounts of data on guest preferences, booking patterns, and market trends. Short-term rentals can leverage this data to make informed decisions and tailor their offerings to effectively meet customer needs. 
4. With access to high-tech technology, short-term rentals can offer innovative guest experiences, such as smart home features, virtual tours, and personalised recommendations. This may enhance guest satisfaction, setting them apart from competitors. 
5. With high e-technologies and low taxes, short-term rentals will attract more investors and create more employment opportunities. 
6. Low taxes will lower operation costs, generating more revenue for the investors.