During the course of last 2-3 years, Airbnb has disrupted the property rental Industry. Will this innovation propagate to the Prefab House Industry?
We don't think so..
There has been a lot of buzz lately about prefabricated modules specifically made to be placed into gardens or small properties and rented out through Airbnb.
An appealing Idea.
Just put a series of small boxes on your property, list them on Airbnb... and you have a fully functional business.
Not so fast, Billy.
We have been in the Industry of Prefab Timber Houses for over a decade. During this time, we have seen modules of any kind, from small construction site offices to large apartment buildings.
Estonia is famous for the export of prefab houses and there is even an Association of Producers to guarantee good quality and fair competition.
In Estonia, there are large companies specializing in the production of modules (Kodumaja and Harmet) and other companies producing a mix of element houses and modular buildings (Matek, Timbeco, Qhaus, Ritsu, ...).
The list of reputable producers is long and can be found on the website of the Estonian Woodhouse Association.
A commoditized Industry.
Many of these producers have been around for a couple of decades and they've been competing against each other in the good spirit of consumerism. As result of this process, today one can buy top-quality prefab houses at a very low price.
It might sound surprising but this is the hard truth: the Industry of Prefab Timber Houses is commoditized.
Where is the benefit?
When we started to see small companies basing their entire business model on "Airbnb hotel modules", we couldn't help asking: cui prodest?
Tiny houses have been around for a while, as well as the trend of converting shipping containers into small garden homes.
How come that making more of these can create disruption?
Really, who does benefit from it?
Little or no innovation in this type of product.
Small one module houses are very common in Scandinavia. Due to housing needs and to a change in the building regulation, over the past two years Sweden saw a booming increase in the demand for this type of buildings.
Today in Sweden (Estonia, Norway, ... ) one can build "garden rooms" with no permission, provided the construction does not exceed 25 m2 and it is properly located with respect of neighboring properties.
Producers of prefab houses have been flooded with requests for 18-24 m2 modules. Architects have been designing these modules for years already.
A few examples can even be found on our website: the small LEILI by Gloghome and the larger SHIP by Kauss.
So, how comes that when a small startup like ÖÖD OÜ arrived on the scene with their "hotel room concept" they got featured on every blog and they became insta-famous?
Keep it simple.
ÖÖD has done a brilliant job at narrowing down their focus on a tiny segment of the modular housing market. On top of that, they picked a booming segment: the multi-million Airbnb Industry.
On the ÖÖD website one can read this message: "ÖÖD allows anyone to jump-start their hospitality business".
That one sentence describes perfectly the value proposition of this small and ambitious company. It leaves no room to uncertainty on what they offer (a prefab module you can buy and rent out) and it means business... YOUR business.
ÖÖD is selling more than a module, they are selling a dream... conveniently packaged in an outstanding marketing message.
Their little stunt completely overpowered Manufacturers with decades of experience and track record of many successes.
Of course, any of the manufacturers listed above can produce a ÖÖD-like module... most likely at a cheaper price. However, those big companies do a little bit of everything (houses, garages, apartment buildings, schools, ...) and they do not prioritize their marketing efforts. The result is that they are practically invisible to the masses.
ÖÖD niched down to the extreme and they got massive visibility in a very short time, slapping on the face everyone else... or maybe not...
You can't fool Customers.
The Internet is a powerful tool and it completely changed the way we live, work, think.
Any wise buyer knows how to use Google to find the best deal. Someone who is looking to jump into the "quick Airbnb" business is not going to throw money away and most likely will investigate thoroughly which are the alternatives to the so popular ÖÖD modules.
It will not take long before these people will land on the webpage of other manufacturers and, at that point, the laws of consumerism applies... and we know for a fact that this kind of game is played on the price.
David and Goliath
There was a tale of an ordinary, small, man knocking out a giant.
Many might have thought that ÖÖD was destined to be the new David. We think that it takes more than one startup to disrupt a commoditized Industry.
This time David might not kill the Goliath and the Manufacturers could end up having more work thanks to the exposure generated by ÖÖD.
Let's do some math
We got really curious and we started to investigate how much would it cost to bring home one of these modules.
NOTE: all the prices mentioned in this article are without VAT and without transport.
The price for ÖÖD Airbnb hotel module is not published on their website... so we had a meeting with the ÖÖD guys and we asked more info about their product. Kaspar Kägu, Head of Sales at ÖÖD, told us the price is around 45 000 EUR for the module fully finished, excluding the bed.
Let's suppose one wants to buy and setup this module on a property to rent it for 100 EUR/night.
Let's assume one can rent all weekends and one day for each week. There are 52 weeks in one year.
Let's suppose also that for 8 weeks in summer the module can be rented for the entire week.
That makes 3days x 52weeks + 4days x 8weeks = 156days + 32days = 188 days/year of occupancy.
When renting the place at 100 EUR/night one would have a turnover of 18 800 EUR/year.
Considering the extra expenses to transport the module, to set it up and to run the business, the investment would be repaid in no less than 3 years and a half.
Now, while this is not a too long time for break-even, there are many assumptions made.
What can go wrong?
Everything can go wrong:
no one can guarantee an occupancy of over 50% (188/365);
no one can guarantee that the place can be rented for 100 EUR/night... that depends very much on the location.
For average locations (or any location where there are a lot of Airbnb places available) a renting fee of 50 EUR/night seems more reasonable.
The result is that the real break-even time could be well over seven years! So what can be done to make the "Airbnb hotel module business" less risky?
Easy, find a cheaper module.
Over the years we have seen modules of all kinds.
45 000 EUR looks very expensive to us, so we started to investigate in order to check where the market price stands for this kind of small garden building.
It didn't take long to find another object which offers the very same value proposition: same size, same premium finishing and customization available.
The only difference is the glass facade that is replaced by premium vertical cladding.
The module we found also offer a foldable terrace which makes it completely burglary-proof.
...much like a medieval castle!!!
NOTE: in our opinion, the 3-sided glass wall will not work at all in warm climates since the direct solar radiation will transform the module into an oven... and no, there is no air conditioning that can solve the problem of direct solar radiation (you can't overpower the sun at southern latitudes).
Our best guess is that ÖÖD will have to come up with a 1-sided glass facade model for all those locations who require shading from the sun or more privacy.
The alternative model we found is not a cheap imitation. As a matter of fact, it was designed and created before ÖÖD modules came on the market.
Very much like the ÖÖD Airbnb modules, this module is nothing short of stunning.
Here are some images, courtesy of the Producer.
The terrace is foldable and motorized. It is equipped with an electric motor and it opens with a remote, like the ones used for gates.
Very much like the ÖÖD module, the front facade is all glass.
The interior can be customized according to customer's wish.
The standard model comes with a small room + sauna + shower and toilet room.
These photos should be enough to show the quality of this product.
We believe that this premium module can effectively replace a ÖÖD module for the purpose of Airbnb renting.
The main question at this point is:
what is the price of this alternative solution?
We asked the producer to make a price offer to us, based on our custom design.
In order to get a fair comparison, we replicated the exact interior layout of the ÖÖD modules.
A little less than 30 000 EUR.
It appears that ÖÖD modules are marketed for a very high-end clientele as their price is about 30% higher than the competition.
We see a potential weak-spot in the business model proposed by ÖÖD OÜ. In fact, the high-end clientele is usually composed by private Clients valuing Quality over price for their own home.
Remember the brilliant value proposition of ÖÖD OÜ?
"ÖÖD allows anyone to jump-start their hospitality business"
This statement is obviously directed to business Clients with the objective to buy and rent for profit.
The weak spot.
So where is the weak spot?
- the type of Client we are looking at is business and not private;
- the best interest of the Client would be to cut as much as possible on costs in order to maximize his/her profit.
If we were to start an Airbnb business based on small prefab modules, we would surely buy the object offering the best compromise price/quality. Given the price point of ÖÖD modules, our choice would go for the beautiful alternative we found.
Once the new market segment is created and the demand starts to be strong, all the manufacturers will jump on this new trend and offer this type of modules for an even cheaper price.
Should ÖÖD OÜ revise their prices towards the market price, they would have a better chance of being successful.
Our point of view
Since the very beginning, katus.eu has been encouraging the fair competition among architects and among manufacturers. With this in mind, we welcome new ideas and new concepts that might bring the game a level up.
However, we strive to do everything possible so that buyers will have the better hand in this game.
We do not want buyers to be fooled by over-inflated marketing.
This is why we felt the need to speak up and bring our opinion to the table.
Let's work together to create a bright future for the Industry of Prefab Timber Houses.