Hotels are already feeling the effects of Airbnb’s approach to room rentals, but continued growth could force the hotels to lower room prices.

By the end of 2016, Merrill Lynch analysts say listings on home-renting platform Airbnb Inc. could make up as much as 1.2% of hotel offerings. But as a fast-growing startup, with an estimated 40% to 50% growth in listings per year, Airbnb listings could make up 3.6% to 4.3% of inventory by 2020, the analysts say.

“Our preliminary work suggests Airbnb is a force to be reckoned with that is likely to have an increasing impact on the travel landscape,” the analysts wrote.

In increasing its market share, Airbnb is expected to help the overall room supply finally meet consumer demand. That should force hotels to lower prices in order to attract guests, which caused the analysts to downgrade several large hotel owners.

Consumer demand for lodging is expected to outpace hotel room supply in 2016 and 2017, but if Airbnb rooms are included in the mix, supply and demand could be balanced in 2016. Then, with Airbnb included in 2017, room supply will be higher than demand and will continue to grow with Airbnb’s growth rate, the analysts say.

As a base, the analysts cite about $4 billion in Airbnb gross bookings and 40 million room nights booked in 2014. They estimate the numbers will increase to 74 million room nights booked in 2015 and more than 100 million in 2016 and beyond. The analysts estimate that 43% to 67% of Airbnb listings are competition for hotel rooms, as the others may be shared spaces.

Merrill Lynch reiterated underperform ratings on Host Hotels & Resorts Inc.HST, -0.08%  , Ashford Hospitality Prime Inc. AHP, -0.24% Diamondrock Hospitality Co. DRH, -0.08% Sunstone Hotel Investors Inc. SHO, -0.54% Felcor Lodging Trust Inc. FCH, +0.35% Extended Stay America Inc. STAY, +1.15% Summit Hotel Properties Inc. INN, -0.04% and added underperform ratings to Ashford Hospitality Trust Inc.AHT, +0.12%   and RLJ Lodging Trust RLJ, -0.38% They lowered ratings on Hersha Hospitality Trust HT, +0.24%  and LaSalle Hotel Properties LHO, +0.20%  to neutral.

All of these are real estate investment trusts, which the analysts said are most affected by Airbnb.

Read full article at: Market Watch