Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 309

I've been assembling a lot of things over the past few weeks , and that got me wondering.

IKEA did not invent the Allen key. Though today, it might feel that way. Canadian Peter L. Robertson first commercialized the square socket in 1908 . And in 1909, American Willian G. Allen patented the hex varietal .

Due to an increased interest in interchangeability, hex nuts and keys would go on to become the dominant mode of fastening after World World II. And in English-speaking countries, the name Allen has largely stuck.

They're cheap to make and you get built-in leverage with its longer arm.

IKEA first began using hex keys in the 1960s. Their philosophy was: "You do your part. We do our part. Together we save money." Meaning, you assemble the things yourself. Here's a set of assembly instructions from 1968:

Today, most of us probably take it for granted just how radical of an idea this was. IKEA had smartly figured out that flat packing furniture saved a ton of money for everyone. The challenge was that it then had to get everyone accustomed to putting together their own furniture.

But they more than did that. They arguably ushered in a revolution in furniture. And they did it on the backbone of a simple, yet revolutionary, device that, over a century later, most of us still call an Allen key.

I was speaking with our lawyer in Park City this week, and he commented to me that he wouldn't be going into the office next week because Old Town would be too hectic with the Sundance Film Festival going on. His office is right on Main Street.

When small mountain towns host major international events, there are going to be spillover effects. This is true of Sundance in Park City (population ~8,500) and it is true of the World Economic Forum, which was hosted in Davos (population ~10,000) this past week.

Perhaps the most obvious impact is that people can rent out their homes for large sums of money. And so lots of people both do that and try to profit maximize while doing it. Here are some anecdotes from Davos ( via NZZ ):

Ten days before the WEF, there are still 25 listings on the Airbnb internet platform. The prices here range from 8,000 to 56,000 Swiss francs. The son of an apartment owner says that his family receives 12,000 francs a week for their three-room apartment, which is quite close to the convention center. However, he says he assumes that they could achieve significantly more. The family rents out the apartment through an intermediary.

Another interesting impact in Davos happens on the retail side ( also via NZZ ):

According to expert Robert Weinert, the average rent per square meter of retail space in Davos is 248 Swiss francs. A businessperson renting a storefront of 80 square meters must therefore pay almost 20,000 francs in rent per year. However, if that business vacates the store during the WEF, it can earn 60,000 francs – three times the annual rent for the facilities.

What this means is that some retail spaces remain vacant all year, just so that they can be available for when the WEF arrives and people need temporary commercial spaces. And why wouldn't this be the case: 20,000 francs for the year or 60,000 francs for a week . If I'm the landlord, I'll take the additional 40,000 francs and not think about the property for the rest of the year.

Of course, if you're trying to create a vibrant community with things, like, occupied retail spaces, then this isn't ideal.

There are a lot of headwinds facing Airbnb. Cities around the world seem to be systematically making it more difficult to be a host. New York City, as many of you know , recently made it so that you need to be physically present while the dwelling is being rented. That is pretty limiting. Similar things are happening in non-urban markets too. North of Toronto in Muskoka, there's a draft by-law that will, among other things, limit short-term rentals to 50% of the total number of days within certain time periods. That eliminates the possibility of doing this as a business. So in many ways, it's easy to be pessimistic about the future of Airbnb.

But at the same time, if you step back and look at the bigger picture, there are over 7 million active listings on Airbnb. This effectively makes it the largest hospitality brand in the world. There are more accommodations on Airbnb than with Marriott, Hilton, Intercontinental, Wyndham, and Hyatt combined. (The below chart is from Scott Galloway .) It's also important to point out that while Airbnb doesn't own any of its own supply, the same is true of most hotel brands. They are, brands. The difference is that Airbnb created a more scalable platform and a more decentralized approach to aggregating supply.

The numbers also don't suggest that things are slowing down for Airbnb. ( Here's their Q3 2023 shareholder letter.) Active listings on the platform grew 19% YoY in Q3 2023 (or by almost 1 million listings). Revenue is up. Free cash flow is up. And in Q3 of last year, the company repurchased $500 million of stock, bringing their one year total to somewhere around $3 billion. So despite all of the efforts to curb short-term rentals within our cities, the company, at least for now, seems to be holding up just fine. And if they can successfully diversify beyond their core business , there could even be reason to be bullish on the world's largest hospitality brand.

Full disclosure: I am long $ABNB.