After the wild, strange and wholly unexpected outcomes of the vacation rental industry in 2016, it might seem daunting to forecast the trends and issues that will impact business owners and managers this year. The new year is picking up quick, and vacation rental managers and owners (VRs) are bound to face some challenges. However, a look at past trends and how they may affect the future will help you anticipate just what to expect as 2017 rolls in full-force.
The Big: Getting Bigger
Cliff Johnson, co-founder and chief development officer at Vacasa, the multi-state and international VR based in Portland, Ore., believes that industry consolidation will be a big factor in vacation rentals in 2017. “As the industry has attracted outside investors, it has become more attractive for smaller managers to consider selling their businesses, but the ability to integrate companies and ensure a smooth relationship with homeowners will undoubtedly prove difficult for companies or investors that are unfamiliar with the vacation rental space,” he says. “The value in a management company is so closely tied to the relationship between the company and the homeowners that it will be an interesting trend to see how companies that grew up in the hotel space handle the difference in operations and the complexity of owner relationships.”
As consolidation creates ever-larger VRs, branding exposure for vacation rentals as a lodging option will increase as Expedia/HomeAway, Airbnb and Booking continue to grow and invest more in the category. “I expect to see other online travel agents (OTAs) focus more time, money and attention on the VR space,” says Johnson.
In turn, this will bring even more investment into the industry. “As the industry becomes more widely accepted and well-known, more people are starting to view it as a safe and productive investment,” he says. Moreover, some of this investment will come from abroad, as will an increasing number of guests. “I expect to see a tremendous amount of growth internationally, specifically in Asia. There is a growing number of travelers in the world, and increasingly they are coming from emerging nations with growing middle classes like China and India. This could drastically change the landscape of the vacation rental industry, as companies will have to adapt to cater to the needs of the changing demographics of travelers.”
“The big are going to get bigger,” says Andrew McConnell, CEO of rented.com, headquartered in Atlanta. “This will be especially true since the distinctions between vacation rentals, hotels, Airbnb and other types of lodging are getting blurry. We’re all becoming part of the ‘accommodation industry.’ There will always be a place for small, family-run VRs, but things are changing fast, and there are lots of new market opportunities that larger companies are better positioned of which to take advantage. VRs are not going to let opportunities pass them by. It’s going to get increasingly difficult to compete — you will have to grow or else. Approximately 70 percent of hotels are now owned by one of just five companies. That kind of consolidation and convergence is going to happen in vacation rentals, too, because the large companies are the ones that have the capital and management to really take advantage of new opportunities.”
Creating Trends or Timing it Right?
One such opportunity, and what McConnell believes comprises a big and long-lasting trend in short-term rentals, is the growth of the urban market. “It’s difficult to tell if Airbnb created the trend or just timed it right,” he says. “But there’s no question that the urban market will be huge, and a great opportunity for companies with strong brands and marketing know-how.” He believes the urban market will be so significant to VRs that the word “vacation” might disappear from company names altogether, as it may prove to be too limiting.
He thinks that while Airbnb is now a big competitor in the urban market, it has also created a big opportunity for VRs. “So many VRs have decades of experience in accommodation management; that’s not true of your typical Airbnb operator,” he says. “VRs need to leverage their professionalism. For guests, it can be huge — they don’t want risk. They want something they can depend on, and that’s what professional management provides.”
Johnson agrees. “Improved environments for vacation rentals in urban markets would not only increase the market potential in those cities, it would also do a lot to raise awareness, since 63 percent of the U.S. population lives in cities now,” he comments. “When people see how a vacation rental operates in their neighborhood, they are often more comfortable with the idea of traveling to another community and staying in a vacation home.”
McConnell thinks that in the future guests won’t want to make a distinction when they shop for a rental at a beach location, a weekend getaway in a city or a stay at a business location. “They don’t want to go through a whole process each time. The companies and brands that can offer a guest each of those kind of accommodations all from one website will be the ones that get the business. If they have a brand that guests trust, then guests will go to that brand whenever and wherever they need accommodations.”
Technology will play an increasingly import role in the management of VRs, not just in terms of data management, but in overall operations as well. “Technology will continue to dominate and change the vacation rental space,” Johnson says. “With virtual reality tours, smart home system advancement and other technological advancements, transparency and ease of use continues to improve in the industry, which bodes well for the continued growth of the industry. Vacation rentals have historically been behind the times as far as tech is concerned, and it is finally starting to catch up to the rest of the travel industry, which will make it a more accepted category within the travel sector.”
But investment in technology needs to be made “in a smart way,” Johnson cautions. New gadgets won’t help if they add flash without solutions. “Make sure the tech investments you are making are going to be a differentiator for your owners and guests. For instance, don’t buy a drone because they are fun to fly, identify whether providing aerial drone shots of your inventory will actually make a difference,” he says. “Evaluate your property management software and ensure that it is doing what you need it to do, but don’t make a change unless you are confident that the burden of the change will yield positive results.” In essence, he advises, “You have to ensure that the trend matches your inventory.”
He also believes that a diverse approach to marketing is key to a successful future in this business. “Test different marketing channels to see which perform best for your market. You may have historically received all of your bookings from one channel,” he notes, “but with all of the investments the major channel partners are making, consumer trends are changing and you want to ensure that you can capture every demographic of guests.”
New Kinds of Contracts
Cliff believes yield management will have an increasing impact on occupancy and revenue in the industry. “More homeowners are becoming comfortable with the idea of fluctuating their rates based on consumer demand,” he says. “This will be a very positive thing for the industry as it will make vacation rentals more competitive with other lodging options on a year-round basis.”
People are already accustomed to so-called “dynamic pricing” in the sports and entertainment worlds, where tickets to high-demand events are more expensive than other events. In vacation rentals, a simple form of dynamic pricing is already common: Off-season pricing is typically far less than high season, but with the application of yield management strategies, pricing becomes fluid and responsive day-by-day rather than season by season.
McConnell adds that guaranteed contracts will also become more common in the future — in fact, he often presents on the topic of guaranteed contracts, sometimes called fixed-rent contracts, for homeowners. It’s a key strategy, he believes, to gaining and keeping new owners. “Homeowners sign up with VRs at five times the usual rate if there’s a guarantee,” he says. “The reason is simple: It’s something on which they can depend.”
Will these trends push the industry forward incrementally or in big steps? “The changes will be in big lurches,” says McConnell. “The dollars demanded by venture capitalists mean that the changes from new investment won’t be small, they’ll be game-changers. Airbnb has already proven that, and I think there’s more where that came from.”
Johnson is a bit more conservative about the pace of change. “While 2017 has the potential to be a jump-forward year, I expect to see it grow by around the same margin that it grew in 2016, which would still be impressive and positive news for all of us,” he says. “One of the big game-changers could be if one of the major U.S. cities — like Los Angeles, New York or San Francisco — chooses to embrace VRs with a clear law that allows and embraces [them], as that could set a trend of expansion in urban markets.”
McConnell agrees the regulatory environment is still a huge question market and a concern. “Investors don’t like that; they want more certainty. This is something we as an industry and as VRMA need to address and focus on.”
On that point, he believes VRMA needs to be the voice of the industry, and of reason, on regulatory issues. In his opinion, the association can help steer the industry forward.
McConnell says that most of the vacation rental professionals to whom he talks are of two minds regarding 2017. On one hand, they’re optimistic about the industry in general, and especially about its growth. But on the other hand, they want to know how these changes are going to directly affect them and their businesses.
It’s what Johnson calls “fear of the unknown.” He says that while most managers seem to be fairly optimistic about the current year, there is naturally some fear of the unknown as the industry rapidly changes. Overall, however, the managers that are engaged and constantly growing and learning are feeling relatively good about the state of the industry and potential for growth.
He adds that VRMA can help its members address the future in a couple of ways: “The first is to keep education year-round. We have the monthly webinars that are always helpful, and VRMA wants to hear from members about what type of educational formats are most useful throughout the year. The second thing is to continue to foster the community engagement between members. We have a wealth of knowledge within our membership, and we have a great camaraderie as an industry. We need the members to help organize local meetups and to work with the VRMA staff to ensure that our members know what is going on in their neck of the woods, especially as far as regulations are concerned.”