The European property manager (PM) market is changing rapidly and creating a new landscape of opportunities, Transparent found in its groundbreaking survey of more than 500 European property managers (see Methodology, below). While industry analysis has treated the vacation rental market as a single entity, in fact urban managers have been the big recent beneficiaries, growing far faster than their leisure counterparts. Distribution in Europe is being driven by Airbnb and Booking.com, with HomeAway and TripAdvisor now third and fourth in the market. And the business model itself is shifting; the traditional commission-based arrangement is being replaced by the rent-to-rent approach, especially in high-growth urban markets. This provokes an interesting question – who will do better over the cycle, rent-to-rent managers or the real estate owners who control the underlying supply? Finally, the market for property management technology – pricing tools, keyless entry, smart home systems – remains in its infancy, and leading players have yet to emerge.
"VRMA and Transparent are currently conducting a similar survey in the North American Vacation Rental Space. Property Managers are welcomed to answer the survey here (https://docs.google.com/forms/d/e/1FAIpQLScYCtFzw8PmtD6b8f1O6guPMNQ7ZgmeH32UYJ0YynOd2lLDKQ/viewform)."
Airbnb and Booking.com Lead the European Market
According to the survey, Airbnb and Booking.com are consolidating their position as dominant distribution channels. Among professional property managers, bookings are heavily concentrated in these two channels, with each channel driving more distribution than property managers’ direct channels. HomeAway and TripAdvisor lag behind, with a combined ~10 percent share.
Direct distribution is a shrinking source of bookings. Despite large planned increases in marketing space (75 percent, year over year), we're skeptical that these trends will reverse. Even large relative increases in marketing spend from property managers would be dwarfed by the absolute spending power of the major channels (e.g., Booking.com spent $1.3 billion on performance marketing in the third quarter of 2018). What, if anything, can change these dynamics?
At the country level and among PM segments, more subtle dynamics are at play. For example, Booking.com delivers 42 percent of bookings in Italy (a market where they have long dominated among hotels) and 34 percent of bookings for PMs with 100+ listings (who more closely resemble hotels). It will be interesting to see if Airbnb’s drive toward pro host tools and inclusion of hotel inventory enables them to break through.
Elsewhere, we find that the direct channel can still be a massive driver of bookings in markets with long-standing relationships between property managers and customers. For example, families often holiday to the same place in the English countryside year after year, and England has the highest rate of direct bookings (41 percent).
Vacation Rentals: One Industry, Two Markets
Traditionally, the vacation rentals market has been considered as a whole, but this thinking obscures the fact that urban markets are driving a larger share of the industry’s growth (33 percent growth in urban markets vs. 8 percent in leisure markets). These fast-growing urban property managers are younger (6 vs. 12-year-old companies) and take a different approach to business models, technology and distribution than their leisure market peers. Compared to leisure market property managers, urban property managers:
- Make greater use of rent-to-rent business models (15 percent vs. 5 percent)
- Are less likely to have a channel manager (59 percent vs. 72 percent) or property management software 51 percent vs. 64 percent)
- Get a greater proportion of their bookings from the major distribution channels (83 percent vs. 57 percent)
Leisure market property managers can study their urban peers and consider what elements of the urban growth story they can bring to their markets.
Technology Adoption is Still in its Infancy
According to the survey, technology solutions promise to improve operational efficiency for property managers. However, adoption of this productivity-enhancing technology is in its infancy – and there is a lot more to come on this score (stay tuned for future research on this topic). We were surprised to learn that European property managers haven’t been more aggressive in deploying technology to capture unrealized opportunity and believe it represents some of the easiest potential gains for property managers. To wit,
- Less than half of all property managers adjust prices more than once a month
- Only ~20 percent of property managers deploy labor and cost saving tools like keyless entry systems or connected thermostats
- Over a third of property managers do not use property management software or a channel manager
Embedded within the overall adoption rates, we find that larger property managers use more technology than their smaller peers. Technology is particularly impactful for large property managers because it drives performance on a per listing basis as compared with operational disciplines (e.g., cleaning and maintenance) that have limited efficiency gains with scale. The largest cohort had the highest adoption of daily pricing updates (33 percent vs. 18 percent for all others) and data purchasing (30 percent vs. 11 percent for all others).
The Times (and Business Models) They are a Changin’
Property managers are experimenting with new business models and we see signs that new models are gaining traction. Fixed rent models (e.g., rent-to-rent) are gaining traction, especially among urban PMs seeking to anticipate regulatory issues and create more durable (investable) franchises. The predictability of this model for the owner also may help them secure more inventory.
Fixed rent is still far from the dominant business model. Gross price model (PM gets a percentage of total revenue) is still the most popular business model with approximately half of the market. Net price (property manager gets any income above agreed upon amount) is also seen in the market, but it’s the least popular business model.
In the summer of 2018, Transparent conducted its first annual European Vacation Rental Survey in conjunction with 12 industry associations and tourism boards. More than 500 property managers from across Europe participated in the study, representing more than 30,000 properties and 25 countries. Their property portfolios span two orders of magnitude and include both urban and leisure markets.
Based in Madrid, Spain, Transparent is the global leader in providing data intelligence for the short-term rental industry. Transparent works closely with first-class public institutions, property developers, property management companies, hotels and other key market players and major brands, such as, Booking.com, Accor Hotels, Phocuswright, Sykes Cottages, KPMG and Wyndham. Since 2016, the company has been building data analytics products to empower and enhance these institutions knowledge of the short-term rental industry. It now tracks more than 20 million listings worldwide.
And if you still haven't secured your spot for VRMA's European Conference in Prague later this month, be sure to register by March 16.