A Bold New Era: Part 2
We’ve entered the age of empowerment — guest empowerment. Today’s traveler is embracing the power to customize their experience. With the ease of having information at their fingertips wherever and whenever they wish, travelers are expecting vacation rental managers to be appropriately equipped to meet these needs.
For professional managers, the challenge of staying relevant in a growing market is further complicated by such macro trends as M&A activity, the introduction of slicker and more useful technology tools and the growth and ongoing presence of OTA’s, among others. In a way, you can say it’s time for vacation rental managers to meet guest expectations or be at risk of falling behind.
According to research from Skift, 68 percent of consumers plan to spend the same amount or more on leisure travel in 2018 compared to 2017. That means 2018 is shaping up to be a pivotal year for travel; and one in which vacation rental managers will need to up their game across a myriad of fronts.
Let’s take a look at five in particular. We asked VRMA members to give us their thoughts on how the following five trends will shape up in the year ahead and how VRMs should be prepared: Guest Services, The Growing Role of Data, M&A Activity and Going International
The following are brief ‘executive summaries’ on the two topics: M&A Activity and Going International, each authored by a different VRMA member. These summaries are meant to introduce new ideas, which will be explored in greater detail in Arrival (both online and in print) in the year ahead. And take a look back if you missed last week's topics of Guest Services and The Growing Role of Data.
M&A: Where We’ve Been and What We Can Expect
As we begin another new year in the vacation rental industry, numerous changes abound. These changes continue to take similar form from years past. Some of the most impactful changes range from distribution terms to legislative concerns to increased industry awareness precipitating new entrants to space. These changes are forcing company owners and managers to operate more progressively in an effort to sustain prior year operating profits.
These changes also present a decision point for many company owners. This decision is leading many owners to capitalize on the sale of their business. These industry changes have generated a number of sales in the vacation rental space and we expect this trend to continue as these changes continue within the industry. While these changes precipitate a number of sales annually, many company owners see an opportunity to profit.
No matter the rationale for capitalizing on the sale, selling a vacation rental business presents owners with a viable and lucrative opportunity to exit the business. The single largest issue we continue to see throughout the industry is the lack of knowledge surrounding the sale process. If, as a vacation rental company owner, you are relying on a prospective buyer to provide access to market rate deal terms and transaction norms you may be at a disadvantage.
We can certainly expect the merger and acquisition volume to continue to heat up. There are plenty of buyers in the industry searching for quality businesses. Market rate terms and transaction protocols exist and represent a fair and reasonable deal process. As the opportunity of a sale presents itself, it is imperative to research the process to ensure a successful transaction. Prior preparation and diligence will guarantee you financial success when selling your business, as well as provide for your employees and owners.
The international vacation rental market is growing faster and changing more dramatically than the domestic U.S. market, creating fresh opportunity and unique risks for vacation rental managers (VRMs) looking to diversify. VRMs with an eye for overseas expansion should familiarize themselves with regional nuances in the following categories:
In the U.S., HomeAway is the dominant distribution channel for property managers in destination communities. Airbnb dominates urban and emerging markets and Booking.com struggles to fight for market share. The players stay the same in Europe but the hierarchy changes. Booking.com is dominant, Airbnb has gained a significant share of many markets, and HomeAway is struggling. Channels are battling it out all over the world. In South Africa, there are roughly 20 relevant channels, but Airbnb has been expanding in the region so dramatically and utilizing its pricing tool so effectively that it appears to have lowered the average daily rate for all of Cape Town, which has caused some consternation amongst owners there.
VRMs operating in the international market are increasingly embracing channel partner exclusivity — particularly with Airbnb. Airbnb’s new tools enable VRMs to launch their businesses in unsophisticated markets quickly, without a property management system (PMS). (Most comprehensive PMS systems don’t support multi-currency transactions. Be careful about going exclusive. While it may be easier to get up and running with a single channel partner overseas, doing so limits your marketing reach.
The sale of Wyndham’s European vacation rental arm will send ripple effects through markets across Europe. The buyer—most likely a private equity firm—will likely want to separate each of the mega-brands Wyndham has acquired over the years, including Hoseasons and Novasol. The ensuing transition will lead to portfolio turnover, returning thousands of vacation homes to the European market from Greece to the U.K.
Throughout Asia and Africa, the introduction of vacation rental technology is creating wild volatility in the market. It’s also opening up travelers to the Rwandas, Ugandas and Cambodias of the world — places people want to visit that have primarily been accessible only through travel companies and travel agents. It will be exciting to see if vacation rentals contribute to a greater social connection in these places as travelers opt to stay in communities instead of just at safari lodges and resorts.
Europe resembles the U.S. in that there’s less pushback in non-urban tourist markets and heavy regulation in the cities. Berlin, for example, has an all-out ban on vacation rentals although a recent decision overturned part of the complete ban as applied to Berlin residents. London and Amsterdam have 90 and 60-day restrictions, respectively. We have the luxury of complaining about tourism in the U.S. and Europe, but you just don’t see it in Latin America, Africa, or Southeast Asia (where inventory is growing rapidly — especially in Vietnam). These markets are embracing vacation rentals as part of their evolving tourism sectors — a better alternative to other industries that are prevalent in their countries such as mining and industrial manufacturing.
It’s a good time for VRMs to consider expanding overseas. Focusing your research on the above categories will help you set out on the right foot.