After the Boom: How Property Managers Must Respond to Industry Changes

Hal Conick
2/6/2023

Toby Babich first heard news of a dangerous virus spreading across the world during a ski vacation with his family. It was March 2020, and they were in the mountains of Crested Butte, Colorado, seemingly far away from any world-changing events. “We figured it’s not going to touch us,” says Babich, CEO and president of Breckenridge Resort Managers. “Boy were we wrong.”

The rest of Babich’s year will sound familiar to nearly all vacation rental property managers.

Babich and his company initially suffered months of uncertainty, with much of Breckenridge, Colorado—where Babich’s company manages 60 properties—shut down, then socially distanced, for months. It was a period of trepidation and anxiety. But that period was followed by something perhaps even more unexpected: a huge boom in business.

“We didn’t expect that the business was going to grow, how our industry was going to blossom and bloom in a very difficult time,” says Babich, who noticed an increase in business between 20 percent and 40 percent after the initial days of uncertainty. Many of these guests were discovering vacation rentals for the first time, staying within a drive from home and away from the crowded hallways of hotels. Babich learned about new technology for contactless energy, new processes for managing his business, and new ways to serve guests who wanted to get away from home amid a tough time.

The entire market and its outlook into the future saw tremendous growth. Airbnb went public in 2020 and grew 112 percent on its first day. In 2021, the year after the start of the pandemic, the US vacation rental market alone was valued at $14.32 billion in 2021, according to Research and Markets. The same report expects the industry to grow at 8.49 percent each year before reaching $21.53 billion in 2026. Industry insiders and outsiders alike went on a property buying spree. A 2021 report by the National Association of Realtors found that vacation home sales rose 16.4 percent in 2020, far outpacing the 5.6 percent growth of total existing home sales.

This trend continued into the next year, as a 2022 Redfin report found that demand for US vacation homes was up 77 percent by the end of 2021.

With the boom came great scrutiny. Babich says that he and others across the industry have had to deal with an increase in regulations, an increase of political hostility against the vacation rental industry, and communities that once accepted vacation rental properties turning against them. “Now, we have another set of challenges in really working with our legislators, policymakers, and local elected officials to keep our businesses open and our livelihoods intact,” Babich says. “That leads to today; we’re existing in that environment right now, and that’s probably going to continue for some time. The regulatory environment came at us quicker than COVID-19 did and has been much more destructive.”

And while there are still more people than ever interested in vacation rental properties, the industry is experiencing changes in demand, occupancy, and expectations from guests. But property managers shouldn’t lose hope. Simon Lehman, CEO and co-founder of AJL Atelier, has been in the industry since 2005 and has seen it survive tough times.

“The vacation rental industry is one of the most resilient travel verticals that there is,” Lehman says. “It survived SARS, the 2008 financial crisis, and it will survive whatever happens from these days after COVID-19.”

Here are some ways vacation rental managers can plan to survive and thrive after the pandemic boom.

Plan for Rainy Days

When Lehman spoke at the 2022 VRMA Executive Summit in June, he walked on stage carrying an umbrella and told the crowd, “When it’s sunny out there, never forget the umbrella.” In essence: Amid upswings, prepare for downturns. Now, many managers across the industry need an umbrella. Lehman has seen that the average daily rate (ADR) and occupancy are dropping, meaning profits are also down. AirDNA reports that the ADR for 2021 was $260.08 but in 2022 is forecasted to drop to $249.64. Occupancy will also drop slightly, according to the report, from 60.2 percent to 59.8 percent.

“This doesn’t mean that we’re entering into a crisis in vacation rentals,” Lehman says. “The vacation rental industry has been blessed by COVID-19 for a number of reasons—the main reason is that category awareness of travelers is has finally surpassed 80 percent. We have a lot of customers now coming into short-term rentals who were used to hotels before, and they have a different expectation. That’s why we’re screaming about guest experience, training, and lifting the game in terms of quality of inventory.”

With the blessing of awareness but dipping ADR and occupancy rates, Lehman says that it’s time for many vacation rental mangers to invest in improving guest experience and staff training.

With changes in demand and pricing, Lehman suggests that leaders think about what levers they can pull to drive create profits and what levers drive costs. What costs recur each month, regardless of how many bookings and check-ins are happening? How can companies create more value? Should there be a stronger marketing plan, or is it as simple as reducing pricing on certain nights? Every vacation rental company must practice good financial hygiene, Lehman says. Revenue management tools are a good idea for leaders who aren’t currently using them, of which there are many—according to Lehman, only a third of property managers currently use revenue management tools. But these tools can be valuable for exploring demand predictions, rate recommendations, and price dynamics of the competition in the region.

“Revenue management been neglected in our industry, but the managers who are doing well have found massive additional opportunities in integrating higher profitability and creating higher occupancies,” Lehman says.

For those who aren’t yet using revenue management tools, Lehman suggests that property managers perform a competitive analysis to see where they stand among the competition. “Define your market, look at your competition, benchmark yourself against the data that is available,” he says. “That’s step one.”

Often, property managers who take this step will see that they’ve underpriced their products and have lower ADRs than competitors. This comes as a surprise to many, Lehman says, but it can’t be a surprise for businesses hoping to survive long-term.

“You have to make decisions to optimize your business,” he says. “Benchmark yourself and really understand what the rest of the market is doing to make sure that you’re positioned the right way in that market.”

Playing Politics

The vacation rental industry has always been welcoming to people of all backgrounds—that’s what drew Julia Lane Napolski, principal at Parlay Vous, to the industry.

But when the pandemic hit, the industry welcomed a surge of investment from outsiders and the watchful eye of regulators at all levels. Investors saw an industry poised for growth with a ton of potential, while regulators saw an existential threat to the social and economic fabric of their local areas. “Regulatory battles have had been there since
day one,” Napolski says. “But this very complex regulatory environment of short-term rentals created so many ways to abuse the system. And for regulators, it created a sense of fear that there were a lot of bad actors in the industry.”

Napolski says that the industry being flooded by investors and new property managers has led to concerns over issues such as housing affordability and the fabric of neighborhoods being ruined. New property managers—typically from commercial platforms like Airbnb—have also had problems with simple things, such as paying taxes or following community rules.

For Napolski, a big part of the solution is in advocacy. Advocacy has never been the strong suit of the vacation rental industry, but that needs to change, says Napolski, who also serves on the VRMA Advocacy Fund. The Advocacy Fund is on the cusp of raising $600,000, which it will use to advocate for, educate, and provide resources to property management companies on how to organize.

“We want to fix these problems caused by this massive popularity gain,” Napolski says. “We don’t want to change the sense of a place because that’s why people want to be there in the first place.” Babich agrees that it’s important to stay in touch with local politicians, but he also knows just how frustrating it can be to be an advocate for the industry. In Summit County, where all his properties reside, there’s a moratorium in place for new short-term rental licenses.

“Because of that, we don’t know what our inventory pool is going to look like at the end of the moratorium, which is going to be in mid-winter,” Babich says. “They could further restrict or take away people’s licenses; they could set the cap where it is now and have licenses leave by atrophy; or they can open it all up. We don’t know how to prepare for the demand because we don’t know what the supply is going to be. It leaves us very uncertain about what levers to pull.”

The frustration for Babich is that Breckenridge and Summit County aren’t a hugely populated area—he’s friends with many of the regulators there. Even so, the conversations have been frustrating and volatile, turning many friends into adversaries. “It’s community member against community member, community against second homeowner, community against business,” Babich says. “It’s unlike anything I’ve ever seen and very toxic.”

Frustrating as it may be to organize and get involved politically, property managers who care about the industry must make themselves known, Lehman says. The hotel industry lobbies hard—vacation rental property managers must follow suit. As it stands now, Lehman says that Airbnb is what most consumers and regulators know. But a strong lobby from vacation rental mangers, one that educates and informs regulators, can give the industry a more human face.

“Property management companies often say, ‘Somebody else will fight, and it will be fine,’”

Lehman says. “No, that’s not good. We all need to do it together. I think you must become part of any lobbying groups. Because there’s not much you can do about something once it’s law.”

Planning for What May Come

The next couple of years will show the true colors of the vacation rental industry, Napolski says. She believes that those who invested in the industry without truly understanding it have bloated the industry, which makes it essential for vacation property managers who care about its future to focus on improving guest experience. She believes that brand and guest experience will be what separates property managers that survive versus those who give up. “Companies that survive will be serving guests and providing these wonderful experiences that are above and beyond,” Napolski says.

Napolski believes that there will also be more standardization and regulation, something she hopes that members of VRMA can help define. If done properly, she believes collaborating on regulation and standardization can help communities feel safe about welcoming vacation rental properties and help guests know that they’ll be getting a good, consistent experience.

For now, Napolski believes that brands will have to focus on better marketing and technology. “That means building a brand and tying together the digital ecosystem with the global and remove traveler in mind,” she says. “There will need to be a lot of consolidation of technology on the operator side to make things easier for everyone. We’ve had a big innovation boom in technology, too, but it’s been disjointed and overly complicated. I’m really looking forward to more tech consolidation.”

Lehman feels optimistic about the future of the industry. Like Napolski, he believes that investors who swooped in hoping to make a quick buck will disappear—vacation rental managers who truly care about the guest experience will be able to capitalize. Case in point: He estimates that 65 percent of inventory is managed individually, while 35 percent is managed by professional property management companies. “The addressable market for professionally

managed inventory is massive,” Lehman says. “I’m optimistic that business will continue to thrive for professional operators who have their finances under control, who understand the revenue management, who understand what the guests need, who train their staff, and who have a professional technology stack.”

Vacation rental properties are here to stay, Lehman says, but regulation will be the biggest risk, something Babich agrees with wholeheartedly. “Regulators don’t understand the data and how the different things they do could impact the economic facets of what we do,” Babich says. “If we’re not engaging with them, they’re throwing darts in the dark, and it gets really dangerous.” Over the next year, Babich hopes that regulation of the industry slows down. Regulators and property managers alike must be able to understand their effects of new rules. Currently, no one knows whether new regulations have positively or negatively impacted businesses, communities, and local income taxes.

Nationally, Babich is curious to see how travelers will travel, especially with rising inflation. Will people vacation less often? Will they stay closer to home? Will they still dine out and shop locally when they do travel? Knowing the overarching trends will help property managers better serve guests and help everyone know what to expect. “We’ve had enough unforeseen events thrown at us for my entire lifetime,” Babich says. “But even so, the vacation rental industry is growing, it’s thriving, and it’s becoming more professional. It’s a really exciting time for our industry, all things considered.” 

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