Trends in the Vacation Rental Industry: Q2 2014
Vacation rental industry trends: A deeper look at the issues shaping the vacation rental landscape in 2014.
This is the second in the VRMA series of quarterly reviews of the top trends in the vacation rental (VR) industry. For those new to the series, the first piece can be found here.
The intent of this series is not to be completely exhaustive of all events that have taken place over the quarter, but rather to synthesize the major trends and developments within the industry over the period.
The hope is also to stimulate discussion and debate, so please use the comments section below. What trends have I missed? What can vacation rental managers (VRMs) do to benefit from the positive ones, and to limit the detriment caused by the negative ones?
The last article focused on 4 main trends, namely continued growth, regulation, increasing professionalism, and new entrants. While these trends have continued, simply repeating the same trends again would not be terribly interesting or informative. For this reason, this piece will focus on some new trends, and some nuances to prior ones. Specifically:
- Industry consolidation (new)
- Backlash against the big players (new)
- VR industry becoming ever more mainstream (nuance)
- Regulations not being as bad as predicted (nuance)
Below I will briefly touch on what each trend is, and its implications for VRMs as well as the industry as a whole.
Though not addressed on its own before, this is not exactly a new trend. HomeAway and TripAdvisor have been buying up smaller companies in the VR space for years. Their appetite for acquisitions is so voracious that each has its own page on Crunchbase dedicated to the topic (HomeAway, TripAdvisor).
And this period was no different. The beginning of the year saw HomeAway make two high profile acquisitions: of Stayz in Australia, and Glad to Have You closer to home. TripAdvisor announced its acquisition of Vacation Rental Homes in May.
But while these moves may seem like business as usual, there were a few events that set Q2 apart. One was the entry of RealPage into the space. While large VR players led this trend in the past, RealPage’s acquisition of Bookt signaled that the industry is now getting to a size and level of importance to attract big public companies previously unaffiliated with vacation rentals.
And it is not just large public companies driving this trend. Acquisitions by Vacasa, Resort Realty, Seaside Vacation Rentals, TurnKey and others show that with the right management and strategy, smaller and even relatively new companies can get into the game. The trend was so pronounced this period that VRM Intel not only published an article with experts weighing in on some of the biggest acquisitions, but also published one advising owners how to get the most from the sale of their company.
That being said, not everyone is looking to be bought. During the quarter Airbnb effectively priced itself out of an acquisition with a round of funding that valued the company at $10 billion. And even at less stratospheric altitudes companies like LiveRez have explicitly stated their intent to remain independent.
Still, this is a trend worth watching. Clearly many people and companies believe bigger is better when it comes to vacation rentals. With the recent launch by Priceline/Booking.com of Villas.com, they may have good reason to want to solidify their position quickly.
One note on this section – most of the links in this section are to group discussions in LinkedIn, Yahoo, etc. Many are only open to members of said groups. If you are reading this, you are clearly interested in the vacation rental space. If you are not yet a member of these groups, I would strongly suggest applying (all should be free).
While bigger can certainly be better, size and power come with tradeoffs. In particular, as your company gets bigger so does the target on your back. As Q2 saw some of the largest companies in the space grow ever larger, it also saw the backlash against said companies grow ever more vocal.
Amongst the big players, virtually no one walked away unscathed. Not surprisingly, one of the most active current discussions regarding a big player revolves around HomeAway. And in some forums, the debate has grown so heated that HomeAway Co-Founder Carl Shepherd has felt the need to weigh in personally.
But HomeAway is not alone. Airbnb has received its share of complaints in discussion groups, as have FlipKey and HouseTrip. The anger is not necessarily even targeted at individual companies, but rather the idea of large players wielding too much power more generally. Besides the targeted discussions, there are also numerous more general ones about being fed up with the large players, and people deciding to go it on their own instead (e.g., here and here).
It is too early to make any sort of meaningful prediction as to where this trend might lead. That being said, the tension between this trend and the first one is real. As companies seek to grow ever larger on one hand, some of their customers become ever more frustrated on the other. Only time will tell if bigger truly is better.
Admittedly this is a trend mentioned in the first article, growth, albeit under a different name. However, there are some nuances worth discussing here that were less apparent last time around.
At a high level, the growth and popularity have continued apace. For the first time, a TripAdvisor survey showed that over half of US travelers plan to stay in a vacation rental. This statistic alone is tremendous when as recently as 2008 only 11% of travelers reported staying in a vacation rental, and it is indicative of just how mainstream vacation rentals are becoming.
No longer are vacation rentals just for families booking weeklong vacations. Specific events are also driving the growth in the industry. Events like Coachella and SXSW, where local hotels sometimes cannot accommodate the surge in demand even if people wanted to stay in them are also increasing the sector’s popularity.
And “vacation rental” may soon become a misnomer. Concur reports that business travelers are increasingly booking these alternative accommodations as more convenient, unique, comfortable, and/or inexpensive alternatives to hotels. Perhaps this is why the industry got perhaps the best endorsement anyone could receive when the Sage of Omaha, Warren Buffett, recommended shareholders look into rentals rather than overpriced hotels for the Berkshire Hathaway annual meeting in Nebraska. Mr. Buffett is rarely wrong when it comes to business decisions, so if he is backing the industry, I like our future prospects.
The final trend we will cover in this review is an update to the ever-present regulatory threat. Last time we looked at how the battle against vacation rentals, and the sharing economy more generally, was spreading beyond the confines of New York City. Threats across the US and even in Europe were becoming apparent.
I am happy to report that the past quarter has for the most part seen sanity overcome hysteria. While regulations have been put in place, from Florida to France, and from Napa to Amsterdam the regulations that passed have for the most part been reasonable. They recognize the appeal of the offering, and why owners and renters alike often prefer rentals to more traditional lodging options. Rather than seek prohibition, they have put in place sensible rules ensuring consumers are protected, while at the same time working to increase the tax take, and thus benefiting the local economy on all fronts.
But while vacation rentals and consumer choice may have won most of the recent battles, the war is not yet over. Vested interests, namely hotel owners and operators, will continue to fight back as long as they believe their profits are being threatened. We are continuing to see this in New York, but it is also true as far afield as Vienna and beyond. I hate to say it, but my guess is this will be a top trend for some time to come.
As the vacation rental industry continues to grow in popularity and appeal, we can expect to see ever more, ever larger, and ever quicker changes within the industry. While it is difficult to ascertain exactly what each of these changes will mean in the long run, staying abreast of them provides us with the best chance of taking advantage of them, and of mitigating any risks they may create. I look forward to any comments or discussion on the points discussed above, or any I may have missed. If you would prefer to discuss things more privately, feel free to contact me directly at Andrew.McConnell@vacationfutures.com. I look forward to hearing from you, and to seeing what the future brings.