The vacation rental industry has gone through a lot of changes lately. The past year has seen new vacation rental industry trends that will have an impact on how we do business in 2020.
So what can property managers do to prepare for the challenges of the New Year and make sure that their businesses not only remain competitive but are also able to grow?
To find out, we asked top vacation rental industry experts to reveal their predictions for 2020. The Founders and CEOs of some of the world’s fastest-growing vacation rental businesses – Sykes Holiday Cottages, GuestReady, VTrips, City Relay, Altido, Stay Alfred and Lavanda – shared with us how they see the future of vacation rentals, including the challenges and opportunities.
Here are the top vacation rental industry trends that will define the future of property management businesses in 2020.
2019 was the year of mergers and acquisitions in the vacation rental world. Huge deals – like Vacasa’s acquisition of Wyndham Vacation Rentals – started a wave of consolidation never seen before in the industry.
The experts we interviewed predict that this trend will continue – and perhaps accelerate – in 2020.
“I think we will see more consolidation. We’ve seen the start of it over the last couple of years. I think there will inevitably be a few booms and busts that present opportunities for consolidation,” says Tom Archer, CEO at Altido, a property management company that was created earlier this year through the merger of four smaller companies.
“I think there’s going to be lots of consolidation happening across our sector. It’s already happening. We’re a private equity-owned business, so what does that mean? That means eventually there’ll be other investors that are required. So we’re on that journey, and for us, it’s really about making sure we work with the right partners moving forward,” says Graham Donoghue, CEO at Sykes Holiday Cottages, one of the property managers at the forefront of the new wave of consolidation.
“We will drive some of that consolidation and we are looking for good quality businesses across the world that we can fold into our platform,” he adds.
Sykes Holiday Cottages acquired 11 other property management businesses in the last 18 months. They use sophisticated data analytics to track business around the world that could be interesting opportunities. Read the full case study here!
Acquiring other businesses is clearly a fantastic growth opportunity for big property managers. But should small property managers feel threatened by the big players driving consolidation?
According to Maxime Leufroy-Murat, CEO at City Relay, the answer is no.
“To me, [short lets] remains a local business, a community-based business. You need to be local, you need to understand your market,” he says. “I don’t really see them as a threat. A lot of people are telling us that actually they prefer to work with a smaller guy. So I don’t think it gives you that unique edge to be bigger. I actually think that the more local, the more personal you are, the bigger your business will become,” he adds.
Alex Limpert, CEO at GuestReady – a company whose growth strategy also involves acquisitions, having recently acquired Easy Rental Services, Oporto City Flats and BnbLord – has a similar opinion.
“I still believe there are many opportunities for smaller property managers that are doing a really great job locally. We also see that there might be some more hybrid models where it’s not a full-on acquisition but where smaller property managers piggyback on the technology of bigger property managers like GuestReady. Local property managers that have known their markets for many decades but are maybe not the most tech-savvy or have the best operational set up can actually also leverage that by joining technology solutions like GuestReady’s,” he says.
The experts we interviewed pointed out that in order to be successful, mergers and acquisitions must be done in a controlled way. The sustainability of business models versus growth is a question that’s bound to come up in the New Year.
“I think there’ll be the profitable, well-run names who will start to go on a kind of virtuous circle where they start to buy other well-run companies as well and start to go on a positive run. And unfortunately, I also think there will be some relatively large unprofitable operators who may have gone for growth over sustainable business, who could get caught out if regulation tightens or if the funding market dries up for them. So I think it would be quite a binary year for those scale-ups, but it would be really interesting,” says Fred Lerche-Lerchenborg, CEO at Lavanda, a former property management company turned vacation rental tech provider.
“I think what’s going to really separate companies that are actually consolidated is not how fast they consolidate but how much of the business they sustain two years after the acquisition,” says Steve Milo, CEO at VTrips.
“There are some companies that have made a lot of clippings about acquisition and roll-up but they are haemorrhaging property owners as they bring them on in an attempt to merge them together. That’s just a fundamentally bad business model. It’ll be interesting to see which business models actually prevail for the long run because some of them right now are inherently dysfunctional,” he adds.
VTrips is another property manager driving consolidation in the US: they have acquired 15-16 companies to date, completing 10 roll-ups in a 12-month period. Read the full case study here!
Another significant vacation rental industry trend is the increasing interest of multifamily agencies and developers in turning their properties into short-term rentals.
According to Tom Archer, CEO at Altido: “The developers and agents out there have been hesitant, but the market is proving itself more and more, so I think we’ll see more and more big players getting involved.”
Some property management companies are investing a lot of time and effort into unlocking multifamily inventory and helping developers and owners move into the vacation rental market. Stay Alfred, for instance, has a Business Development Team for sourcing inventory and building relationships with property developers and owners. Read the full case study here!
“I would say the market is going to continue to expand. I think that there will be some loosening of inventory,” says Doug Truitt, Director of Distribution at Stay Alfred.
“It will start to show that there is a toolset for property owners and developers to really maximise their business efforts. There is a lot of expansion out there, a lot of new builds, and I think that property owners and developers are going to start realising that this space is something that is definitely needed and that the majority of the travel space is starting to ask for it really heavily, even demanding it,” he adds.
According to Fred Lerche-Lerchenborg, CEO at Lavanda: “We see that the multifamily and estate agencies – and maybe also more old-school residential operators and owners – will be heading very heavily into this area. It’s a really interesting way for them to innovate. And platforms like ourselves start to make it feasible and possible for them to do that. I think they will start to run serviced apartments themselves within blocks. In some circumstances, that’s super attractive and it means that they can do it under their cohesive brand across their estate. But I also think there’s a massive space for medium, small and large operators.”
As a parallel phenomenon to the growing interest of multifamily developers in vacation rentals, leading property managers also foresee the growth of the so-called “master lease” model, which involves leasing multiple units within a building – potentially entire floors or the whole building – on a long-term basis.
“I think that the master leases bubble (if I can call it that, which admittedly may be a bit contentious) will continue to grow next year. There’s clearly a lot of capital going into that. We think there are potentially question marks over the sustainability of the financial model there, but undoubtedly that will grow,” says Fred Lerche-Lerchenborg, CEO at Lavanda.
“I think in some markets [the multi-family master lease model] works pretty well. But I think it’s a much more risky business. Each opportunity needs to be evaluated really carefully. If you go in too high with your master-lease agreement – what you pay to the owners – then you might pay for that later. So I think it’s something that needs to be thought about carefully. I do believe this model is on a case-by-case basis and in some markets it works better than in others,” says Alex Limpert, CEO at GuestReady.
Finally, the experts we spoke with predict that as the industry matures, regulations are going to tighten.
“I think there will be more regulations, so we want to work with the different councils and the different governments to make sure that we’re ahead of the curve,” says Tom Archer, CEO at Altido.
“As Airbnb comes towards their IPO, I think there will be some grand bargain struck across the world that will have important effects as they want to legitimize in different cities. That may cause some people to fully follow that. I think people need to be really on top of this and be careful they’re not building their companies on sand. It’s really important to be on the right side of regulation and build sustainable business models,” says Fred Lerche-Lerchenborg, CEO at Lavanda.
The four main vacation rental industry trends of 2020 will undoubtedly be accelerated consolidation, increased involvement of multifamily agents, the growth of the master lease model and more regulations.
In this changing climate, technology will play a more important role than ever. Property management companies will need to make sure that they can rely on robust software solutions that enable them to grow their businesses and stay competitive in the dynamic world of vacation rentals.
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