Trends in the Vacation Rental Industry: How Did Q1 Live Up to Our Predictions?

2016 has already proved to be many things. Disruptive, lucrative (for some), and incredibly revealing, 2016 and the many changes it has brought are already proving to shape the short term rental industry. In Q4 of 2015, we stressed a few prominent trends: increased regulation, continued consolidation and convergence, and a distrust of the big players. In 2016, “The Year of the Customer,” we predicted the prioritization of demands and a revelation of OTAs’ predominant customers.
Here are where those predictions stand:
For yet another quarter, regulation continues to be ubiquitous across the U.S. and abroad. With short term rentals being banned from 540-person towns in Iceland to Berlin, we continue to see reactionary (and often unfair) regulation. For another quarter, many homeowners and guests continue to remain uninformed or unaware of the regulations in their areas. With many primarily living elsewhere and with regulations continuing to remain obfuscated, unclear, and difficult to find, it appears as if we still have not been able to enact fair, enforceable, and reasonable regulations.
While the regulations still remain unclear, it looks as if we are, however, finally beginning to develop the tools needed to track and grade short term rental regulations.
R Street Institute graded 59 U.S. cities on the legality, taxation, and regulatory requirements surrounding short term rentals. With legal restrictions averaging a -13.3 on their scale of 0 to -40, it still appears as if there is room for improvement. To see if your city was graded, try their grader here.
With short term rental regulations so frequently appearing and changing, it can feel impossible to stay updated on the latest—especially for some of the larger, multi-regional companies. For that reason, we likewise built a tool to help you stay updated on the most recent rental regulations. Browse the latest news, or search by your area to see what’s happening in your region.
Consolidation and Convergence
We’ve said it before, and we’ll say it again: “By pigeonholing your property, your home, and your business into just one category, you by definition limit your audience. You by definition limit your relevance. And you by definition limit your upside potential.”
With a $150 billion vacation rental market (and growing), more and more companies are looking to join and grow within the industry. No longer are the “hotel” brands limiting themselves to one form of accommodation; the industry is continuing to converge while the large vacation rental companies continue to consolidate and increase market share.
With Choice Hotels investing in vacation rentals this quarter, TripAdvisor purchasing vacation rental site HouseTrip, and last year’s many acquisitions and investments including the infamous Expedia acquisition of HomeAway, Hyatt’s investment in OneFineStay (and eventual purchase by Accor), the Marriott/Starwood merger, and the Accor/Fairmont/Raffles/Swissotel merger, the accommodation industry is rapidly growing and shifting.
And not only are the “hotel,” “motel,” and “vacation rental” industries converging into one broad industry that covers accommodation, the large, already-established vacation rental companies are only growing larger.
Vacation rental management giant, Vacasa, saw $35 million in funding that will be put towards expansion in about a dozen states and abroad, and the company plans on doubling its 1,000 employee workforce by the end of the year. likewise continues to expand in Europe, looking to do $500 million this year.
Distrust of the Big Players
As the industry’s biggest players continue to grow bigger and more powerful, we’ve seen increasing distrust of these brands.
To say self-managing homeowners are disgruntled would be a severe understatement. With a class action lawsuit in the works, homeowners blatantly advertising that they evade the new guest fees in their profiles, and anti-VRBO groups sprouting up on social media, it’s clear that many of the OTA customers aren’t thrilled with recent changes—no matter how other OTAs compare.
We predicted that OTAs’ choice to prioritize a customer (whether that customer be the supply, distribution, or demand) “may surprise, and infuriate, many long-term industry participants, but it also may helps take the short term rental industry to heights previously unimagined,” but we never thought there could be as much backlash and distrust of the major players—primarily VRBO and HomeAway—as there is now.
HomeAway has likewise made their primary customer incredibly clear: the guest. Not only did Expedia explicitly say this in their Q1 call, their actions have likewise shown that they are prioritizing guest needs, including online booking and faster conversions. With their most recent changes to subscription levels, we’ll continue to see HomeAway optimize their product for the guest.
Although we’ve seen increasingly contentious debates across the industry, this is not to say that the industry is not progressing. In fact, the alternative accommodation sector has already attracted stratospheric levels of investment, raising over $100 million in venture capital funding. With changing demand and increased investment in the space, the industry is poised for rapid advancement.
This is part of an ongoing VRMA series of quarterly reviews of the top trends in the vacation rental industry. For those new to the series, you can find earlier posts under Andrew McConnell's VRMA Blog Contributor Page.
This series' intent is to synthesize major trends and developments within the vacation rental industry over the period, not just to summarize them all. Andrew's hope is to stimulate discussion and debate, and as such he strongly encourage use of the comments section at the bottom. He would like especially to hear what trends you think he has missed and what vacation rental managers (VRMs) can do to benefit from positive trends while limiting the detriment caused by negative trends.
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