The history of hotels and vacation rentals
In 1952 the Holiday Inn brand was unveiled in an attempt to create a consistent and quality experience for guests traveling city-to-city. Shortly after, Conrad Hilton started his brand with the same goal in mind. Suitors began to follow in the subsequent years, so much so that in 2012, six of the largest hotel groups managed 70% of all hotel rooms.
Fast forward to 2016: The projected growth of the vacation rental industry is from $101 billion in 2014 to $285 billion by 2025 according to Piper Jaffray. Airbnb, VRBO, and a few other booking sites have defragmented what used to be a professional industry, and the industry is now largely in the hands of amateur owners.
With HomeAway estimating that 60% of U.S. properties are self-managed, the market is primed for deep-pocketed hotels and innovative management companies to expand at a rapid pace. For growth to hit what Piper Jaffray expects, consolidation within the space will have to occur.
Last week, two major hotel brands announced their entrance into the vacation rental waters. Accor purchased a 30% stake in Oasis Collections, and Choice Hotels announced the opening of their vacation rental platform. Coupled with Hyatt’s investment in onefinestay and Wyndham’s foothold in the industry, these two announcements prove the old adage: “If you can’t beat them, join them.”
Hotels and vacation rentals today
The giant in today’s vacation rental space, Wyndham has 25 rental brands and 9,000 North American properties and manages over 100,000 vacation rental properties in 500 unique destinations worldwide. Early to the vacation rental industry, Wyndham has been setting the pace for the industry and now has a huge advantage other hotel brands that are just getting started.
Choice Hotels, however, is taking a different approach. Instead of physically managing each unit, they are setting brand standards and partnering with management companies. Similar to operating their brand like a hotel, Choice Hotels is focusing on franchising, branding, and operating rather than the day-to-day management.
Every year, Choice Hotels has 170 million visitors on their website, making it easy to distribute that traffic among their vacation rentals. Because Choice Hotels has never been a management company, this approach will make it easy for them to quickly gain market share over the next year or two.
Even Best Western and many boutique hotels have turned to Airbnb to market their rooms in an effort to capture Airbnb’s almost 60 million users, but what does this mean for the future of the vacation rental industry?
The future of the vacation rental industry
Consolidation is not over—especially when Hilton, Holiday Inn, IHG, and Marriott have yet to show their hand in vacation rentals, and it is only a matter of time before more hotels become involved. With more and more hotels likewise becoming increasingly asset-light, it will be easier for brands enter the space like Choice Hotels.
And this may make some things better for the industry overall; hotels and their lobbyists could help curb the wrongheaded and heavy vacation rental regulations that have been enacted in response to the unprofessionalism of a select few in the industry.
Savvy and loyal travelers will likely branch out into vacation rentals with their trusted hotel brands, and business travelers will continue to increasingly use vacation rentals, especially when loyalty points are rewarded. These two movements could trigger a shift from Airbnb back towards hotel brands, but for now is simply another battle in the war of Airbnb vs hotels.
Much in the way that hotels began to brand and consolidate in the 1950’s, vacation rentals are progressing today in the same way. With heavy investments from VCs in the vacation rental industry, it is also likely that several non-hotel brands will gain major market share. Over the next few weeks, months, and years, be on the lookout for more industry news and changes; the movement will continue.