expect-2019-vaction-rental-industry-changes-predictions
December 23, 2018

What to Expect in 2019 for the Vacation Rental Industry

As we close one year and enter a new one, the perennial question is should you look back or look forward? At Rented.com our eyes are facing forward, and what a year 2019 should be. That is not to say we do not learn from our prior experiences, however, as what we have seen and learned will certainly inform our predictions for the year to come. There is certainly a balance we must strike.

 

So without further ado, what do we see for the year ahead?

 

 

Vacation Rental 2019 Argument

The Big Players Stop Playing Nice in 2019 

 

This is not to say the giants of the short-term rental industry have always been the best of friends. But the competition, to date at least, has been more gentlemanly than aggressive. That was of course until Expedia’s acquisition of ApartmentJet and Pillow on the same day in 2018.

 

Not only did this signal a more aggressive push into the urban markets and multifamily buildings more traditionally the terrain of Airbnb, but perhaps even more importantly, the move began to tread on the more traditional real estate industry. With the move, Expedia demonstrated it was no longer content to battle it out with the other OTAs in online distribution of short-term rentals, a $170 Billion market, but rather wanted to start eating into the far more massive $217 Trillion real estate industry.

 

Expect this trend to continue. As the big players get ever bigger, and as they have to chase growth to appease investors and public markets, expect to see them more aggressively compete for market share within the short-term rental industry, and outside of it. Expedia’s acquisitions were the most public display of jumping out of our short-term rental pond and into the global real estate ocean thus far, but it will certainly not be the last.

Vacation Rental 2019 Tie Ups

More Tie Ups in 2019 

 

It is not surprising that this list kicked off with an acquisition or two, and we can expect 2019 to not be any different. For the past 5-10 years companies have been pouring into the space chasing the elusive treasure the success of Airbnb suggested was available, and investors followed close behind.

 

As we saw all too clearly in 2018, the chance for failure was far higher than that of success in chasing this dream. As investors begin to get impatient, expect more companies to search for a graceful exit in the arms of a larger suitor. Some of the tie ups will make strategic sense, with the larger players further building and securing their market-leading position. Others will be acquisitions in name only. And still others may find themselves trying to navigate a slowing economy when the music stops, with no chair available. Creative destruction will be in full force as we close out the decade.

 

Vacation Rental 2019 - Slowing Economy

 

A Slowing Economy Might Not Be Bad For Everyone

 

It is important to remember that even when the economy is not so hot, people don’t stop traveling entirely. Perhaps they are not flying to Hawaii or Bali as much, but they still plan their summer vacation. It is just that instead of that distant exotic trip they might drive to Topsail, NC and rent a house from Mike Harrington instead.

 

What this means is that as much growth as the industry has seen as the economy expanded over the past ~6 years, short-term rentals are an even more competitive substitute good to hotels in a down economy. To date much of the growth has been incremental, not really harming hotels who continue to see record ADRs and occupancy. But when the economy turns, expect this to change. At that stage, short-term rentals will far more clearly begin to eat into hotels’ pie.

 

At the same time, it is important to remember that there is almost twice as much available rental inventory as what is currently put into the rental market. Meaning that for every short-term rental out there, there are another two second homes, vacation homes, and investment properties where the owner, today at least, had chosen not to rent the property out on a short-term rental basis.

 

As 2008 and the years following showed us, the calculus for these owners changes pretty dramatically when the economy turns. All of a sudden the rental income potential that did not seem worth it when the stock market was hitting new records, becomes all but necessary as paper earnings begin to disappear.

 

These two forces combine, increased inventory and increased guest demand, to make short-term rentals one of the few that actually has the potential to do better even as the world around it is doing worse. There are certainly no guarantees, but the potential is there.

 

Vacation Rental 2019 - Tensions

This Will Create New Tensions

 

However, for all of the potential that new supply and new guests create, there are downsides. On one hand you have new owners and properties coming online with no experience in meeting guest expectations. And keep in mind that guests’ expectations have only moved in one direction in recent years: getting ever-higher.

 

On the other hand you will have more guests that have no experience whatsoever with short-term rentals, much less with the old days of self-service sheets and toiletries. They are instead coming from the world of big box hotels, expecting consistency and professionalism all the way down to the thread count of the sheets on their bed.

 

As naive new owners begin hosting demanding new guests, expect mismatches and disgruntlement from all involved. The past few years have done quite a bit to build awareness for the short-term rental industry, but awareness and education are two very different things. However, even as these mismatched expectations make life difficult for some, it creates an incredible opportunity for others. For those, e.g., professional managers, who can successfully bridge that gap between these new owners and these new guests, the potential mismatch could actually be their match made in heaven.

 

Vacation Rental 2019 - Surprise

2019 Will Hold A BIG Surprise

 

Lastly, our industry is due a big surprise. 2019 will mark 4 years since Expedia purchased HomeAway, and our industry has not experienced something as big or as surprising in the years since. Each change, innovation, development, acquisition, or failure, while important, could all be seen as incremental steps in a more general direction that could be seen coming for a while.

 

2019 should be the year this changes. The year something comes entirely out of the blue and makes us all reassess the industry and our role within it. I will not pretend to suggest that I have any idea whatsoever what this big surprise will be, if I did it wouldn’t be a surprise. But like everyone else, I am sure excited to find out.

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