As we step into 2024, the vacation rental industry continues a significant transformation, driven by emerging trends and technological advancements. The 2024 Vacation Rental Trends webinar, shed light on these evolving dynamics. We will see a surge in AI adoption, not just for efficiency, but as an integral element enhancing guest experience. The industry keeps steering towards a more professional approach, emphasizing quality service and operational excellence. Challenges in market dynamics, regulatory landscapes, and innovative approaches to revenue generation, particularly through upsells, are also at the forefront. We are recapping the latest trends, shaping the vacation rental industry in the new year, discussed by hospitality experts during the webinar. Read on to reveal valuable insights into the future trajectory of the vibrant short-term rental sector.
Watch the webinar recording
A Sober Perspective on Vacation Rental Trends: Simon Lehmann
Simon Lehmann expressed a cautious outlook for the vacation rental industry in 2024, highlighting concerns about global warming, the changing expectations of homeowners, a weakening market, and global political instability. However, he noted the advantage of the industry being global, meaning that challenges are shared worldwide. This creates a strong community of vacation rental professionals who can support each other and unite in advocacy efforts. He also pointed out that technological advancements have led to a fragmented hospitality tech landscape, which can be overwhelming for operators. While AI brings both fears and opportunities, it represents a significant area for future growth and innovation in the industry.
Here are Simon’s top 10 industry observations:
1. The vacation rental industry is global, but at the same time – hyper-local and very fragmented.
2. Industry challenges, such as guest and homeowner issues, technology adaptation, and others, are consistent across the globe.
3. Global warming has a negative impact on the industry. Travel patterns are shifting due to climate change.
“Southern Europe is losing, Northern Europe is winning, just because it’s too hot to travel.”
4. AI plays a significant role in changing the industry.
5. Homeowners have experienced unusually high revenue in recent years. It’s important to keep good relationships with them, as their earnings will decrease in the next one or two years.
6. Softening in the market. ADR, RevPAR and occupancy have come down. Drop of an average lengths of stay. Supply has surpassed demand.
“The average length of stay is now 4.5 days, shorter than the 5-day average in 2019. It has increased but has since decreased again.”
7. The recent surge in travel was largely financed through debt. We are now at a record high of $800 billion in U.S. credit card debt. This is a huge increase compared to $650 billion in early 2021.
8. Growing interest from investors in the vacation rental industry, including private equity firms that weren’t involved five years ago. The financial market is increasingly focused on this sector, though it needs to understand its fragmented nature.
9. Political unrest and geopolitical challenges. Two wars going on that have a huge impact on home prices and everything else.
“In 2024 40 countries will have elections. Meaning that 42% of the global GDP and 41% of the world’s population will be voting for new leaders.”
10. It’s an opportunity for professional property managers to attract owners, struggling with high interest rates, by taking over management challenges. It’s a chance for short-term rental professionals to demonstrate their skills in revenue management, efficiency and guest experience.
Strengths And Weaknesses of the Industry in 2024: Andrew Kitchell
“80% of operators are nervous about 2024”
Andrew shares the most important metrics for hospitality businesses to track: supply, demand and booking window.
After years of sustained growth, the supply has slowed down. Many properties, especially in areas like Joshua Tree, are returning to the housing market. Good operators in the short-term rental market are likely to succeed as newer competitors may struggle and exit the market.
On the demand side, revenue per available room (RevPAR) has generally decreased by about 10 percent, which is a normal trend. Smaller properties, like 1 and 2-bedroom units, are doing better at maintaining their RevPAR compared to larger ones.
The booking window, or the time between booking and staying, is getting shorter almost everywhere. This could be due to more people returning to offices or a slowdown in post-COVID travel. Despite this, smaller properties are still maintaining their revenue, but bookings are happening closer to the stay date.
Vacation Rental Market Growth in 2023: Markus Rader
1. Past year’s concerns about recession and inflation didn’t come true. Markus, in his predictions for 2023, disagreed with these fears and correctly forecasted that the year would see the highest level of global travel ever recorded.
“On Thanksgiving day, a record-breaking three million people in the U.S. took flights, marking the highest single-day air traffic ever.”
2. The overall short-term rental market, similar to travel industry, has grown significantly. This is evident in the record-high revenues of major players like Airbnb, Booking.com, and Expedia. This indicates the overall health of the market.
3. Such growth of the market leads to more competition, but this is a temporary challenge. Over time, less successful operators will naturally phase out of the market.
4. Americans are increasingly traveling to Europe, resulting in less tourism in the U.S., while a higher exchange rate deters Europeans from visiting the U.S. This is the reason for market softening in the US, but we don’t see the same situation in Europe.
AI and Its Impact on the Hospitality Industry in 2024: Francois Gouelo
“Those who use AI will outperform the ones who don’t”
1. In 2024 both software vendors and property managers will be exploring how to effectively use AI in their businesses. Although AI is currently a bit of a mystery and often seen as just a buzzword, its potential is huge.
2. AI will bridge gaps between different technologies and standardize data across systems, providing property managers with greater visibility and understanding.
3. Some tech companies will misleadingly use AI labels to seem trendy. Property managers should carefully assess their needs before investing in AI solutions to ensure they address specific problems.
4. The industry has been using AI for revenue management and guest sentiment recognition. This new level will unlock communication automation at scale.
5. AI is transforming how we search for information. Instead of sifting through multiple sources, you can quickly get the info using tools like ChatGPT, Bing chat, or Bard.
“With AI chats you only need one search result to get a perfect answer for your query.”
6. Andrew adds that AI will make software platforms more accessible through an improved customer support or an ability to learn a platform. And with smaller teams building really advanced software products AI will reduce the software costs.
7. Marcus emphasizes the need for property managers to understand AI and adapt to changes in technology, especially in how properties are marketed and found.
Vacation Rental Supply Predictions for 2024
Hostaway’s current state of the industry report identified competition as the primary challenge for vacation rental managers in 2023. This includes competition from hotel chains venturing into apart hotels and vacation rentals, such as Marriott and others.
Shift from individual/amateur to professional – Francois
The trend in property management is shifting from amateur to professional. While some casual renting, like Airbnb in Paris during the Olympics, will continue, there’s a growing trend of operators developing professional businesses with systematic processes and scaling strategies, focusing on revenue and brand building.
Convergence of supply: hotels, corporate housing, STRs – Simon
In the vacation rental industry, professionals are likely to outperform individuals, especially in handling regulations, as observed in places like New York.
Only 20% of supply is professionally managed, so we still see a massive “long tail”.
While supply trends vary globally, there’s a noticeable convergence of hotel inventory, corporate housing, and short-term rentals (STRs). This includes more institutional investment in STRs and a shift in management approaches. For example, in the U.S., there’s growth in purpose-built properties, while in Europe, many hotels are converting into multifamily housing for flexible living. As 2024 brings challenges, we expect further integration of STRs, corporate housing, and hotels in the supply chain.
Airbnb-friendly buildings in urban areas in multifamily settings – Andrew
These are buildings where residents can easily rent out their apartments on Airbnb. Airbnb has been focusing on increasing supply in urban areas, especially in apartment buildings. This strategy is part of a broader trend where hotels are now considering exposure to distributed single-family homes, a shift influenced by the success of these homes during COVID, especially as urban areas struggled. Hotels are increasingly interested in entering the short-term rental space, and Airbnb is leading this trend among Online Travel Agencies (OTAs). They’ve expanded into mid-length stays and might introduce new rental products. This convergence shows Airbnb’s proactive approach in creating supply that aligns with its platform.
No clear trends in the market – Markus
The market is currently facing uncertainty due to the lack of clear trends. In recent years, we saw people moving from cities to rural areas in 2020. And then a shift to vacationing in beach and mountain locations. Now, travel patterns are more varied, with both hotels and short-term rentals in cities and vacation spots being fully booked.
This creates both opportunities and risks. While hotels are entering the STR space and there’s a convergence of short and long-term rentals, the market direction isn’t clear. This situation poses challenges, especially for private equity groups looking to buy and rent out properties. We’ve seen large property managers have struggled to scale nationally. It’s important to stay informed to avoid pitfalls, even though some players with deep pockets might still take risks.
Demand for unique distributed properties is growing – Andrew
“We’re entering a new era where people are traveling more and spending more time on the road. This trend towards unique distributed properties is growing. The long-term outlook for our industry is very positive. Despite concerns about potential recessions or global unrest in 2024, remember that a well-run business in this sector aligns with consumer demand and attracts investors. The vacation rental business is challenging, but there’s a significant opportunity for those who can manage properties well and offer attractive accommodations.”
Shift in travel trends and consumer behavior – Francois
We see significant shifts in how people are traveling. Instead of traditional two-week vacations, travelers are opting for shorter but more frequent trips. This includes ‘bleisure’ trips, combining business and leisure, or simply taking advantage of extended weekends. Travel has become more accessible and convenient, with everything available online, from buying tickets to getting boarding passes on your phone.
A recent survey discovered that 73% of travelers embrace mobile devices to make reservations and interact with a hotel. Here’s another interesting finding. The ability to digitally book and check in/out is among the key factors influencing travelers’ decisions when choosing between hotels.
“In 2023, 2.2 days per week are spent away from work” – Simon
Short-Term Rental Owners Predictions for 2024 – Build Relationships!
Simon quotes Jason Sprenkle, from Key Data, who said in May 2023:
“If you don’t have property owner relations, You need to build them now. Otherwise you lose the game.”
This best practices advice proved increasingly relevant throughout the year. Be transparent, use recent data points, make owners part of the game and build those relationships. The owners are “spoiled” with the revenue of the last few years. There’s going to be a massive churn.
2024 will be a year of mergers and acquisitions (M&A) in the industry, with high churn and many distressed assets. Some business owners, feeling the strain, are considering selling, even at lower prices. This situation presents a big opportunity, especially for the younger, ambitious generation. They can seize this moment to acquire businesses and modernize them, replacing outdated manual processes with technology. The challenges of technology adoption are making some long-standing businesses weary, opening doors for new approaches and significant M&A activity.
Markus reminded that consumers and homeowners are likely to review their expenses and cut costs. Many properties will change ownership in 2024. Currently, the real estate market is stagnant, but with mortgage rates decreasing, we anticipate a surge in property transactions. Ensure you’re strategically positioned to gain more properties than you lose. Building a strong community among your owners can help achieve this.
Francois emphasizes the importance of creating a community with property owners. He highlights Tim Mortimer, CEO of BnB Made Easy, for organizing an in-person event to discuss owners’ feedback and future plans.
Concerning Short-Term Rental Industry Regulations in 2024
Government is restricting short-term rentals in BC. The same is happening in Barcelona, in Portugal, in Scotland and in many other places. These artificial market conditions, implemented in places like London and Paris, haven’t solved housing inventory or affordable housing issues. But Short-term rental companies lack the same level of representation and lobbying influence as traditional hotels. This hinders their ability to effectively advocate for their interests in the public arena.
There is a need for industry leaders, operators and owners to be engaged in advocacy to change the concerning regulation. Short-term rentals (STRs) contribute more to the local economic growth than hotels. STR guests tend to shop and dine locally, boosting GDP and creating jobs, in contrast to hotels where guests often spend most of their money within the hotel. This economic contribution of STRs should be a key part of the conversation around regulations. We are not good enough in communicating our value proposition to everyone involved in decision making and voting.
2024 Forecast: Reasons for Optimism in the Vacation Rental Sector
Andrew expresses optimism about the long-term trends in the vacation rental space. The growing demand for high-quality supply of unique distributed inventory is good news. Investors’ interest in the industry is high. Keep building a great business and your software costs and OTA costs are going to come down.
François sees artificial intelligence as a major wave for the future, changing how properties are marketed and found.
Simon emphasizes the opportunity for professionalization in the industry. Any downturn and uncertainty helps professionalism. This is the time for the profit. The entry barrier in our industry has been far too low. Just like Uber requires a car, starting a vacation rental business only needs an apartment. But this simplicity isn’t always good for the industry. It leads to heavy regulation, as the whole industry can suffer from the negative experiences of a few property managers. Focusing on professionalism, technology integration, and consistent, high-quality guest experience plays a crucial role in our positioning as an industry.
Marcus is hopeful about the movement of inventory and the potential for property managers to acquire new properties.
The panelists painted a picture of an industry on the cusp of a major transformation, propelled by the rising tide of AI and a paradigm shift towards professional management. They delved into the complexities of navigating market dynamics, evolving regulatory landscapes, and pioneering revenue strategies, particularly emphasizing the potential of upselling and enhancing guest experience. A recurring theme was the critical need for embracing technological advancements, fostering robust relationships with property owners, and staying abreast of regulatory developments. The discussion culminated in a cautiously optimistic outlook for the vacation rental industry in 2024, acknowledging the hurdles yet highlighting the opportunities that lie ahead in this dynamic sector.