AirDNA: Managing your STR business during an economic downturn

Worldwide: Julio Hansoul, global inside sales director at short-term rental data provider AirDNA, discusses the main findings from the company’s 2023 Vacation Rental Outlook and provides actionable tips for property managers to operate more efficiently in the year ahead.

In a recent survey conducted by AirDNA, we asked vacation rental managers what their top concerns are for 2023.

The top result? “Generating revenue during a potential recession”. Concern number two? “Dealing with increased competition from other property managers and individual hosts”.

From that same survey, nearly half [47 per cent] of vacation rental managers expect their portfolio size to increase by more than 20 per cent. Another 18 per cent expect their portfolio to grow by less than 20 per cent. So, what does this mean? We essentially have is a situation where everyone is concerned about the future, and yet a large majority of managers expect to continue aggressively growing.

While the current economic climate may be challenging, it also presents an opportunity for vacation rental businesses to innovate and adapt. By leveraging the right data and insights, you can take control of your business and position it for success.

We compiled AirDNA outlook data and teamed up with our partners at High Rocky Homes to put together a helpful list of eight tips to manage your business during an economic downturn.

AirDNA’s 2023 Vacation Rental Outlook

In case you missed it, our team at AirDNA just released the latest instalment of our bi-annual outlook report. The big takeaway is this: with demand growth slowing, growth in nightly rates slowing and occupancy decreasing, we are predicting that vacation rental managers will see RevPAR decrease by 1.6 per cent in 2023 – significantly lower than growth from previous years.

In fact, it is the first negative year-on-year revenue projection we have ever predicted. It is marginal — and probably expected after unsustainable growth in recent years — but it is a downturn, nonetheless.

AirDNA
[Credit: AirDNA]

Here is a roundup of other takeaways:

  • Demand: 2023 will continue along a more mature path, growing demand 5.5 per cent year-over-year – much lower than any previous year.
  • Supply: the number of nights supplied will increase even more, at 25.3 per cent as existing and new listings broaden their availability. The big takeaway is that US short-term rental supply hit record levels in 2022 – there is more competition than ever.
  • Occupancy: Strong supply growth will create a second year of declining occupancy, although the 2023 forecast of 56.4 per cent is still significantly higher than pre-pandemic levels.
  • ADR: Economic pressures and inflation-weary consumers will lead to small ADR gains of 1.7 per cent in 2023.
  • RevPAR: The small gains in ADR will not be enough to offset occupancy losses, and RevPAR will suffer a small decrease in 2023 of -1.6 per cent.

Tips:

  • Support longer-term stays

So, what can property managers do in light of this news? One step is to support longer-term stays. Market them, increase their discounts, and put them front and centre. Data shows that having at least a baseline revenue stream with less turnover is a great way to keep the lights on during a downturn.

  • Introduce at least three cancellation variants for your property

Although most of us begrudgingly do this, it is necessary: listings that offer more flexible [and more expensive] booking options rank higher in OTA search results and are essential for increasing bookings while covering the risk of higher cancellation rates.

  • Increase top-line revenue

Nadim Tannous, co-founder of High Rocky Homes, operates properties throughout Colorado and California and recommends the following when it comes to operating a VRM during a downturn:

  1. Use a yield management software [whether fixed price or variable, it makes a difference] like Smart Rates. Don’t just use Airbnb smart pricing!
  2. Talk to owners about being more aggressive with floor pricing. Use data from a benchmarking tool like the Property Performance Dashboard to show them how the top-performing properties are setting their rates.
  3. Upsell local business offerings. Things like ATV tours, city tours and other activities provide other revenue streams in addition to nightly stays.
  • Be more meticulous in your acquisitions

Our team at AirDNA has been preaching this for far too long. The number of vacation rental managers we see onboarding properties that do not meet baseline criteria is still too high. Rather than onboarding any owner that knocks on your door, use data to heavily vet their revenue potential, run comps, analyse their amenities, and get to a realistic revenue number.

  • Consider trimming your portfolio

We all know about the 80/20 rule: 20 per cent of owners take up 80 per cent of your time. Are there some listings and owners that occupy lots of time / attention but aren’t carrying their weight in revenue? Tannous also recommends using data to show the real impact of owners who frequently use their properties. Put owner stays in monthly owner reports to show them the value of the days they’re blocking and help them reconsider.

  • Get creative with your marketing and branding

Branding and marketing are channels that can really improve your business during a recession. Tannous recommends all property managers consider some of the following:

  1. Partner with local events to be listed as a ‘preferred lodging partner’.
  2. Re-market to past guests.
  3. Focus on the in-house experiences: branded soap dispensers, customised welcome sign when guests arrive, laminated QR codes next to custom signs to access house guide, and discount codes for future bookings.
  4. Ask for referrals: when asking for a review, ask guests to send you referrals if they had a good stay and offer them a bottle of wine or a future stay discount.
  5. Update/ rotate photographs on a seasonal basis to reflect the season’s colours [trees changing colours, snow, flowers in summer etc].
  • Target your local markets

During a downturn, there will still be limited international travel. And potentially just like during the pandemic, travellers will seek out local, drive-to destinations. Leverage your marketing to target local markets, ‘staycations’ and highlight the fact that they will save when compared to travelling elsewhere.

  • Use data to back your homeowner conversations

Enquiries from homeowners are likely to increase in 2023 with higher interest rates, inflation and tighter margins. One of the smartest things managers can do is use data to comfort them and show them how the rest of the market is performing. When homeowners realise that other comps and the wider market is performing on par with their property, they will be much less likely to churn.

Conclusion: The data tool you will need in 2023

Our latest tool for vacation rental managers — the Property Performance Dashboard — manages your business intelligently during a recession. Use it to keep a gauge on the competition, improve portfolio performance, discover the best markets for expansion, and onboard the right properties.

Julio Hansoul leads the inside sales team at AirDNA, providing clients with best-in-class short-term rental data to help them make informed decisions for their vacation rental businesses.

With experience at some of the world’s largest tech companies, including LinkedIn, IBM, and Google, Hansoul has a track record of scaling and maximising value for customers. In addition to his work at AirDNA, he also advises tech startups and invests in short-term rentals.