Where will the travel industry and vacation rentals go next?

Worldwide: Marcus Rader, co-founder and CEO of all-in-one vacation rental software Hostaway, explores how vacation rentals and other forms of ‘alternative accommodation’ will fare in 2022 and beyond in the post-pandemic era.

The travel industry has changed irreversibly since ‘the pre-pandemic era’ and no sector as much as vacation rentals and other types of ‘alternative’ accommodation.

The average consumer has altered their attitude towards travel – driven by the growth in working remotely. We have witnessed a tourism boom in smaller European towns and natural beauty spots in North America – and this will continue to evolve. There has also been big investment in operations, online travel agencies [OTAs] and technology over the last 12 months alone, and more is yet to come.

However, it’s my view that the initial public offering [IPO] of brands like Vacasa or Sonder, or other acquisitions in the technology sector, are not actually going to materially affect the travel and vacation rental industry that much in the coming years. Here is my take on where we go next:

How well is the travel industry faring?

Last month, I attended two trade conferences – Phocuswright, which focuses on travel tech, and ExpoRV 2021, which brings together local Mexican property managers. While the visitors of these conferences were miles apart, what was interesting is that they both revealed similar truths about the state of the industry right now.

To put it bluntly, most travel companies are not actually coping that well post-pandemic. The brands that are offering services or technology to travellers or companies in the hotel, airlines, tours and cruise verticals are still not back to pre-pandemic revenues. On the other hand, local operators of vacation rentals are doing better than ever due to the rise in demand for real estate investment opportunities, fuelled by record-high property price increases.

Big hotel chains have also been investing in the vacation rental industry for years now, and what will likely happen is other brands in the travel industry will start to wake up to the sector’s potential. It helps that Airbnb enjoyed record revenues and profits in Q3 2021. I am betting their success is here to stay.

Will the market become saturated?

One argument that I have heard a lot is that if the vacation rental industry is doing so well and its growth is unrelenting, surely there must be a point of saturation that is going to check this in future?

Let’s take a look at a few numbers to put this argument in perspective. 100 million guests have used Airbnb. This sounds impressive, but there are still seven billion [7000 million] individuals on this planet that still have not rented a vacation rental in their lifetime. Only 600,000 people in the United States are renting out their homes on Airbnb. However, there are more than 2.5 million vacation homes in the USA alone! If more of these properties were to be added to Airbnb’s inventory, maybe encouraged by their big marketing campaign to recruit hosts, that would surely help further growth of the vacation rental sector.

What about standardisation of the industry?

Where does standardisation fit into the future of short-term rentals? Will the IPOs of Airbnb and Vacasa make the industry more standardised? Personally, I have a hard time seeing any kind of global standards for vacation rentals agreed in our lifetime, and I think there are a lot of businesses that are just not going to be affected by these IPOs.

For example, Levi, a ski centre in my native Finland, has a natural monopoly on all vacation rental properties in that area and consequently enjoys a steady demand in that particular resort. What is happening on the wider stage of IPOs and consolidation is just not going to affect their growth or how they run their business or that of the majority of successful property managers operating at a local level.

At Hostaway, we have also just started working with a client in Colombia that now manages 190 properties, just eight months after their launch. Their biggest challenge is meeting the demands of the property owners and they have no interest in what is happening beyond their scope. This example also shows that local knowledge is crucial when it comes to vacation rentals, which is something that is extremely hard to ‘standardise’.

The elephant in the room – sustainability 

What I found particularly interesting at some of the conferences I have attended this year was that the word ‘carbon’ seems to be taboo in the travel industry. That is understandable – clearly airlines, cruise ships and international tourism in general are all going to have to work hard at addressing the issue of sustainability.

In the coming decades, if the price of a plane ticket goes up from $500 to $5,000, domestic vacation rentals will very likely emerge as the preferred way to stay. But they will also have their part to play in the battle against global warming as operators will be asked to look at not just their operational carbon footprint, but the embedded carbon imprint of their buildings too. Technology is going to play a vital role in facilitating this.

Will there be a boom and bust?

Absolutely not. Now is the time to accept that this will forever be a fragmented market, where there is room for growth for everyone. As my example in Colombia shows, you cannot consolidate your way out of exploding demand. Buy a property management company and two new ones will pop up. And the returns in the coming years will be fantastic, whether you invest in properties, operators or technology. The investment into technology in our sector has not even started yet. Believe me on this one, there is a lot more to come.

Marcus Rader is the co-founder and CEO of Hostaway, the all-in-one vacation rental software for property managers with offices in Finland, Canada, USA, Spain and Australia. A tech-first solution to vacation rental management, it offers channel integrations with premium partners such as Vrbo, Booking.com and Airbnb, and a marketplace of over 100 software partners.