When COVID-19-related restrictions were lifted, and travel resumed on May 20, 2020, (which was also the day my daughter was born, so I remember it well), we saw a massive shift in travelers demanding the space and privacy of vacation rentals over hotels and all other accommodations. Even amid a global pandemic, one of the vacation rental industry’s main challenges is insufficient inventory to meet the growing demand for quality properties. There appears to be an across-the-board demand for rentals in terms of location, country, and traveler personas.
As we know, our industry’s problem is not in creating demand from guests. Ryanair and Southwest Airlines have shown us that companies can always stimulate demand and attract more customers. Instead, our real challenge as an industry is more deeply rooted in the need to create confidence and trust in rental property owners. If we are able to address these issues, owners will list the kinds of quality properties guests want to book.
The Industry Challenge
There are an estimated 30 million second homes across the US and Europe that are occupied only four to six weeks per year. If the short-term rental industry were able to access even a third of this stock, it would make a massive difference in the market.
In my view, we are often short-sighted by overfocusing on guests and under focusing on creating an environment that will increase the volume and quality of supply, which is sorely needed for the industry to continue to thrive and compete against hotels and other travel accommodations. The root issue of homeowner ambivalence to short-term rentals is threefold. By overcoming these objections, we could increase the odds of converting an owner into a short-term rental advocate, thereby adding much-needed inventory to the market.
1) Barriers to Entry
The lack of time and knowledge that is required to run a rental investment property is a huge barrier to entry for owners. Many owners doubt they can find the time to manage a rental and handle a rotating flow of guests. They simply do not understand how short-term rentals really work or how to successfully manage a vacation rental property. This is where professional managers can intervene to instill confidence by handling the day-to-day trials and tribulations on behalf of owners.
2) Overcoming Ambivalence
A major pain point that managers can help overcome is the anxiety and ambivalence that many owners feel about allowing what they see as “internet strangers” into their homes. It is one thing to allow strangers into a generic investment property, but allowing strangers into a second home that an owner personally invests in and uses is another story. Owners have questions regarding who might be sleeping in their beds, what happens when they want to use the property themselves, and what their neighbors will think and feel about living next door to a rental.
3) Accepting “Internet Strangers”
Owners worry about catastrophes and worst-case scenarios, including the following questions: What happens if something goes wrong in the rental process? What if there is an accident, theft, or fire? How does the owner ensure they do not lose money or face scarily high charges if things don’t go smoothly? Unsurprisingly, these questions are major sources of concern for owners of second-home properties and can have a serious impact on their consideration of entering the vacation rental market.
Property managers can ease these concerns by effectively screening guests and stopping the “bad guests” before they get through the door. How? Through a tailored and effective insurance product that covers accidental damage and provides peace of mind when things go wrong—because sometimes they do. We have found that rental problems are not as prevalent as most people think; only three percent of reservations actually involve a claim.
One-third of these claims are pure accidents, while another third are from silly mistakes from what we refer to as “vacation brain.” Only one percent of reservations involve intentional damage to a property.
A Positive Future
The recent Airbnb IPO highlighted the potential of the addressable market of private accommodation and vacation rentals. The ability of property managers to solve these three owners’ objections will positively influence the supply of quality inventory joining the market—which is, in part, what valuations are based on.
Looking forward, as owners become more comfortable with the vetting process, instant bookings will grow, adding to the attractiveness of private accommodations as a choice for travelers.
Additionally, I predict that as the short-term rental technology ecosystem continues to expand, and tools and services are available to owners and managers to better manage rentals, we will see rental entrepreneurs who may have regarded student leases or long-term rentals as a sure bet move over to the more lucrative short-term rental market.
I believe Airbnb is counting on this to happen. Its recent valuation, although no doubt hyped, shows Wall Street’s confidence in the vacation rental industry’s potentially addressable market.