By 2020, Vacation Rentals Will Topple The Hotel Industry

Whether you've heard of VRBO, stayed at an Airbnb, or rented a home through HomeAway, you are likely familiar with the idea: nowadays, empty properties can be transformed into mini hotels with minimal effort and massive reward.

Independently, these vacation rental brands have seen incredible growth over the past twenty years. And collectively, they represent an innovative new lifestyle that blurs the line between business and pleasure.

While travelers were initially hesitant to try vacation rentals and hosts were initially hesitant to let random strangers stay in their personal space, a movement has been begun and we're not talking about a fad here: vacation rentals are as close to bulletproof as a travel trend gets.

Vacation rentals represent a product that people love and and solution that people need. While some municipalities may try to suppress this organic movement, they will ultimately fail to the dynamics of a free market. And by the year 2020, we will reach the tipping point.

But not everyone is taking vacation rentals seriously just yet...

In an article last year by Skift1, "Officials at the Priceline Group and Expedia Inc. haven’t felt compelled to jump into peer-to-peer apartment rentals despite the phenomenal growth over the last few years."

That same year, the CEO of Hilton said2 he believed it was "relatively impossible" for peer-to-peer lodging to pose a major threat.

Why Is This Mindset Naive?

Whenever I read those statements along with a number of similar sentiments from hotel industry professionals, I think they are naive because all the numbers point in the opposite direction...

According to CBRE3, "Airbnb accommodations now account for 9% of the total lodging units in the 10 largest U.S. markets and appear to be adding units at a substantially faster clip than the U.S. hotel industry."

The average number of Airbnb units is said to be doubling year upon year, whereas hotel supply increased by only 1.1%. And remember: Airbnb only accounts for a segment of all vacation rental properties. In fact, up until about a year ago, Airbnb hadn't even really entered the vacation rental market.

Bloomberg reinforced that none of this is a good sign for the hotel industry4 in revealing, "If people have stayed in peer-to-peer lodging [P2P] in the last five years, the likelihood that they prefer traditional hotels is halved (79 percent vs. 40 percent)," Goldman Sachs data showed. "We find it interesting that people 'do a 180' in their preferences once they use P2P lodging. They move directly from preferring traditional hotels to preferring P2P accommodations."

An internal study by Seattle Oasis Vacation Rentals5 revealed that 52% of visitors "would NOT have even come to Seattle if vacation rentals were not an option." These represent trends that are beginning to impact the world's greatest destinations. 

As if these trends weren't incredible in their own right, realize that the vacation rental industry is brand new! According to Consumerist6 Only 11% of people have used shared lodging platforms] only 11% of people have used Airbnb, VRBO, or similar, and almost half don’t know they exist. Meaning, the vacation rental industry is really truly just getting started.

How Fast Can Vacation Rentals Topple The Hotel Industry?

Vacation rentals will topple the hotel industry. It's only a matter of time.

But to determine the moment of critical mass, look at how fast the VR industry can close the delivery gap (the difference between what travelers collectively want versus what hosts collectively actually deliver). Closing this gap is synonymous with reaching our fullest potential. So what determines how fast it is done?

1. Frameworks

Innovation, as we learned in this live workshop, is necessary for an emerging niche to prosper. And when it comes to our niche, the innovators that will determine our success are the ones who get to the market first, continually improve, and most importantly, are constantly looking to change the terms of the playing field.

Because the vast majority of these individuals got into the VR business accidentally, the development of quality frameworks are not just helpful to facilitate growth: they are directly correlated with our collective wellbeing.

"VR frameworks don't just facilitate growth: they're directly correlated with our collective well being"

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VRMB's own "Listing Site Independence" framework is a tremendous start: but the industry needs more, specifically in the areas of regulation and operations.

2. Prototypes

Like in any new field, cultivating prototypes or individuals who have built their vacation rental business sustainably is key to perfecting the aforementioned frameworks. Once we have irrefutable frameworks and prototypes, we can clone and scale. But until we have these archetypes there is no blueprint for newcomers to follow.

Remembering that few vacation rental professionals were formally trained for their jobs, an industry without prototypical leaders is also an industry ridden with anxiety and fear. Anxiety that the job at hand is far greater than one's skill level. Fear that one's historical results could all come tumbling down.

3. Connectivity

Another factor that could throttle the vacation rental industry's success is our fragmentation. We are independent owners and managers selling unique products on our own terms, so themes of standardization and regulation tend to make us freak.

However, until we fully unite and form a singular voice, travelers will never know precisely what to expect, scammers will be continue to wreak havoc, and one bad apple will ruin more entire bunches. This connectivity is more than just tools and services being invented: it's an attitude of adopting and adapting with the flow.

"VR connectivity is more than tools & services: it's an attitude of adopting and adapting with the flow"

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When it comes to connectivity, it's equally as important for big VR brands to step up and defend vacation rentals as it is for every single independent owner and manager to be willing to do their part: to work as a team, be positive, and become master problem solvers.

  • Note: Victimization and entitlement are the two greatest psychological obstacles to overcome. Forget blaming others for your challenges. Stop thinking anyone owes you anything. Become a protagonist and ask, "if we don't solve this problem, who will?"

Conclusion

Considering the statistics featured here, it's just not feasible for hotels to maintain their historic stronghold on the market. And by the year 2020, I believe the vacation rental industry's momentum will reach a threshold that permanently redefines hospitality as we know it.

If you like business opportunities, think about getting involved in vacation rentals today: take advantage of the expansion part of the lifecycle7 and become a pioneer with the right expectations and a great mindset.

If you are in the hotel industry, do not wait one more day: begin diversifying your investment now because if you put it off, it will be too late.

Footnotes

  1. Airbnb's Growth Doesn't Scare Priceline At All, Skift, July 1, 2015
  2. Hilton: We're Not Scared Of Airbnb: CNN Money, October 15, 2015
  3. Report from CBRE Hotels (formerly PKF Hospitality), Travel Weekly, February 7, 2016
  4. More And More People Who Use Airbnb Don't Want To Go Back To Hotels: Bloomberg Report, February 16, 2016
  5. 2016 Seattle Traveler Survey by Seattle Oasis Vacation Rentals & Nerdbot LLC, May 25, 2016
  6. The 9 Things We Learned About How Americans Are Taking Part In The Shared Economy, Consumerist.com, May 19, 2016
  7. Next 5 Years Will Be Fun, David Angotti, May 25, 2016

About the Author Matt Landau

Matt Landau is the Founder of the Vacation Rental Marketing Blog and the Inner Circle, two online resources dedicated to helping vacation rental owners and managers generate more bookings. Google+ | More Posts (230)

  • Mary (http://owlhaven.net)

    Doesn’t surprise me a bit that folks who try vacation rentals don’t look back. We rented our first house in 2004, and it totally changed my vacation experience as a mom. It was more relaxing than camping, and with my big family, way more affordable than booking multiple hotel rooms. Finally, a vacation for mom too!

    The part of this piece that did surprise me is that so many people have yet to try a vacation rental for themselves. Wow! It’ll be fun to see this industry grow!

    • Matt Landau

      And you are coming in at the perfect time, my friend! I am sooooo looking forward to following your build as it unfolds.

  • JanStevensDesign

    A vacation rental association with membership and standards will help propel the Vacation Rental business to the next level. For example, BC Tourism requires specific standards before a property can be listed on their tourism site. Although, considering that being a vacation rental owner / manager allows for such independence of thought, I for one, have not joined BC Tourism………I like my freedom. There lies the rub.

    • Matt Landau

      You got the Catch 22, Jan. In your freedom lies another responsibility to innovate and help your fellow independents innovate too. Like any true movement, if we’re all from that school of thought, collective wisdom can gain momentum and effecutate lasting change.

  • I know you love statistics, Matt, and last year at the Airbnb Open in Paris we were told that only 30% of the world population was familiar Airbnb. As in “never heard of Airbnb.” That’s when Airbnb was in 191 countries. It’s more now, coming close to 200. I do believe you are right in that the vacation rental industry is growing at a phenomenal pace. I find my personal push-back is when a large listing site hands down a mandated change. We need uniformity, we need conformity and we need open sharing among us as leaders of this industry. Because each one of us is so different, the problems come when the ‘rules’ start being applied.

    • Matt Landau

      Leaders (if you choose to call yours a corporation) are tasked with making the right long-term decision for the greater group. Sometimes these decisions are harsh. But tough decisions are inevitable and if the mandated changes are frustrating enough for long enough, the leadership could very well organically lose its clout. But then who does the responsibility fall back on — the independents.

  • Kathy Ocean

    Bold statement, Matt. I like it; and suspect you very well may be right.

    Also think you’ve defined some pretty clear calls to action regarding mindset for those of us already in the game.

    I’m currently reading “Algorithms to Live By”; and this moment feels like the Explore/Exploit scenario, where as a VR owner/manager group we’re in the data collection and process development “Explore” phase and the time is growing ripe to collectively leap to the Exploit (i.e. action) phase.

    Thanks for another thought provoking article.

    • Matt Landau

      Cool book reference Kathy! I happy to have this PRECISE book on my Kindle. Going to go and get to the Explore/Exploit chapter tonight 🙂

  • So true that few vacation rental owners have been formally trained in our industry and this can leave us feeling exposed and sometimes ill-prepared in a constantly changing environment. However I see some amazing owners who clearly are grabbing this role by the scruff of the neck and making it their own. I suspect they have a set of skills and attitudes which mean they would also be successful in another role or business. I remember well my training role in another life many years ago helping managers to consider the transferable skills that they can apply in a different situation. Building competence and confidence are key to success in whatever we do.

    • Tom McCauley

      Pretty bold I would say. I think Bob G has hit the nail on the head!

      Question, why would a VR industry leader tell hotel industry (competitors) to get into our business?

      • Matt Landau

        Tom, take off your Sandy Ridge hat for a second and pretend you are the ambassador of the future of travel. You want travelers to have the best, most diverse and authentic options possible at the best value. Hotels have honed some incredible strengths in their centuries of operation and embracing strengths creates double the value that is trying to suppress or conquer them.

    • Nicely put Bob!

  • “You will never stay in a hotel again”, “Expect the unexpected” … these are messages we see more and more in the VR marketing and it is true and the (r)evolution is inevitable. Like the “boutique hotels” trend took over the hotel industry like a tsunami in the 90’s and millennium, when big and bold became something of the past and individualities with personal attention was essential to received a renewed attraction from guests, VR is now the next best thing with its hyper personal and flexible approach in an ever easy-to-reach world of destinations.
    I think the business stay within the P2P world may clearly be another wake up call for hotelsas we clearly see a trend there too which will see a far greater and faster growth than the holiday destinations, something to look out definitely!
    The path to achievement is now using a more organised structure as a group with a more common voice and an incredible capacity to embrace the now affordable and simplified technology. Matt, your voice will echo loud and deep and you will never walk alone 😉 Great article!

    • Matt Landau

      Right on, Marc! Thanks for helping me understand this stuff along the way. Always value your input and industry perspective.

  • The regulations you mention are a concern for continued growth. I just helped some owners in Anaheim with designing two vacation rental houses; after we were through, a local ordinance was passed that will outright prohibit vacation rentals in the city of Anaheim. The only exception is owners who live in the house and rent out rooms (the original Airbnb model). These owners are losing their business and will have to sell. Meanwhile, hospitality firms are building condos in Anaheim and renting them out to the public, effectively stealing the market away from individual owners. It seems hotels are holding hands with city government in this case.

    • I agree with you. At least in Europe, governments are working against the sharing economy. The big noise around Airbnb and Uber is working against us. Quite pessimistic about the future. Hotels are providing a lot of jobs, if they are no more profitable governments will prohibit VR. In Brussels Uber Pop is now banned.

    • Matt Landau

      Also very true. Oppositely, I have been following some municipalities who have chosen to embrace short term rentals and I believe their destinations’ successes will set the stage for more to come. Takes courage and vision though, that’s for sure!

  • A too large success of CR industry or a too loud communication will lead to state regulations that will just forbid them. It is the case in Berlin, Brussels, Paris, London and even in Panama as you know Mattd, since legally you have to rent at least three months. So, the pertinent question is: Will VR be still a possibility in five years from now?

    • Matt Landau

      Good points, Maurice. I believe that collectives and local communities need to begin forming ASAP to have the most immediate chances. The days of the “I don’t work with my competitors” mindset are long gone. Another big component of this “voice” is positivism and progressiveness. Empowering and thinking proactively are the fuel for the engine.

      • Let me tell you about a recent phone call I had with Brussels authorities about the new set of regulations they are imposing. These are enforced not so much to counter activities of people renting the apartment they own but rather to counter and regulate people who got in the VR as a business, buying many properties, sometimes a building and renting them as if they were individual owners, escaping the laws that regulate businesses. So a guy like me who choose to travel between my properties is impacted by regulations drafted for illegal businesses. Renting furnished flat is a business that is not new. In my country there are listes companies worth billions that are in this business. Individual owners renting their places, that’s new. The moment you get through large management companies you are no more in this scheme. In places like Berlin, where the normal rent is low because it is regulated in order to allow easy access to inhabitants, owners of course went massively to short term. This lead to forbidding them which is a disaster. My point of view is that we have to return to the basics. Owners renting their place and marketing them. Government will not allow a wild and grey economy to wreck businesses and jobs, even if these new activities seem trendy and use apps, smartphone, etc etc.

  • Certainly food for thought. These market numbers and changes are propelling the investments in M&A’s and lateral movement from the hotel chains. Then there are branded and standardised businesses e.g.Vacasa and Wyndham etc. and large city blocks being leased based on Airbnb booking models. Airbnb is now heading into pure VR territory alongside its sharing inventory start. VR is seen as lucrative and rapidly growing by all.

    We are also seeing lots of consolidation at management levels, with aggregation and investment in the manager world as the smaller guys struggle. It looks like the predictions will bear fruit, it’s how they are presented, booked and managed. We know people love familiarity and expectations (Costa, Starbucks, Apple etc) and the large corporations will no doubt focus on the experience and use all their hotel garnered experience to market the homes.

    One voice has been mentioned and always a great idea but hard to achieve across such a diverse and fragmented industry. If the rise of VR is unstoppable, expect it to head off to a very slick operation with large companies trying to standardise and monetise it.

    Technology will however bring more opportunity to the independents and allow them to compete, but the power of the corps cannot be underestimated as we are seeing.

    The good news is that more guests are heading in our directions. Just need to make sure the sign posts are in the correct place!

  • Matt Landau

    UPDATE: A new report from Morgan Stanley Research
    suggests that alternative accommodations providers like Airbnb and
    HomeAway might be having an impact on hotel business in the top 25
    lodging markets in the U.S. as defined by STR: https://skift.com/2016/06/07/hotels-need-to-watch-out-for-airbnb-and-homeaway-on-peak-nights/

  • I just wrote a blog post myself about the explosion of Airbnb in the area where I live. I worry about what the future holds for the short term rental market on Long Island, NY. At the same time the numbers are staggering. The number of listings doubled in a 12 month period and hosts earned about $15 million last year in total.
    I agree with most of your post and I, too, believe the way we book for travel has forever been changed, but I’m still very much on the fence about the future of the short term rental market in my area. So far it seems as though the “traditional” model is being upheld(shared spaces). But in the last 12 months I can think of 4 individual towns and hamlets (Long Island is jurisdictional nightmare with countless counties/towns/hamlets/villages all w/ their own laws and regulations) that have effectively outlawed short term rental by making stays under 14 days illegal.
    Thankfully most other parts of Long Island seem to be taking a ‘wait and see’ approach. Very curious as what the future holds as the direction I take my company will be greatly affected.

    • And to quickly touch on your other point regarding the general populations familiarity w/ Airbnb, I constantly deal with the negative associations people think when they hear word Airbnb.
      It is also meet with a strong disdain by vacation rental property managers so I’ve learned not to mention it when trying to get their business! They say terrible, negative things. Which is to be expected I guess since they now have new competition where there previously wasn’t any!

    • I share your concern.

  • Matt Landau

    UPDATE: “When you think about it, the hotel business is about as old and as
    established as any industry, so if the hotel business can be disrupted
    digitally, it can happen anywhere.” http://realmoney.thestreet.com/articles/06/14/2016/airbnbs-digital-disruption-reality-lodging-industry-cant-sleep

    • peter007

      In Miami Beach, the hotel Industry just lobbied the city and was able to get the city to agree to end 80% of the vacation rentals in the city. This is being done by increasing the fines for short term rentals from $1,500 to $25,000. The fine is levied if you place an ad, not necessarily rent your property. Memorial day weekend the inspectors levied over $400,000 in fines on small property owners for advertising their property as a short term rental. Its an all out war.
      I’m starting a facebook page Miami Beach Property Rights in an effort to draw attention to this action.

  • John Makro

    Interesting article, but as a Pillow Homes host, I disagree with the idea that Airbnb will destroy the hotel industry. Studies show that Airbnb has done an amazing job at allowing more people to travel and is actually increasing the size of the hospitality market. In that sense, Airbnb, Pillow Homes, and HomeAway etc. are actually adding to the market and not taking away a huge amount of business from hotels.
    This stands to reason because the value proposition is fundamentally different. A hotel caters to luxury, high service holidays. Airbnb offer a more personalized, homely experience that can be much more affordable. There is limited crossover in the two guest demographics. I use Pillow Homes to manage my property and having met some of my guests, I know they were never the hotel’s target market.
    The explosive growth figures referred to are misleading; a smaller industry will always grow at a much faster rate than an established industry.

  • Sally Robbins

    Great article! I’d like to share the link to this article in our company email, with your permission.

    • Matt Landau

      Of course, Sally. Sharing means caring!

  • It’s so easy to understand most of the families do prefer to stay in vacation homes because they stay comfort and luxury as their own home rather than Hotel rooms also they have to facilitate with all amenities they were looking for…

  • Yes, Americans are increasingly seeking value for their money, and vacation rentals offer so much more than hotels, not the least of which is the privacy and freedom that they offer. So, anyone with property that they can put up for such rental purposes can hope to earn an extra income, at least through the peak season. This is why it is important to check out options for listing property online, along with some great photographs, since that is all people have to go on online to check the place out.