Recession-Proof Your Vacation Rental Business
October 18, 2022
Over the past few years, the short-term rental industry (STR) has displayed remarkable resilience. We have seen record-breaking demand since the start of the year and new supply has been added throughout the country. Despite a global pandemic that threatened the industry and travel restrictions, the STR sector has made the most out of this situation.
Property managers need to be more competitive in order to stay ahead of the competition. You’re losing out if you don’t use data insights from your listings to improve your vacation rental management.
These steps will help you identify the success factors of industry’s top performers, and turn them into actionable tips that will leave your wondering “Why didn’t that happen?”
1. Don’t panic: Learn about broad economic cycles
We thought we were safe from the pandemic. But the economy took center stage and became the next greatest threat to short-term rentals. This left us with burning questions like “Will there be an economic recession in the next 12 months?” and “How will this impact my bookings?”
There is good news, no matter your outlook: The lodging cycle is predictable, with the exception of COVID.
The balance of supply-demand performance between summer 2022, summer 2019, suggests that we haven’t entered a recession yet. What is the current recession risk?
The US is currently at 50% risk of falling into recession, while Europe is closer to 60% or 70%. The actual risk will be clearer in the coming months once the impact of the European Central Bank’s (ECB) interest-rate hikes is known. (Be aware that if Europe enters recession, the US could also be pulled down.
It is important to understand the hospitality lodging cycle so you can keep your cool. Although it may seem complicated at first glance, once you understand the basics, it becomes quite easy.
Pre-COVID the STR industry was last at the stability phase in 2010. It is important to remember that lodging lags other economic cycle and that travel is one the last segments to recover. However, this makes it easier to predict as we can follow other industries timelines to track the progress. In this phase of recovery, increasing occupancy rates drive up average daily rates as well as profit margins. Then, there is usually some trigger that will announce the lodging decrease and the cycle starts all over again. For all you pessimists out here, it’s important to remember that being at the peak stage of growth doesn’t necessarily mean a immediate decline. In fact, 2015 to 2020 were peak times.
It doesn’t matter where you are in this cycle, as long you know what’s coming, it is possible to prepare and act accordingly.
2. Make a wise inventory selection
If you are looking to expand your business, the first thing to consider is the listing’s geographic location. This is the number one determinant of why travelers choose one accommodation over the other.
It’s time to act if your properties are not up to par and you don’t have listings available in the right areas and locations. Be humble and responsible enough switch inventory to meet the demand. You are the local expert so if you have information about a particular neighborhood that is performing well, why not take action?
Do not put all your eggs into one basket. If you have 20 units in the same market, with the same specifications, it is not fair that you are giving away a stick to beat with. Use data to predict where your future guests will be coming from and optimize for this prediction.
Strategic decisions should be made long before the crunch time. Without data, growing your business efficiently is like trying to navigate a map without a compass. Data can help you grow. But even more important, it can help you avoid growing in quantity and losing quality. Do not waste your time and effort on properties that are not going to generate enough revenue and cause you headaches.
3. The more you have in your portfolio, the harder it is to get reviews
The bad news is that professional hosts consistently fail to deliver in the eyes and ears of their guests. The lower the ratings, the larger the portfolio. This could be because guests prefer to have a personalized experience with an operator, even if there is no guarantee of quality.
A larger vacation rental manager, especially one that operates in multiple cities or countries, will offer a more standardized service. However, it is likely that more communications and services will be automated. This can be disappointing for those who want a human touch.
Hosts can improve their communication and accuracy. Professional managers don’t have to be poor in this area. There are many technology options to improve communication between hosts and their staff. You should not only meet your guests’ expectations, but exceed them. Think of unexpected ways to show your guests that you care about their experience, from before they check in to after they leave.
Action Items for Communication: Is your property 10 minutes from the city’s most popular attraction? This fact should be highlighted in your description, as well as in your photos and in any communication you have with guests.
Accuracy Action Items: Are you regularly checking all listings? Are you ensuring that all property descriptions and amenities are correct?
4. Do extra for first-time reviewers, but don’t forget to leave money on the table
Never stop asking for reviews, especially from new users/guests: In 2021, 40% of Airbnb reviews were left first-time users, up from 24% in 2019. Because of the pandemic-driven search to find more space, more guests have found short-term rentals. New users may have different expectations, so it’s important to be clear about what guests can expect.
Think about the little details that make a great experience for your guests. Are they greeted with a chilled bottle wine and local delicacies? A guide to the best spots in the area? Are smart home appliances being used to turn on the heating so that they arrive at their homes comfortably?
What is the worst rating? Value. At first glance, a 5/5 rating looks great. Wrong! This is a mistake! This means you are overpriced. You can increase your profitability by looking at how your properties perform for this rating and then adjust your pricing accordingly, paying close attention to the prices of your competitors.
Conclusion
There will always be external factors that are beyond your control, such as an economic recession, a pandemic or natural disaster. You have the ability to future-proof your vacation rental business by using data to eliminate pricing and benchmarking guesswork, build trust and credibility with clients, and allow you to focus on providing quality service to your owners on both sides.
About the Author
Sarah DuPre is the Senior Director of Sales at AirDNA, a leading provider of short-term rental data analytics and data. Sarah’s passion for international travel led to her joining the Barcelona office’s sales team. She helps property managers, hoteliers and local governments understand the impact of Airbnb/the sharing economy on their area. She also works with real estate investors to help them identify the best opportunities for short term rental investment.
Link: airdna.co/vacation-rental-managers
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