Of the approximately 9 million second homes in the US, 25-35% are vacation rentals. Of those vacation rentals approximately 44% are professionally managed. This number is likely in sharp incline as 2020 progresses and vacation home owners who previously used AirBnB turn to a professional management company for an opportunity to recoup lost revenue.
With the industry set to lose $1 trillion as fallout from the Covid-19 pandemic, bright spots in the travel landscape can be hard to find. If you find yourself winning in this head-over-heels market you most likely are:
- Servicing a domestic location for a large population
- Providing personalized or family-oriented accommodations
- Servicing a drive-to destination
- In property management, but not re-letting lived-in homes
That’s a pretty short list of qualities. AirBnB doesn’t qualify, nor does Hilton or any other major hotel player. Drive-to in 2020 might mean farther than it has in the past, but it won’t save those difficult to get to destinations that relied on air traffic. Even if domestic air travel is on the rise after a 96% reduction in April, the general population's mentality, much like the majority of US states afflicted by the virus, have not opened up as much as the travel industry would like.
One way to examine the prospects for vacation rental profits in 2020 and beyond is to look at predicted real estate investment models. According to AirDNA the investment market for vacation rentals has shifted in 2020:
- Drive-to markets with limited air travel are seeing unprecedented demand for short-term rentals
- Business travel to urban centers has effectively stalled
- Lines between simply living and travelling are getting blurred with remote learning and working becoming the norm
- An apparent drop in the number of hosts and listings overall has provided a boost to owner revenue per-property – read this to mean, as AirBnB struggles, professionally managed home rentals increase in relative value due to a shift in both supply and demand
Of the approximately 9 million second homes in the US, 25-35% are vacation rentals. Of those vacation rentals approximately 44% are professionally managed. This number is likely in sharp incline as 2020 progresses and vacation home owners who previously used AirBnB turn to a professional management company for an opportunity to recoup lost revenue.
While 2020 has thrown all professional market projections out the window, early numbers are trickling in now from management companies, and those that fit the criteria mentioned earlier appear to be doing quite well.
After having received their internal poll data from April, we reached out for comment from Twiddy & Co., a vacation rentals property management company in the Outer Banks of North Carolina with over 1000 properties under management. Speaking with their president, Clark Twiddy, a picture emerges of how this subset of the rentals property market is fairing in the fall of 2020.
“When Twiddy surveyed Americans early in the pandemic, you found a relatively high fear index and a desire for people to stay in Hotels, counter to what you might have hoped, being a vacation homes rental company. Did these predicted behaviors bear out in terms of the market you managed to attract in the summer of 2020?”
“The fear to travel was strong early when we did our initial polling, and in April I believe it was likely at its highest. By June people were antsy to get out of their homes, and our feeling is the major hotel players had either not gotten their messaging right, or their actions right, because the increase in demand for vacation homes was immediate and obvious, whereas the same doesn’t seem to be true for hotels at large.”
“It looks like a major factor in vacationers’ decision making in 2020 has been how far the destination is, and if it’s within driving distance. Did you see an expansion in your market geographically?”
“We saw both, as we lost visitors coming down from Canada, where Montreal is about a 13 hour drive, but saw an increase in visitors coming from beyond the normal five hour sweep. The five hour sweep around us touches Charlotte and Washington DC, but we started seeing more people coming from the likes of New York, Ohio, New Jersey. I’d say our average driving radius increased by at least 50%. Numbers are up across the board, but places like Chicago are up 250% – that’s a 15 hour drive!”
“Was there a delay and slow ramp up as Americans became more comfortable with the idea of leaving their state? If so, when did you see it begin?”
“To be honest we didn’t see that effect, but it might have been mitigated by the fact that the Outer Banks was locked down until mid May, and in the meantime we built up a backlog of requests, so when we were open for business again the bookings flooded in and we began the season with what looked like normal peak numbers.”
“Almost 50% of your respondents in the spring indicated they would not be ready to take a vacation until at least the fall, or until a vaccine is ready. How did this affect your projections before opening up?”
“It was scary to read, which felt right, as the whole world was afraid at the time we conducted our poll. We didn’t prepare for a 50% decrease in bookings even though we talked about it as a possibility, in part because we wanted to be sure our staff was minimally affected, but also because we felt like we might have the right ingredients to pull vacationers in when they were losing confidence in our indirect competitors. This turned out to be the right strategy, little did we know in fact we should have over-hired to deal with the influx.”
“How do you see the next two years panning out for the vacation rentals market, both in the Outer Banks and the rest of the world?”
“Our prediction scenarios are trying to take into account a range of possibilities, from full international travel confidence being restored as early as summer 2021, to the far end which we think might see that confidence not return until late 2022 or even summer 2023. At that point there should likely be a temporary contraction as people return to international travel, but in almost every scenario we run there are variables that indicate we’re going to be sitting at a higher demand baseline than before the pandemic for at least three years, and maybe much longer. This is based on a presumed restoration of confidence in domestic flights occurring before the same confidence or availability returns to international travel. Fortunately for us that provides a window of opportunity to advertise to the greater US what an idyllic vacation destination we have in the Outer Banks, and expand our footprint as a vacation destination for early domestic fliers.”
