The state of the short-term rental industry right now
The recent placement of Hostmaker under administration in the UK, lay-offs at Lyric and the media interest around OYO’s trouble to articulate extreme growth and profitability, is raising a lot of questions in the short-term rental industry. A lot of these questions revolve around profitability, scale, and more specifically are directed towards urban property management companies backed by VCs.
A lot of new players into a fragmented space
A lot of money has been poured into our space, making the word investment and the announcement of how much capital has been raised, a must have for some companies wishing to showcase a successful model with a bright future of unlimited growth and the promise of an achievable profitability once a critical mass has been reached.
According to a study on the short-term rental industry, soon to be released by Phocuswright, there has been a total of 211 start-ups since 2009, which have raised in total $4,3 billion USD.
Airbnb has flooded the market with supply and urban property managers have sprung up like mushrooms in fertile soil. However, the tide is turning now.
The renewed focus on profitability as the top metric
When asked about our industry predictions for 2020, AJL Consulting forecasted that profitability was likely to become the main focus of our industry, both for the property managers, the tech start-ups as well as the OTAs, especially in light of the looming IPO of Airbnb.
Recently, many external elements have come to disrupt many start-ups’ dreams and have forced a brutal reality check for some operating in the urban short-term rental space.
Regulations in many global cities have limited the available supply. Both in terms of the number of units and the number of days these units could, legally, be rented on a short term basis, thus making some unit economics assumptions unachievable. However, in other markets, the lack of regulations has led to an oversupply and me too businesses have mushroomed, making it increasingly more difficult for professional property management companies to make ends meet.
Profitability must be the new investment
It is crucial for the short-term rental industry as a whole, regardless of our role, to focus on increasing profitability more than VCs or private equity in order to be sustainable. This can be achieved both in the tech space and the operator space if we start looking at the right metrics. Not the vanity ones.
As we said earlier, our theory at AJL Consulting is that the next consolidation wave will happen in the tech space. There are already some roll ups occurring with GSV & Insight Ventures and we are seeing a lot of M&A activity in the tech space overall.
We also believe that consolidation will happen both vertically and horizontally, meaning that the tech players will in some cases acquire their competitors to grow and in other cases the tech players will expand their value proposition into new verticals as a way to differentiate their product, attract more customers and basically survive as a business.
Where can a short-term rental business go from here?
First of all, working on lean and scalable processes is key. Everything is connected and the work of your sales team will translate into the way your revenue management team is able to operate.
Building and documenting processes and standardizing operating procedures is crucial for building efficiencies. In order to be profitable you need to look at staff work flows, department responsibilities and any crossovers.
What are the KPIs you are focusing on? How do you set objectives and track improvements internally?
How do you manage the relationships and the education of your owners so that they realize the value that you are bringing so they stay with you?
What is your main differentiator?
Looking to grow your short term rental business to new heights? AJL Atelier is your go-to partner for helping you scale your vacation rental business. Get in touch