Tourism has always been an integral part of the economy, given the continued hype in travel and leisure and its contribution to growth and development. However, as the pandemic shocked the whole world and took its toll, the government had to implement safety measures to contain the spread of the virus. Vacation rental was one of the massively hit industries as most countries and states closed their borders. It could not operate as non-essential outdoor activities were restricted. With that, it has keenly felt the adverse effects of the previous year, and many businesses had to operate at a limited capacity, lay off employees, and even shut down permanently. But since 3Q 2020, restrictions have slightly eased, which helped in the recovery of the industry. As vaccination starts to cast out uncertainties, the continuous reopening of the economy and the pent-up demand for vacationing may allow businesses to regain their footing and bounce back.
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A Brief Overview of the Vacation Rental Industry
Before we go to the actual figures, let’s give a brief overview of a vacation rental. The vacation rental industry is where owners and managers temporarily rent out furnished apartments, units, houses, or resort-condominium complexes to tourists or guests as substitutes to hotels. This term is widely used in the US, while villa rental or villa holiday is used in Europe, especially in warm climates. Other variants include self-catering rentals and holiday homes in the UK and cottage holidays or gites in France. It has long been considered one of the top travel choices and is becoming more popular in other countries.
Rentals can be arranged either with the owner or manager of the units or through an agency online. Due to its popularity, some have created their websites, while others use listing services that display information and photos of the property, usually provided by the operators. Expedia, TripAdvisor, and Airbnb are websites people generally check when looking for a unit. Like the hotels, vacation rentals have their own rules and regulations like initial deposit and payment requirements, cancellation policies, and check-in and check-out schedules. Should problems arise, some groups and agencies offer assistance.
Vacation Rental Demands
To better understand the statistics for vacation rentals, we will use revenues to quantify the demand for vacation rentals. Before the pandemic, the global and the US has shown steady growth by 2-3%. From 2017-2019, global and US revenues increased from $79 billion to $84 billion and $16 billion to $17 billion. With that, we can see that the US comprised 21% of the global rental revenues. But things went upside down as the pandemic restricted the operations, with revenues plunging by more than 40%. It resulted in the temporary and permanent closure of many businesses globally. Moreover, an upsurge in unemployment was observed. Given this, we can say that vacation rental is one of the industries that the pandemic hit the hardest.
Amidst all these hullabaloos, businesses saw a ray of hope during the second half of 2020 as infections were slightly contained, which allowed the slight easing of restrictions. Although the demand remained lower than usual, the values in 3Q and 4Q 2020 were far better than the first half. In 2021, the vaccination started to speed up and increased confidence in many businesses and customers. Forbes has already noted its recovery. It began to accelerate in April as short-term rental demand increased by 17.4% compared to 2019. It continued in May as monthly demand growth reached 5.3%, while revenues were 66% higher than in the previous year. In the same month, 207 out of 265 US saw higher demand, which exceeded May 2019 levels, up from 201 markets in April. The highest demand growth came from small cities and rural areas (+68.1%), mountain lake destinations (+48.1%), and coastal destinations (+40%). The values confirmed the optimistic outlook of many companies. In a survey done by Morning Consult last March, 63% of Americans planned to go on vacation once the economy fully reopens. The percentage increased to 67%, as posted on CNBC last April 2021. TripAdvisor supported these positive views. It observed a 65% increase in hotel searches at its site. 74% of which plan to stay in the US while the remaining ones will go to Europe. Now that the US and EU are set to allow entry of vaccinated individuals in the region, the vacation that many people have cooked up is now attainable.
If the vaccination rate remains or speeds up amidst an upsurge in Delta variant cases, vacation rental growth may increase further, especially during the Summer and Autumn. The projection of Statista adheres to it as global and US revenues may reach $67 billion and $14 billion, respectively.
Data from Stayfi
Data from Stayfi
Data from Stayfi
Data from Stayfi
Since vacation rental demand and occupancy rates are correlated, the adverse effects of the pandemic were observed in 2020. From 57% occupancy rate in 2019, it dropped to 36% in 2020. The lowest rate was in April and May at 16%. It coincided with the strict implementation of quarantine measures. In June 2020, it slightly increased to 21%. The gradual recovery continued during the second half as the occupancy rate increased to 40% on average. The rate decreased to 38% in November and December due to the Winter season and slight tightening of restrictions to stop the potential second wave of upsurge. But in April and May 2021, occupancy rates increased again and exceeded 60%, showing the industry’s continuous recovery amidst increased vaccination rates and reopening of the economy. Traditional seasonality patterns also drove the spike in these months.
Meanwhile, there were recovery variations according to market type, 67% more in small cities/rural markets, 25% more in destination/resort markets, 8% growth in mid-sized cities, 13% decrease in suburban markets, and a 41% decline in the 50 largest U.S. cities. Now that the US is at the peak of Summer, growth in occupancy rate is expected to continue in Autumn. As projected, the average occupancy rate in 2021 may rise to 58%.
Data from Transparent
Autumn Booking Trends
Before the Spring season ended, the results of the surveys showed the potential upsurge of travels in Summer. As previously mentioned, Morning Consult and CNBC expressed their optimistic views as more Americans were planning to go on vacation. The actual data showed the same thing. As posted on Transparent, there was a substantial increase in the number of bookings done in week 14 for July 2021 in some cities. Given this, it is logical to anticipate the rise in vacation rental bookings and occupancy rates at the end of the year.
Moreover, many short-term rental owners and hosts already saw high reservations for the Autumn. As of June 1st, the number of bookings for 4Q 2021 was higher than 2019 and 2020 by 25% and 95%, respectively. September is considered a peak month and has almost 50% higher bookings today than in 2019. Despite these exciting trends, one must remember that the vacation rental industry is still in its recovery phase, especially for urban demand, which will reach full recovery in 2022.
Frequently Asked Questions
Currently, the average timeshare rental amounts to $114, although some prices are closer to $149 per night. Hence, monthly rental may be as high as $4500.
A good ROI for a vacation rental property is usually 10% or higher, but some sources say 5-10% is acceptable.
If you plan to buy your vacation property that can be rented out to guests, spending 10-20% of your net worth is recommended. If your net worth is $1 million, spend only $100,000-$200,000.
If you’re only a guest who wishes to relax, $1000 for a week will suffice.