The vacation rental and short-term rental segments are gaining more attention in the hospitality space, but hoteliers and the public in general do not fully understand it.

Some mistakenly believe that this is a new sector of lodging, yet many have been around longer than most hotel brands. For example, Elliott Beach Rentals in South Carolina was founded in 1959, Emerald Isle Realty vacation rentals in North Carolina opened in 1962, and Kauai Vacation Rentals was founded in 1978.

Here are some additional insights for hoteliers who want to become more familiar with this unique and fast-growing niche of the lodging industry.

Although the terms vacation rental and short-term rental are often used interchangeably, vacation rental companies tend to rent in rural and suburban locales, serving primarily leisure travelers in beach and mountain locations, whereas short-term rental companies tend to operate in urban areas, focusing both on extended-stay business travelers and leisure travelers.

Mainstream media outlets often confuse the public by mistakenly referring to distribution platforms such as Airbnb and VRBO in a way that makes them sound like they only offer rentals from individual owners. However, the majority of vacation rental inventory in most market areas is professionally managed or managed by owners, and many of these companies are quite large in terms of number of units. While the “average” company might manage 100 to 200 accommodations, there are plenty that run 500 to 1,500.

When I first discovered the vacation/short-term rental segment of lodging decades ago, virtually all of the companies I encountered were locally owned. Many were offshoots of local real estate companies or builders/developers that launched vacation rental divisions as side businesses to give buyers a means to generate return on investment in the vacation homes they bought for personal use.

Time and again, investors and even hotel brands have tried to launch nationally branded companies in this space, such as ResortQUEST, which started in 1998 and was later purchased by Gaylord Hotels and and eventually sold and rebranded into Wyndham Vacations.

Vacasa was launched in 2009, began aggressively buying companies and eventually bought Wyndham Vacations. Today, it offers more than 35,000 properties. Other major national brands include Natural Retreats, which operates in 16 destinations; VTrips, which offers 13 locations at its website; and I Love Vacations, operating in eight locales.

There are national players on the short-term rental side such as Sonder, which currently shows inventory in over 40 cities worldwide; and Sextant Stays, a fast-growing company currently operating in New Orleans, Fort Lauderdale and Miami.

One might think of locally operated management companies as being “small” businesses, but many manage and rent hundreds and even thousands of properties. Some of the smallest companies are run by owner investors who originally started managing and renting their own properties, but who then took on rental operations for a handful to a couple dozen properties. Plenty of others, however, manage a huge number of bedrooms.

In our training workshops, I often ask the staff to consider how many total “bedrooms” they manage, and then ask them to imagine all those bedrooms stacked on top of their rental company office building. For example, many of our clients rent 1,000 or more homes and condos, with an average of three bedrooms. That would be 3,000 rooms, which would be larger than any hotel outside of Las Vegas.

The revenue stream for vacation rental and short-term rental companies depends largely on the number of properties, the size/segment of properties — as in ultra-luxury vs. moderate — and of course how seasonal the tourism business is in their locations. Some popular vacation rental areas, such as the Outer Banks of North Carolina, generate most of their revenue between May and September. Other areas, such as cabin rental companies in Gatlinburg, have year-round seasons, enabling them to generate more annual revenue-per-unit than those with higher-priced homes in seasonal locations.

As the vacation rental and short-term rental niches have evolved, so have their business models. Originally, the vacation rental companies employed all of their own staff, including housekeepers, maintenance personnel and guest services staff. Over time, many have outsourced some of these functions, in particular housekeeping, to local independent contractors and/or to local niche companies such as laundry services, while still employing their key staff who interact with guests and homeowners.

Another major myth is that the vacation/short-term rental business model offers fully automated sales and guest service, with only housekeeping and maintenance functions requiring humans. However, the most successful companies I’ve seen have successfully blended the latest tech with highly personalized guest service, reservations sales and owner services support.

For example, while these companies offer self check-in, most still have a reception lobby. While they have implemented text messaging and in-home messaging options, they still have plenty of humans to respond when a personalized approach is needed. They also invest heavily in guest service and hospitality training for all staff, including maintenance and housekeeping.

As mentioned, the most well-known distribution channels are Airbnb and VRBO, but properties can also be found on many other sites such as Booking.com, Expedia, TripAdvisor and others. Certainly, there are plenty of companies out there, especially the smaller startups, who sell nearly 100% of their inventory via these channels.

However, I am always amazed by how many vacation rental companies book 100% of their inventory directly. Yes, you read that right, all bookings arrive directly by way of either website-direct or voice channels, or an interplay of the two.

These are big companies, too. I cannot think of a single traditional hotel that can say this, and in all of travel, I can only think of one company with 100% direct sales: Southwest Airlines.

For hoteliers who are interested in learning more about the vacation rental industry, here are a few links to associations and resources: Vacation Rental Management Association, Association of Short Term Rental Home Owners and VRM Intel.

Doug Kennedy is president of the Kennedy Training Network, Inc. Contact him at doug@kennedytrainingnetwork.com.

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