The Untapped Vacation Rental Market by pcx84048


									Editor’s Forum - The Untapped Vacation Rental Market                                                                    Page 1 of 2

 The Untapped Vacation Rental Market
 By Kate Rice
 Published on: July 1, 2009

                       There’s an untapped market just waiting for you to find it. Venture capitalists have poured more
                       than $500 million into it since 2005. It was a $24 billion market the U.S. in 2008 with some 21.5
                       million guests over the past two years. It’s got sky-high customer satisfaction ratings (just 1 percent
                       of those 21.5 million came home unhappy).

                       So what is it? The answer is vacation rentals. This highly fragmented but highly desirable market
                       offers value and space to consumers, particularly groups of family and friends, and accommodation
 options that range from a condo outside Disney to an Italian villa. Compare vacation rentals to the cruise industry, whose
 revenues totaled $24 billion in 2008.

 Why would you want to get into this? The reason is that it’s a market with huge potential for an audience of travel
 consumers looking beyond traditional hotels for space and unique experiences. Vacation rental properties usually have a
 kitchen, meaning you can eat breakfast, pack a lunch and make the occasional dinner. They have bedrooms, meaning
 parents can put kids to bed and then sip cocktails watching the sun set over the ocean from the balcony or, perhaps more
 realistically, they can go to bed while kids play video games. They also offer more privacy and many come with hotel-like
 services such as housekeeping.

 Vacation rentals also can provide a more intimate experience. There’s nothing like staying in a little cottage in the
 Dordogne and engaging in morning repartee with the baker when picking up your baguette at the local patisserie in the
 morning. They also offer more space, a better deal and a rich vacation experience. Eighty-nine percent of vacation rental
 customers would rent again within three years, while 87 percent would recommend such accommodations to a friend.
 Just one percent came home unhappy, according to PhoCusWright’s just released study, “Vacation Rentals Get Real (and
 Really Big).” The Achilles heel of vacation rentals, known as “significantly not as described” (SNAD), is a myth, according
 to the study.

 Vacation rentals also are a higher margin product, offering an average daily rate of $215, which is more than double the
 average daily rate for hotels at about $100. But your clients get more than double their money two bedrooms, a living
 room and no mini-bar stocked with $10 candy bars for kids to break into. They attract the upscale traveler -- more than a
 third of guests are in the $100,000-plus income bracket. Nine out of 10 take two trips a year. They are also perfect for
 the drive market. It’s such a growing market that travel insurance companies now offer vacation rental policies.

 The challenge is most travelers don’t even think about vacation rentals when they shop, according to PhoCusWright.
 Some don’t know about them, others don’t want to cook or clean, while still others don’t want to put down a deposit.

 Right now more than half vacation rentals are through the owners of those properties, a market that is effectively 100
 percent offline, according to PhoCusWright. Many use the Internet to list their properties, but close the deal offline, with
 renters contacting homeowners by phone or email and then mailing in a check. Vacation rental management companies
 account for about 43 percent of rentals and 15 percent of their rentals are now online.

 But rentals through vacation rental management companies are driving online travel in this space. And the number of
 intermediaries is growing. Douglas Quinby, senior director of research for PhoCusWright, says that the intermediary side
 of the business is expected to grow significantly this year. One reason he expects to see the amount of business done
 through intermediaries to grow is that the vacation rental world, besides being highly fragmented, is made up mostly of
 individual or small players, and is also relatively young. A lot of connections to third party distribution sites are still being
 put into place.

 The current recession means that vacation rental property owners and vacation rental management companies are more
 eager than ever to work with intermediaries because of lack of demand, which is also driving them to use intermediaries.
 The industry is wising up to a few realities. Vacation rental owners and management companies are providing amenities
 and services that meet the expectations of consumers who are used to hotels.

 For example, vacation rental properties provide linens instead of requiring guests to bring their own. They traditionally
 had a seven-night minimum. Since online hotel searches are usually just for two or three nights, vacation rentals never
 even come up. But that market is changing -- 60 percent of vacation rental stays are now for less than one week.

 The problems for travel agents in booking vacation rental properties are the fragmented nature of supply and the fact
 that many properties do not pay commission. Fortunately, the industry is beginning to aggregate content and making it
 available to travel agents –with commissions. A number of companies and booking services have emerged, including
 Endless Vacation Rentals by Wyndham; LeisureLink, which is in VAX VacationAccess and the GDSs; and Rentalo, which
 lists vacation rental properties that pay commission. Other players include VacationRoost, Zonder, HomeAway and
 ResortQuest International.                                                           7/9/2009
Editor’s Forum - The Untapped Vacation Rental Market                                                                 Page 2 of 2

 At the same time, an agent specializing in this market can justify charging service fees by being an expert. If you know
 the inventory, how close a vacation rental is to a beach, to the shopping mall and restaurants, you have the kind of
 expertise worth charging for. First of all, finding a vacation rental takes days. It involves hours of searching on the web,
 as well as follow-up emails and phone calls for simple things such as establishing availability. Then there are more
 subjective calls, such as determining whether or not a particular unit is right for a client.

 In the end, the vacation rental market is the perfect niche for travel agents willing to develop expertise in an area and
 charge fees for helping clients book a complex product. For more information on the PhoCusWright study, visit

 Kate Rice
 Executive Editor                                                        7/9/2009

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