[SPONSORED CONTENT] Track – a TravelNet Solution, a hospitality software solution that modernises and simplifies all aspects of property management operations, discusses the current market correction phase in the short-term rental market and the ways in which property managers and owners can respond to it.
The short-term rental industry is undergoing a market correction. The pandemic ushered in a weird and wonderful stretch of sky-high ADR and occupancy, and we rode that wave into shore. The money was great, but the conditions were rare and unique.
Now we’re in a market correction phase. We recently published a blog article about how we got here and why, but the bottom line is that key market indicators such as RevPAR and occupancy are not where anybody would like them to be. So what, if anything, should you do about that?
The buckle-down strategy
One approach to a market adjustment is to shift into low gear and ride it out. For many, now is not the right time to make big changes or new investments. Put another way, slow and steady often wins the race. This is a sound strategy for a few good reasons:
● Volatility
Market uncertainty is defined by short-term swings that raise your hopes only to crush them. Watching and waiting for indicators of a stable market makes good business sense.
● Preserving capital
The whole reason for building up rainy-day capital is so it is there when you need it. Uncertainty means you cannot count on things improving, and they might get worse.
● Observing competitors
Risk aversion during a sluggish market is only natural. Waiting for competitors to stick their necks out first lets you see what happens before doing likewise.
Most of the industry will adopt this strategy until the fog has lifted. The proof will not come from industry pundits or reports, but several weeks or even months of consistently solid, if not spectacular performance and cash flow. More than anything, it will just feel right.
The buckle-up strategy
The other approach to a downturn is to turn a conservative market mentality to your advantage. When the market shifts into neutral, it takes less to pull ahead. Measured risks can see you leap ahead relative to the competition.
A few reasons why this might work:
● Operational efficiency
Process changes and implementing new technology take time and can get messy in the short term. It is best to make them when business is slow so you have already worked out the kinks when things bounce back. Invest in frictionless experiences for guests,
employees, and owners.
● Positioning for future growth
Calculated risks now can pay off as more market share later. If growth is your goal, investments in efficiency or marketing strategy can pay big dividends.
● Talent and owner acquisition
Setting yourself apart with an aggressive strategy can attract top talent and owners with a similar mindset. A growth mindset is that much easier when your stakeholders are also focused on growth.
● Relationship building
Packages and incentives add value and distinction to your offering. A downturn is a great opportunity to work out those deals with other area businesses.
There are other good reasons to make changes during a downturn, but the goal is the same, which is to pass your competitors. In this business, it is easy to get mired in a minding-the-store rut where the changes you want to make never quite become ones you need to make. But if you can overcome that inertia, the potential rewards are great. In the end, it comes down to risk tolerance.
Mitigating risk amid change
If setting yourself up for future growth sounds like a good idea in theory, there are plenty of ways to reduce your risk.
● Cost management
The time-tested way to maintain liquidity during a sluggish market is to cut costs. Look more closely at operational expenses such as monthly vendor fees or underused subscriptions and services. Can you negotiate better terms with suppliers and contractors?
● Dig into the data
A better understanding of both the market and your performance can keep your strategy grounded in reality. For example, KPIs like low conversion rates can point to a too-strict cancellation or pet policy. Market trends such as increased demand for sustainable business practices can also help you make more informed decisions.
● Communicate well
Any risk you take is borne by your employees and owners, too. Be honest and upfront about your plans and the related upsides or downsides. Transparency creates the trust and alignment your growth strategy needs to work.
● Remarket to lapsed guests
If you do not already, reaching out to past guests with news or special offers is a great way to remind them of your brand. New area attractions, package deals, or direct booking incentives are great ways to lure them back.
How long will the market take to recover?
Market volatility persists. Some companies are implementing return-to-office mandates. A troubling gap still exists between supply and demand. We are in the middle of yet another contentious election cycle. Coastal regions are worried about a bad hurricane season.
However, we are already seeing signs of a return to normalcy. There are reasons to be cautiously optimistic that H2 2024 will see a more stable balance of supply and demand.
For example, our partners at KeyData say that 2023 revenues per property for short-term vacation rentals were 26 per cent higher than 2019, which was pre-pandemic. Roughly half of PMCs reported higher revenues in 2023 vs. 2022, suggesting that some regions are already bouncing back.
Invest in impact
A blend of these strategies will maximise your market potential over the next few years. Optimisation is a great way to set yourself up for future growth while limiting exposure and risk.
Your people are in the trenches every day, so consider incentivising them to spot redundancies and inefficient processes. Over time, this can create more of a ‘Six Sigma’ mentality, which is how big companies use efficiency gains to capitalise on economies of scale.
Implementing new technologies has never been easier, but it takes planning. If a late fall implementation could work, now is the time to get it on the books with your intended vendor. Not only will their schedule fill up as the year progresses, but there is a fair bit of advance work to ensure it goes smoothly.
