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The meteoric rise of, booking more than 10 million nights since its inception in 2007, should not cause the hotel industry to worry about the vacation rental market. Both business models have co-existed for a significant amount of time without infringing on each other’s growth. It is likely that vacation rentals will appeal mostly to leisure travellers with lucrative business travellers firmly loyal to hotels, thanks to corporate travel policies, loyalty programmes and the standardised experience a hotel offers. To compete for leisure travellers, hotels have advantages over the vacation rentals that they can emphasise to stem losses in the leisure traveller segment.

Vacation rentals step into the limelight

Thanks to’s success (and the launch of similar websites), there is greater awareness of the vacation rental market, but it has existed for many decades. In fact, Wyndham Worldwide owns one of the oldest vacation rental brands—the British Hoseasons (founded in 1940). According to Euromonitor International, combined self-catering and private accommodation (the two accommodation types that compose the bulk of vacation rentals) accounted for US$77 billion in room revenues in 2011 globally, up 98% from 1999. Total worldwide hotel room revenues was US$429 billion in 2011 and grew 83% over the same time period. Despite being a significantly larger market, the hotel industry turned in a very strong performance against the vacation rental market. However, it does
seem that the vacation rental market may be more resilient to global economic downturns as evidenced by growth rates in 2000, 2001, 2009 and 2010, because
it’s not as dependent on finicky business travellers as the hotel industry. There may be a bit of a substitution effect with leisure travellers seeking out less expensive accommodation options during times of economic distress—which may be something hotels need to keep an eye on.

% Growth in Global Room Revenues for Vacation Rental and Hotel Industries

% Growth in Global Room Revenues for Vacation Rental and Hotel Industries

Source: Euromonitor International

Note: Vacation Rental Industry includes self-catering apartments and private accommodation

Going forward, Euromonitor International expects that both accommodation types will see similar growth, with hotel room revenues growing by 20% over the next five years, and vacation rental revenues growing by 19%. While the success of has elevated the profile of the vacation rental market, it is a market that has always existed—its distribution has merely improved with easy to use websites that encourage transparency between guest and owner. As a result, the vacation rental industry isn’t expected to significantly cannibalise hotel industry sales.

Hotels need to keep an eye on leisure travellers

Leisure travellers is where both accommodation types compete heavily. There has been a shift to more family and multi-generational travel. Renting an apartment or villa provides more space at a lower cost than staying at a hotel for these groups. Family members and have their own rooms, so parents can stay up while children are sleeping. Costs are even lower when families use the vacation rental’s kitchen instead of dining out. It is this segment that the hotel industry will need to try a bit harder to win over.

Hotels can respond to this by promoting their extended stay brands to more leisure travellers and emphasising the family friendliness of their properties— providing unique activities such as specific outings for children that aren’t available at vacation rentals. Luxury hotels, in particular, have responded to this shift. For example, the anthenaeum in London has a “kid’s concierge” that will provide child-friendly amenities and activities.

But overall, hotels must leverage their greatest advantage over the vacation rental industry: standardised service. The hotel industry must continue to provide excellent customer service so that leisure travellers are confident that they will enjoy their stay at a hotel instead of running the risk of having a horrible experience with an individual property owner.

Local governments may be an ally’s success has been a double-edged sword, drawing the attention of local governments to the vacation rental industry as a whole. In many cities, there are rules preventing residents from renting out rooms for transient purposes. Additionally, the owners of these properties may be subject to sales, occupancy or income taxes, but many are not remitting these taxes to authorities. Furthermore, some residences are in violation of local building codes. As a result, cities, such
as New York City and Amsterdam, are cracking down on illegal listings and issuing fines that are in the tens of thousands of dollars. While most cities admit that they do not have the manpower to go after everyone, they are finding the most egregious offenders and will follow up on complaints from neighbours. The risks associated with renting out a property or a room may dampen growth in the vacation rental market, favouring hotels that are in compliance with local ordinances.

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