Vacation Rentals Sector Stays Fragmented: When Will It Consolidate?

Consolidation is coming to short-term rentals. It's just a matter of how, when and of what nature?

The pandemic has exposed the potential for blending different types of hospitality services creating the “muddled middle.” As consumers shape the trend of "bleisure" (business and leisure) travel, operators in both short-term rentals and hotels are thinking about how to serve the same consumer with a variety of options based on the type of the trip.

"When people think of loyalty in travel, it’s really about trip type," said Henrik Kjellberg, Group CEO at Awaze at the Future of Lodging Forum in London on Wednesday. "The fascinating thing about travel is that the same consumer can choose between a wide range of options. There used to be a difference between chain and boutique hotels back in 2001. Now people are comfortable switching now. There is an accommodation continuum  — depends on the trip you’re taking."

Kjellberg was part of the panel “The Blending of Everything as Vacation Rentals Come of Age," at the event along with Merilee Karr, chief executive officer at UnderTheDoormat Group.

Karr noted that changing consumer preferences towards short-term rentals even for business trips will cause the blending and merging of different players in the accommodation industry. Citing examples of Accor acquiring luxury rental brand onefinestay and Marriott launching Homes and Villas in 2019, Karr noted that the industry will only see more of this interplay.

"If you look at hotel owners and operators, you see a lot of investment in hotel residences and service apartments," Karr said. "There is a now a muddled middle, where operators born in the short-term rental space as well as hotels are coming to the middle ground."

Demand and supply have nudged one another in short-term rentals — Europe is tracking record-setting demand pacing over the next six months, up by 33 percent annually and 25 percent compared to 2019.

But how much of that is reflected in the financial health or business moves of companies in the industry? U.S. private equity firm Platinum Equity created Awaze after buying a selection of rental businesses from Wyndham Worldwide in 2018. The deal was worth $1.3 billion, and its collection at the time included Novasol, Cottages.com, James Villa Holidays and Landal GreenParks. In September last year the owner of European vacation-rentals business Awaze is looking for a sale.

Responding to the question of sale, Kjellberg said, "We are happy with where we are and what we have done in the company, and we have lots left to do. The financial markets are in a turmoil, we are owned by private equity, so will have new owners at some point, but we are in no rush."

Karr, however, is of the opinion that consolidation in short-term rentals is more likely to happen through technology.

"Much of the industry is still working on spreadsheets, picking up the phone and a lot of these businesses run like family-owned businesses in the 90s," Karr said. "When you start to get technology bringing together smaller businesses, there will be opportunities to cross-sell. And if tech doesn’t step up, there will be missed opportunities."