I just finished drafting a letter to our homeowner clients on this topic. We have a number of homeowners who are seeing YOY decreases in revenue (one is down 50% YOY for the month of July!). Rather than have this same conversation over and over, I figured I would write a letter to clients instead. I have not shared this with them, yet, so if anyone else has feedback I'd be happy to hear it!
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The Market in 2021
Last year (2021) was a record-breaking year for vacation rentals in destination markets, one that was going to be difficult to match in 2022 and in the years to follow. During the pandemic, when people traveled they tended to look for the following criteria:
- Destinations within driving distance of home
- People generally avoided the crowds associated with airports; airplanes were uncomfortable and made social distancing impossible
- Lodging that provided a dedicated space where guests could social-distance
- Vacation rentals were comparatively more attractive than resorts, hotels, or B&Bs
- Destinations that offered a number of outdoor activities
- Again, so people had things to do in an environment where transmission rates were significantly lower
Our market checked all those boxes. On top of that, the flexibility of working and schooling remotely gave many more people the ability to book off-season and/or mid-week stays, and many availed themselves of the opportunity. In 2021, the stars aligned and created jaw-dropping revenue numbers for Mountain Mama vacation rentals.
The Shift Underway in Summer 2022
Coming off spring break season this past April, we started to notice that with the month of May YOY metrics were declining for the first time. Relative occupancy rates were down, and YTD revenue was about 15% lower than it was the year prior (for properties with rental history in early 2021). A shortened booking window (more on that below) has made it difficult to forecast revenue impacts in advance, so it was impossible to say at first whether the changes that shaped May would continue to hold through the summer and beyond. Now that we are approaching the end of July, it seems those first rumblings were in fact indicative of a shift in the market, as those trends continued through June and July and appear to be having an impact on August as well.
Booking lead times continued to shorten, too, as more and more guests were booking within one to two weeks of the check in date. This opens us up to the risk of bad weather discouraging guests to book at all. For example, in the second weekend of July this year, we had a couple properties go unbooked, whereas weekends have practically never gone unbooked (much less weekends in the high season). It turns out that Harpers Ferry received about an inch of non-stop rain Friday through Sunday that weekend, and that seems to have discouraged guests from making the week-of bookings that we otherwise would have expected.
Causes of the Market Shift
The “End” of the Pandemic in the United States
Historians looking back on this period decades from now will be better positioned to say when exactly the COVID-19 pandemic seemed to “end” in the United States, but from my vantage point, the President’s State of the Union address on March 1, 2022 seems as good a marker as any. At that event, senators and congressmen gathered together indoors, and for the first time in years, the great majority of them did not wear masks. Vaccines had been available for months to anyone who wanted them, and the wintertime Omicron wave had largely passed. COVID-19 will probably always be with us, but in the minds of most Americans, the pandemic was coming to a close and behaviors were beginning to change once more. Although remote work seems largely here to stay, the boost in off-season and mid-week stays provided by remote schooling has probably passed, and people are venturing further afield than their local drive-to markets.
Explosion in Supply
Year-over-year, many destination markets saw an increase in available vacation homes of about 50%, and Harpers Ferry is right in line with that growth rate. Available data seems to indicate that demand for vacation rentals has only leveled off (rather than decreased), but the difference is that guests now have many more options to choose from.
This makes standing out from the crowd all the more important. As a Mountain Mama client, you can trust that we are going to market your property to the best of our abilities and show off its best features. But you can help! Homeowners can position themselves to compete in this new environment by upgrading their properties with new features and amenities that guests will love.
Economic Pressure
One final cause of the current situation is the uncertainty in the macroenvironment. With inflation pressures mounting and the specter of a looming recession, people are feeling the squeeze on their discretionary income. This probably contributes to the shortening of the booking window, as people hesitate to make plans for the future when the future remains uncertain. On the other hand, household savings did increase significantly during the pandemic, and people still have those savings to work through. That may be an indication that economic pressures will only increase in the coming months as those savings dwindle.
Our Response
It is in volatile markets like these that a professional property manager shines! For the past two years, reservations were comparatively easy to come by. Demand greatly exceeded supply, so any newbie could slap a property on Airbnb and get bookings (though they almost always mispriced and left money on the table). You could have offered a cardboard box for rent and someone would have paid good money for the privilege! But those days are gone.
Marketing Initiatives
To continue to outperform in this new market environment we have doubled down on our marketing efforts, which are already leaps and bounds better than anything being done by other vacation rental owners in the area. Some of our marketing initiatives include:
- Investments in search engine optimization so that guests find us first before they find Airbnb, Vrbo, or another marketing channel
- New blog posts twice a month with valuable content for guests visiting the area (which also boosts our search rankings)
- Monthly email newsletters to all past guests
- Facebook ads retargeting previous guests to turn them into repeat guests
- Weekly posts on social media (FB/IG) highlighting a featured property
Revenue Management
We are also staying on top of pricing management. During volatile periods, it becomes necessary to make pricing changes much more frequently and proactively. That may mean that we need to approach minimum/floor rates to ensure “expiring inventory” (i.e. unbooked dates less than 10 days away) are rented for some amount (even if the rate is lower than usual) rather than unrented altogether. The revenue management strategy we employ is the one that maximizes annual revenue. However, it may require patience in the short term.
Conclusion
Despite recent volatility and a return to “normal” seasonality and demand, I continue to think this area is a great place to own a vacation rental. Many new entrants to the market who are attempting to manage their homes themselves are now finding that it’s not as easy as it looks–even just capturing the available demand is harder than expected! We expect the growth in supply (i.e. your competition) will slow substantially, and probably reverse, as those people come to grips with this new environment. In the meantime, we will continue to do what we do best: make your Mountain Mama vacation home a guest’s dream and a profitable investment!
