Matt Landau
  • Founder, VRMB

Is 2023 The Big Shake Out?

UPDATED December 8, 2022

A while back I posted a trend I was calling "The Falling Tide" -- the commentary from members on this metaphor is super insightful and as a result...


I have revised my metaphor: instead of a falling tide in 2023, I think of it a big shake-out.

A big shake-out comes when a wave of hype exceeds the realities of demand (in our case, guests looking for a reliable place to stay).

Do you see a "big shake-out" coming to your destination in 2023?

What might it look like for you?


##

ORIGINAL POST

They say a rising tide lifts all ships. But what happens in a falling tide?

Our industry’s tide has been rising every year since I bought my vacation rental management company in 2006. And in the last few years, the amount of ships rising has been staggering. To encourage these tens of thousands of quintessential tide riders, we coined “Limited Edition hospitality” to explain the single most important and calculated use of your time.

Limited Edition (aka. one-of-a-kind by design) helps every tide rider identify the aspects that do NOT scale as a way to distance yourself from the commodity competition. But now -- by all accounts -- the tide is falling.

What does this mean for you? If you are Limited Edition positioned -- having focused your brand around character and authenticity -- you are precisely where you want to be.

All your preparation and hard work is about to pay off. Do not veer from this Limited Edition positioning: instead, double down on it!

Allocate more resources to limited edition hospitality gestures: these are the levers for repeat/referral booking growth fully in your control. And BEWARE a falling tide can damage even the biggest, fanciest of vessels with captains who miscalculated, were ignorant, or who lost sight of their own hospitality core.
 
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But now -- by all accounts -- the tide is falling.

By whose accounts? Personally, I don't see any signs of a lowering tide. And the big draw in my neighbourhood (Walt Disney World) is just as busy as ever.

That's one of the great things about being small and nimble. You don't have to move with the crowd.

Perhaps the tide is going down, and I've been too busy to notice! Or perhaps I'm just blissfully ignorant. I'm okay with that.

One thing I've noticed about tides... if you think it is rising, or falling, that's usually what it turns out to be!
 
By whose accounts? Personally, I don't see any signs of a lowering tide. And the big draw in my neighbourhood (Walt Disney World) is just as busy as ever.

That's one of the great things about being small and nimble. You don't have to move with the crowd.

Perhaps the tide is going down, and I've been too busy to notice! Or perhaps I'm just blissfully ignorant. I'm okay with that.

One thing I've noticed about tides... if you think it is rising, or falling, that's usually what it turns out to be!
This is a macro perspective so maybe different in your particular destination... most market data tools are projecting corrections in demand over the coming year. Anecdotally, I've observed most markets increase supply/competition over the last 2 years. With a number of those new owners/managers slashing prices as a result of the decrease in bookings (in a race to the bottom).

F037A407-8510-4164-AA89-9B1EA0E23514.jpeg

More likely, you're well positioned and not feeling any effects of a falling tide is a testament to that.
 
They say a rising tide lifts all ships.


To encourage these tens of thousands of quintessential tide riders, we coined “Limited Edition hospitality” to explain the single most important and calculated use of your time.

Limited Edition (aka. one-of-a-kind by design) helps every tide rider identify the aspects that do NOT scale as a way to distance yourself from the commodity competition.

But now -- by all accounts -- the tide is falling.

What does this mean for you?

My own term/ idiom for this is "cream of the crop" or the "cream always rises to the top". It always rises. Always. Doesn't matter how much the milk or other crops sink. BE THE CREAM. Be the limited edition. And sure, all businesses are affected by changes - seasonally, or economic, etc. but, there's always a place on top for those who want to be.
 
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Not at all, but I have another analogy. What are the after effects of the Tsunami. Much like a Tsunami, the water receded quickly in the spring of 2020. We were all standing on the beach wondering what was going to happen. A few months later (for most of us) there was a rush of activity like never seen before. And now, the waters are pulling back to a more normal level....but, we do have rising sea level due to climate change to deal with :)

Anyhow...yes, the genie is out of the bottle. Our industry has seen incredible growth. Some got into the game because it was "easy." My prediction is that we will not retain all of the gains seen over the past two years, but we will retain a significant portion. The free money being passed around during the pandemic is being consumed by inflation and working it's way to the top of the economy. Some of the entrants that jumped into this little niche will realize that it ain't so easy, and they will pull back. Others, who confused technology with hospitality may be pushed out...not sure just how that plays out, but I firmly believe that hospitality is the hardest thing on earth to scale. To be clear, hospitality can obviously scaled in the controlled environment such as a hotel, where the rooms are all the same and so are the contents, the policies, procedures, etc. In the world of Vacation Rentals, try as you may, no two homes will be alike. There will always be local nuances to communities, localities, and even down to somthing as small as the toilet paper holder that was improperly installed by the homeowner. Oh, and trust me, no two homeowners are alike :)

At the end of the day, there has been many more people exposed to our way of travel, and they like it.

Sorry for getting long winded. :) Must have struck a nerve this morning.
 
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HI Matt Landau Matt Landau, I have definitely been noticing a falling tide in my own little micro-market and had been wondering if it was broader than that, so this was a very timely topic for me.

I think we reaped the benefits of travelers staying closer to home (within the US) and also avoiding resorts during the pandemic, and now they seem to be spreading their wings for farther flung locales. Even some of our most dependable regulars have dropped off the calendar in favor of Med cruises, the Amalfi Coast, and treks 'down under'. Yet the incoming international traffic we used to see during the long European summer vacation period hasn't picked back up yet.

It's time to shake off the complacency of a full calendar, and get back to marketing basics focused on attracting return guests and communicating the essence of Ltd Edition (which is easier said than done!).
 
When I read Airdna’s last market report (https://www.airdna.co/blog/2022-mid...ZbA&utm_content=219372834&utm_source=hs_email) I didn’t get the feeling that the tide was necessarily falling but that the recent rise in competition as made it feel that way. So here are my thoughts.
1.) The rise in competition is likely to slow down dramatically with the rise of interest rates.
2.) Rural areas that saw a boom during the pandemic due to mask mandates are going back to 2019 levels (actually a little higher than 2019)
3.) the overall tide is still growing 5% per year

in summary, things are shifting. And for the first time, some managers are seeing their first year over year decline ever due to things going back to normal. I’m not yet convinced that this trend is a long term one.

Then again maybe I just have rose colored glasses on. 🤷‍♂️

Here's a little more context: Below is Google Traffic for my area (Destin/PCB). When I compare this year to last year one might think "holy @#$% the sky is falling!"

1658939690060.png
But then if you look at how 2022 compares to 2019 you see that we're actually just returning to "normal".
1658939795670.png
 
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My own term/ idiom for this is "cream of the crop" or the "cream always rises to the top". It always rises. Always. Doesn't matter how much the milk or other crops sink. BE THE CREAM. Be the limited edition. And sure, all businesses are affected by changes - seasonally, or economic, etc. but, there's always a place on top for those who want to be.
My thoughts, exactly, but it's more than that...

Being both "agile" and firmly rooted in and focused on your respective niche market is required to weather the storms as is occasionally taking stock and reinventing your business to stay relevant and viable. Know your business' strengths and weaknesses (all have both) and you'll have a better idea of where you might take a hit during an ebb and prepare for it.

Personally, I'm seeing a lot of client's selling their businesses...mostly those who were managing only a few of their own properties. I'm also seeing some clients THRIVE....people who used to manage only their own properties but who stepped into managing other properties, as well. They are a savvy bunch with the "high touch" qualities coupled with solid marketing and business experience.

From my unique perspective, as a web & marketing consultant, it's certainly been an interesting 8-10 years to be deeply involved with this industry...
 
I have been surprised since April that we have been so busy. We are a drive to market so when gas prices sky rocketed I thought it would affect us and overall it didn't. I had a few larger homes over Spring Break see a dip, but then we bounced back quickly. I was excepting a dip this fall due to the economy and I haven't seen it yet, we are evening getting bookings for next summer. I don't know if people are better prepared for dips in the economy and have saved so they can still travel or if they don't care and are just going to do what they want. I know this fall will be back to our more normal fall, which honestly we need. We have been going full throttle since May of 2020 and we could use the down time to regroup and reassess what is working and not. I have lowered our rates and adjusted for the fall which I think will help us continue to get bookings and we are already looking that the Thanksgiving and Christmas season and seeing if we need to adjust there as well. I think the best thing is to be prepared for the low tides even if you aren't seeing them yet, because they are always there.
 
From my unique perspective, as a web & marketing consultant, it's certainly been an interesting 8-10 years to be deeply involved with this industry...

I agree! "firmly rooted and focused" on your niche / avatar is so important. It has been fun to help and watch others grow and change. I've been working off and on with a few clients since 2016 as they have really gotten to know their avatar(s), create a space specifically for them and use their blog and social channels to market to them. It's my favorite thing - watching others succeed!
 
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!

-------

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:
  1. Destinations within driving distance of home
    1. People generally avoided the crowds associated with airports; airplanes were uncomfortable and made social distancing impossible
  2. Lodging that provided a dedicated space where guests could social-distance
    1. Vacation rentals were comparatively more attractive than resorts, hotels, or B&Bs
  3. Destinations that offered a number of outdoor activities
    1. 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!
 
Not at all, but I have another analogy. What are the after effects of the Tsunami. Much like a Tsunami, the water receded quickly in the spring of 2020. We were all standing on the beach wondering what was going to happen. A few months later (for most of us) there was a rush of activity like never seen before. And now, the waters are pulling back to a more normal level....but, we do have rising sea level due to climate change to deal with :)

Anyhow...yes, the genie is out of the bottle. Our industry has seen incredible growth. Some got into the game because it was "easy." My prediction is that we will not retain all of the gains seen over the past two years, but we will retain a significant portion. The free money being passed around during the pandemic is being consumed by inflation and working it's way to the top of the economy. Some of the entrants that jumped into this little niche will realize that it ain't so easy, and they will pull back. Others, who confused technology with hospitality may be pushed out...not sure just how that plays out, but I firmly believe that hospitality is the hardest thing on earth to scale. To be clear, hospitality can obviously scaled in the controlled environment such as a hotel, where the rooms are all the same and so are the contents, the policies, procedures, etc. In the world of Vacation Rentals, try as you may, no two homes will be alike. There will always be local nuances to communities, localities, and even down to somthing as small as the toilet paper holder that was improperly installed by the homeowner. Oh, and trust me, no two homeowners are alike :)

At the end of the day, there has been many more people exposed to our way of travel, and they like it.

Sorry for getting long winded. :) Must have struck a nerve this morning.

LanceS LanceS No you are NOT long winded. I could run circles around you with that one but I tend to stay quiet. (Frankly a little too quiet, I need to start speaking up.) I had no intention of discussing tsunamis but since you referenced one I can’t resist sharing the story.

The year was 2015 and my business was doing well enough that I rented a modest cottage during high season and I was renting a place for a much lower rate than my own. It seemed to me to be an excellent idea…..at the time.

So it was a quiet tropical morning in February and I sat on a deck, enjoying my coffee until……I heard the alert. Mind you, nobody said “This is a test” which definitely would have been helpful,

The sound came blaring out over Cruz Bay Harbor and if we want to talk “loud” I mean LOUD. I heard the following: “Tsunami alert! Tsunami alert!”

I panicked, flew out of the cottage, locking myself out but of course nothing like that matters when Mission Tsusami Escape has begun. Suddenly I was on the run.

I knew this much about tsunamis: Move to higher ground! What I didn’t not know (and still don’t) is how higher up is higher enough? That left me with one option: go higher up than where you are now!

I was significantly above sea level but couldn’t gauge my risk level. As I ran there was a single dirt road where I could take a turn so I did. Anyone who knows St. John knows that it’s VERY hilly.

Much to my dismay that road was relatively flat, it had a slight incline upwards but it was so slight it seemed not to make any difference. However, given those circumstances I decided that some up was better than no up at all.

The road suddenly came to a dead end and I found myself at the back door of a local resident’s house. I quickly described our dire predicament. Maybe we could somehow help each other out?

Whoa. That lady was quite the expletive champion, trophy material for sure. She was swearing at me non stop so fast and furiously that I could barely squeak an additional word it. She made it abundantly clear that she wanted me to leave. Now. Well, NO. A tsunami was coming and I needed an ally!

Next thing you she was swinging a broom and threatening to attack. My options were not looking good at all; A) Go down with a tsunami and/or B) Get beat up by a local. I turned and quickly made a polite.exit.

There was no point in running back down that road, it was too late for that so I walked my way back, feeling pretty dejected. News obviously travels fast. Before I reached the end of the road someone called out from a window, “That was only a test.”

It took awhile for the hilarity of that incident to catch up with me, I had to recover first. I now look back at that situation and I think I’ll probably laugh about it forever. Regardless, I sure won’t forget it!

I fully agree that my next guest is my most important guest and I’ll have to directly address that important topic later. In the meantime I have figured out something else: My next tsunami will be my most important tsunami.
 
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I don't do stats, ROI, YOY, or any of the ultra professional stuff that big businesses do. I know generally how busy I am, and I know if it's sort of the same as last year. We had a mandatory close of our beach house during early days of the pandemic and I chose to close our at-home studio. I took time to assess and reassess quality of life. When I re-opened the beach house, I raised rates and increased the nightly minimum. I also instituted a 'down' day between guests to give my aging housekeeper less stress. Then I did the same with our at-home studio. Our business has not slowed down, rather, it's picked up to be busier than ever, but without the accompanying stress.

However, I do pay attention to the industry, and this is what I'm seeing: we've gone from a cottage industry to a full blown, serious money-making industry. There are investment groups forming to buy available homes on the market everywhere. Which puts more stress on the housing market, which puts more stress on regulation-makers. All over the world there are attempts to control growth, and not many ways to do it, other than squelching the known market. I think the travelers will always come, regardless of gas prices, etc. I'm just concerned there will be fewer single hosts who will be forced out, and the only places available will be those homes whose owner cannot be identified by the regulatory bodies, which will be managed by management companies.

Example: Lincoln County, Oregon is in court now, and if the newest regulations is actually approved, ALL short term rental businesses in the County will be out of business in 4 years. As it is, I know people who have waited years to get a rental permit.
 
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!

-------

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:
  1. Destinations within driving distance of home
    1. People generally avoided the crowds associated with airports; airplanes were uncomfortable and made social distancing impossible
  2. Lodging that provided a dedicated space where guests could social-distance
    1. Vacation rentals were comparatively more attractive than resorts, hotels, or B&Bs
  3. Destinations that offered a number of outdoor activities
    1. 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!
Eddie Eddie, very nice.
 
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!

-------

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:
  1. Destinations within driving distance of home
    1. People generally avoided the crowds associated with airports; airplanes were uncomfortable and made social distancing impossible
  2. Lodging that provided a dedicated space where guests could social-distance
    1. Vacation rentals were comparatively more attractive than resorts, hotels, or B&Bs
  3. Destinations that offered a number of outdoor activities
    1. 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!
Great insights Eddie! Thanks for sharing.
 
My concern is regulation and restriction. I see more and more especially in "blue" areas where affordable housing is equated to taking housing stock for vacation rentals. I would like to see city neighborhoods stay away from vacation rentals. I know it's a controversial thought and I'm all for property rights, but having them in dense neighborhoods has been a key factor in restriction. I'm hesitate to start any programs or try and grow as Sonoma County is in the middle of redefining what vacation rentals are allowed and where. We're not alone.
 
Love this Eddie Eddie and way to get ahead of it. Curious about how you're implementing the marketing initiatives -- have you hired someone or started to dig into this yourself?
For the things I outlined, I've hired someone. I don't have the expertise right now to execute myself, nor the time to learn how!
 
Whether the tide is rising or falling the vacation rental industry requires VRMs to think like sailors. Handy, for me because that was my background before running aground in Colorado.

This checklist works for sailboats and vacation rental management 😎
  • Did you check the forecast?
  • Are we are going in the right direction?
  • Do we know where we are?
  • How deep is the water ahead?
  • What is the best way to avoid sailing into the wind (headwinds)?
  • Are we equipped to save ourselves if we run into trouble?
  • Are we doing preventative maintenance?
  • Does the crew feel safe and know what is happening?
  • Are changes communicated in advance?
  • Are you ready for bad weather?
  • Are we best positioned for when the tide changes?
 
Rather than a “big shake out”, I’m proposing a “big shake up.” I’ve sent out a couple of op-eds that suggest 1) the death of the 5 star review and 2) radically revising KPIs into a new measured variable.

Visualize the vacation rental biz as your favorite vehicle. I’m kicking the tires and seeing that some of the treads are wearing out. When the time comes to replace them, I caution against buying retreads and looking for something completely different.

I have one more op-ed in mind regarding the Pareto Principle. And a new marketing method that should be ready by year end.

As someone who doesn’t fit the mold of most VRMs, and frankly refuses to do so, I feel emboldened float these thought bubbles to see if they rise or pop.
 
I was not getting the number of bookings this year that I had last year. Believing the reason is gas prices, I lowered my rental rate and bookings have picked up considerably.
I'm glad your bookings have picked up. A couple of questions:

1. Did you raise your prices during the boom, and if so, how much?

2. How much have you lowered your prices? Back to pre-boom rates, or even lower?
 
HI Matt Landau Matt Landau, I have definitely been noticing a falling tide in my own little micro-market and had been wondering if it was broader than that, so this was a very timely topic for me.

I think we reaped the benefits of travelers staying closer to home (within the US) and also avoiding resorts during the pandemic, and now they seem to be spreading their wings for farther flung locales. Even some of our most dependable regulars have dropped off the calendar in favor of Med cruises, the Amalfi Coast, and treks 'down under'. Yet the incoming international traffic we used to see during the long European summer vacation period hasn't picked back up yet.

It's time to shake off the complacency of a full calendar, and get back to marketing basics focused on attracting return guests and communicating the essence of Ltd Edition (which is easier said than done!).
Agreed. My places are still at the top of the OTA searches, but that isn't enough. There just aren't as many people booking as there were for the last few years.
 

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