Are we going through a recession in 2022? What is happening in the world right now?
The U.S. Federal Reserve, the organisation that prints and lends money to all of the big banking institutions in the world raised the Interest rate up to 1.75% – the biggest increase since 1994, and Chair Jerome Powell signalled another big move next month, intensifying the fight to contain rampant inflation.
That increases borrowing costs for banks, who in turn pass those higher costs on to consumers and businesses in the form of higher rates on long-term loans for houses, cars and all other commodities including travel.
Many economists remain uncertain about whether we are already in a recession and what it might look like. Some predict a milder recession with a long recovery (some think it might last over a year), and others predict that this recession will be more about people buying fewer things and will go into “savings” mode.
Whatever unfolds, it is undoubtedly better to be prepared when the storm comes rather than face it barehanded and regret not being proactive when the opportunity was there.
Are there any good things left at the table? Sure.
This recession is not going to be like any other in the history of economics. And here is why:
If you look at every US economic recession since World War 2, you will see 2 things always happen – GDP (Gross Domestic Product – the measure of economic output a.k.a market value of all the final goods and services produced in a specific time period by country per 1 citizen.) goes down and unemployment goes up.
Blue line – GDP, red line – Unemployment
Now let’s look at today (2022):
GDP is going down and the unemployment rate is actually falling… People are getting jobs, not losing them. We can’t say if it’s a recession if it is one – it is not anything like we have seen before.
GDP and unemployment are closely linked because they feed off each other. When businesses lay off workers, those workers spend less money, which means businesses make fewer profits and lay off more workers.
A recession can begin at any of these points and in 2022 people could cut back on spending. Just look at consumer sentiment – a measure that weighs how people are FEELING about the economy and whether they are going to spend money soon.
Generally, when people respond that they feel pessimistic – a recession follows, and right now people are feeling as pessimistic as they felt during the great recession of 2008 thanks to inflation. Not a great sign for GDP.
However, businesses are in a different place than past recessions. This chart shows the average corporate profit margin. In the past profits were in single digits, and now not only do they have profit margins in double digits, but the amount of cash they have is close to 4 trillion dollars! Analysts say that is a significant downturn BUFFER.
Businesses may just decide they can weather this storm and not just lay off workers or cut back on investment and plan to get to the other side of this adjustment without a big retrenchment that feeds on itself.
Many companies are sending clear signals about not laying off workers, because many are having problems finding workers in the first place (remember the fact that unemployment was still falling?). It’s a really unique time in the job market – labour force participation is as low as it has been in 40 years (meaning that a lot of people simply aren’t in the workforce as we have known it).
There are 11 million unfilled jobs on the US market alone.
So it’s a really unique situation we find ourselves in, and it can’t continue forever. One of two things has to happen: either the economy adjusts and companies start expanding again OR the economy keeps contracting, the economic output keeps contracting and the companies say “Woooww, we are over our head and we have to cut jobs”. One of these things should happen, we just don’t know which one is going to.
Anyway, we have never seen anything like it. But we need to remember one thing:
People want to travel despite the recession.
Your.Rentals spoke with Rental Scale-up, PriceLabs and KeyData on the topic of Softening Demand and Recession. Here we have discussed whether the vacation rental industry is going through a recession in 2022. Click to watch.
Is the vacation rental industry recession-proof?
This is the beacon that illuminates the whole short-term rental space. Unlike the COVID-19 pandemic, recessions don’t bring travel restrictions, but they do change the way people travel – closer to home, different transportation etc. And there is still a post-COVID-19 trend of longer stays in bigger groups – people across the world are still physically reconnecting with friends and family. So what do you need to do to prepare for the changes that may come?
ADAPT. Companies that move fast and remain flexible in adapting to the crisis stand to gain significant market share and secure their positions.
Here is the roadmap with 2 stories. Which one do you follow right now?
Winning line – this is what it takes to get a stable and profitable business
- Support Longer Stays
- Keep an eye on changing source markets, and Diversify Your Distribution
- Try Different Pricing Strategies
- Cut Down On Recurring and Fixed Expenses
- Streamline Your Operations
- Hang On To Your Best Talent
- Study Your Metrics
- Consider Acquiring More Inventory
- Think And Plan Ahead
- Not adaptive, still runs business as nothing is coming
- Not keeping a close watch on the “pulse” of the market.
- Expect demand will continue as we saw in the “COVID rebound” Period
- Not analysing changes to the guest source markets or segments
- Not implementing a resilient pricing strategy;
- Don’t take time to leverage both OTA and Direct Booking strategy
It is you who has chosen to run a short-term rental business, and at times like this it can feel lonely. Dealing with such market changes by yourself can be a tough challenge and Your.Rentals is here to be your partner. More tips:
What should you do now as a vacation rental manager owner?
Here’s our basic playbook on what you should be doing now to prepare for another period of uncertainty:
1) Put more focus on the guest experience ecosystem around the property.
The more unique, local experiences you include into the overall booking experience – the more chances you have to be picked among similar properties around. It’s plain and simple – people travel for new experiences.
Either it should be a local dining guide or a hiking route or 5 min walk distance to an art museum – you should know your location and capitalise on every experience it can offer. Take this advice and spend another day or two re-discovering your area, and make sure this is front and square in your listing description and in OTA channels.
2) Turn your gaze to the domestic market NOW and ensure your OTA distribution is geared for that.
“Data from Quicksight about the increased domestic bookings during covid”.
Just like in the COVID-19 pandemic, we’re seeing a trend already back to domestic travel. What worked for you in the pandemic? Roll it out again. Or if you didn’t succeed in attracting more local guests, it’s time to learn how. Put your focus on local market ASAP.
More practical short-term rental tips:
3) Introduce at least 3 cancellation variants for your property.
Listings that offer more flexible (and more expensive) booking options rank higher in OTA search results and are essential for increasing bookings while covering the risk of higher cancellation rates. Period.
According to our latest data, hosts who switched from a strict or moderate cancellation policy to a flexible policy after October 2021 saw increases in next-month bookings of 21% and more.
More practical short-term rental tips:
4) Reduce operational costs. Cash is King – for the next 12 months you should have as much cash as possible and here are some tips to do this:
- Get rid of any subscription-based services that don’t directly generate revenue and embrace a commission-based model to leverage cost/risk in the recession – only pay your suppliers when you have earned the revenue.
- Make a plan to run the business with a minimum staff (but keep your key team members – they are hard to replace). Take small steps towards automation so you can grow inventory without growing headcount once demand rebounds and outsource business operations.
- Print your financial statement for the last 3 months and go through each transaction. And divide them into 3 categories:
- 1) Essential, must-have for your business
- 2) Nice to have but you can cut the price or remove it
- 3) Non-essential. Measure the ROI of amenities. Cut the loose ends. But keep the “2 beers in the fridge”. These bring positive reviews.
This will take a couple of hours from you but those 2-3 hours can save you thousands of $/€.
5) Ensure you have a proactive marketing plan
- Analyse your marketing expenditure from scratch and pinpoint the 20% of activities that bring 80% of the result. Get rid of anything else.
- Do not stop social media, email marketing, and personal blog on your website. Stay visible and open for business. Be in touch with your previous guests. This is where you can dedicate your time and the beauty of it is that It is all almost free/very low cost. If you are proactive in this, it will pay back a hundredfold in the future.
- Where did your local guests come from over the past couple of years? (both in terms of geography and from which marketing/OTA channels). If you don’t know, you should put some time into constructing a basic CRM – even a spreadsheet is fine!
6) Make sure you have options for longer stays.
Driving occupancy is the main meta in this game, it’s obvious. One way to play it during storms – is to switch to longer-term bookings. Even if these types of bookings include lower rates – they provide a steady revenue.
More practical short-term rental tips:
7) Get in touch – we are here to help.
Your.Rentals is not just a short-term rental management tech stack. We have people who are here to support your business development. And that is quite unique amount our peers.
Why do we do this? – We don’t have a subscription offer where you pay regardless of the results. We only earn money when we help you generate revenue. It’s 100% in our interest that your business is successful.
What can we help you achieve? It depends on your business stage and goals. Here are some tips on what NOT to do as a vacation rental owner or short-term rental manager.
For more short-term rental advice sign up for a discovery call. We will show you how to scale up your short-term rental business so you can quickly grow inventory without hiring more staff. We’ve done it with dozens of partners, in some cases growing from 20 – 200 properties without hiring more staff.
With smart strategizing and planning, you can ride out a coming recession like a surfer rides waves. Remember – people will always strive to travel.