Hospitality companies are carving out their niche in the short term rental market. Companies, like Sonder and Domio, have staked out the urban markets despite regulatory challenges. Other managers such as Vacasa are operating mostly in non-urban leisure destinations.

The WSJ reported that Oyo Hotels & Homes is expanding its U.S. vacation rental business. Oyo will operate in non-urban markets, citing less regulation as one of the top reasons. “From a regulatory standpoint, the vacation-home rental business faces fewer obstacles than the equivalent short-term rentals in major U.S. urban centers,” Oyo’s chief executive, Ritesh Agarwals said

The company operates about 50 vacation rentals in 15 U.S. cities. It is expanding its geographic footprint and planning to attract business travelers and groups. The company could ramp up its U.S. vacation rentals through an acquisition. It entered the European vacation-rental market last year by acquiring Amsterdam-based Leisure Group for $415 million.

Oyo has been expanding at breakneck speed with the $3 billion in venture capital mostly from Japan’s Softbank Group.  After the WeWork debacle, Softbank gave its portfolio companies a mandate to focus on scale and profitability. Oyo has put the brakes on growth to focus on profitability. It is laying off 17% of its headcount worldwide (5,000 of its 30,000 employees) and exiting many cities.  

Oyo sees the vacation rental business as an opportunity to scale. Agarwal tells the WSJ, “We don’t think of hotels and vacation homes as two different businesses.” A low-cost hotel operator, Oyo shares a similar price-sensitive target market as vacation rentals.  

Oyo’s plan to grow its U.S. short term rentals comes at a time when other companies in the industry are assessing their path to profitability. Companies like Vacasa and Lyric have restructured operations and personnel to refocus on profits.

The short term rental market has enjoyed impressive growth with over 10% penetration rate to traditional hotel units in 2019, up from 0.7% in 2014. It is expected to add 100,000 net new units this year according to a CBRE report. Data firm Transparent Intelligence reported 414, 845 rental listings in the leisure/resort markets in 2019, up more than a third from 302,220 in 2017. 

The leisure market looks to outpaced the urban market. However, as we noted in our February post, “the strong growth of rental units in the leisure/resort areas as the data seems to imply is related more to reporting of existing property supply that was not previously tracked than with new properties entering the market.” Certainly, fewer regulatory restrictions mean better business opportunities.

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Categories: Stays