Nandana Private ResortThe vacation rental market in the U.S. is poised for what industry leaders expect will be explosive growth, thanks to the consolidation of companies offering professional management and marketing of what has traditionally been a highly fragmented product.


Moreover, a growing number of those companies are offering healthy commissions to agents.

Currently, only one in 10 Americans has rented a vacation home, according to PhoCusWright research, meaning that the upside potential is thought to be enormous.

While vacation rentals have long been popular in Europe, Americans have shied away from the product for myriad reasons, including concerns about the quality of unknown and unbranded properties.

And since the market is highly fragmented, it is difficult for consumers to find, compare and evaluate the homes and condos being offered.

Those same issues have kept travel agents from playing much in this market, and owners and property managers traditionally have not reached out to agents or offered commissions.

All that is changing, market leaders say.

Aggregating rentals of numerous qualifying properties under a single, trusted brand could rapidly change that. Among the companies already playing in the vacation rental market is Wyndham Worldwide, which operates a substantial vacation rental business in Europe.

"Americans know and trust large hotel brands, which provide a certain level of guaranteed experience," said Wyndham CEO Stephen Holmes.

Because the majority of vacation rentals are transacted directly with individual homeowners, with no professional management or oversight, Holmes said, people are often not willing to take a chance on the product.

But Holmes and other players in this market say many of the barriers are coming down. They cite a consolidation of property marketing sites and the availability of online reviews of properties by actual renters, neither of which existed a few years ago.

"The vacation rental market is experiencing growth," said Stephen Kaufer, CEO of TripAdvisor. "Yet it is still fragmented in notable ways, and there is a lot of ambiguity in travelers' rental experiences. Travelers want to know that they are going to get what they pay for and have a great vacation."

Kaufer said that for its part, "TripAdvisor is helping to solve these problems by building trust with the wisdom of the crowds."

While not everyone subscribes to the wisdom of crowds, no one is denying the market's potential.

HomeAway, the world's largest vacation rental marketer by number of properties listed, commissioned a survey in 2010, which found that more than 6 million vacation properties in the U.S. and Europe were being rented out to travelers for a fee at least two weeks of every year.

The same survey found that those rentals generated more than $85 billion in income in 2010, which averaged nearly $14,000 per property.

VacationHomeRentals.com, the second-largest online vacation rental company in the U.S., launched in 2004 and has grown by about 40% per year for the last three years. It now markets 12,000 properties worldwide and attracts more than 700,000 unique visitors to its site each month. It does 85% of its business in the US.

For travel agents, this represents untapped opportunity.

Travel sellers who do book vacation rentals say demand is growing. In general, they work with high-end villa rental companies that vouch for every property they offer and pay commissions.

"It's a high-ticket item, and we make a nice commission," said Susan Reder, president of Frosch Classic Cruise and Travel in California.

As an example, Reder cited a one-week rental of a Cabo San Lucas villa she booked for a family of 12. The rental was $35,910, and the commission was 10%.

"We only use vendors with a good reputation," Reder said. One company she uses, Villas and Apartments Abroad, is "totally hands-on and inspects every single villa and apartment" they represent, she said.

The rental market, she said, is "growing, especially when you are dealing with multigeneration families and couples traveling together."

She believes a key reason for that growth is value.

"If you need five hotel rooms in Italy ... at $500 per night per room, and can get a three- or four-bedroom villa for $5,000 for a week for four couples, it's cheaper," she said.

Casa Felice MatteucciWorld Travel Holdings, parent company of brands such as CruiseOne and Cruises Inc., said its Villas of Distinction brand was its fastest growing in terms of percentage, with sales up 35% from 2009 to 2010, and this year already ahead 30% over last.

"Villas of Distinction is exploding," said Steve Lassman, the company's vice president and general manager.

WTH bought the 20-year-old brand five years ago and sells both directly to consumers and through travel agents.

Travel agent business is up more than direct business this year, he said, as more agents are coming to understand that the company enables them to overcome the main hurdles of trusting the quality of the property and paying commission.

Lassman said that at least twice per year, Villas of Distinction employees meet their on-site partners and inspect the villas.

"We invest in our people every year by sending them to experience the villas and the destinations," he said.

Lassman said the average tenure of a reservation agent is 10 years, adding that the entire staff has traveled throughout the Caribbean. Half of the staff are designated European specialists that have been to Tuscany, the Amalfi coast and France, and most have been to Greece.

The company does not work with owners but rather with on-site destination management specialists, whom Lassman calls "our eyes and ears on the ground." They also serve as the local staff for any customer needs.

"There is no brand equity in villas," he said. "With a cruise or resort, you know what you are going to get. We have 5,000 villas, and no two are the same. Travel agents that use us are extremely reliant on our expertise."

Villas of Distinction offers agents an average commission of more than $1,000 on an average rental transaction of $12,000.

But the largest vacation rental companies do not offer such quality assurances about the properties they list, and are not set up to pay commission.

Tom Gilmore, CEO of VacationHomeRentals.com, said that travel agents sometimes contact property owners directly, tell them they have a client interested in their property and ask them to pay a commission.

But since companies like his and HomeAway market properties but don't take bookings online, they can't take or pay out commission.

"It's one thing we'd like to figure out, how we can better work with travel agents," Gilmore said, adding that as the business becomes more sophisticated and allows for online bookings, he thinks his firm could start to offer commission.

"We'd certainly like to pay commission," he said. "Eventually, two to five years from now, we as an industry will mature enough to start taking bookings online, and we will be able to take a commission and give part of it to a travel agent.

"We do about $250 million in sales, and we're tiny," he said. "HomeAway does multiples of that. It's a big industry. We'd like to take a percentage of that eventually, and a travel agent could take a percentage, as well."

Vacation rental marketers say consolidation will accelerate the market's growth.

Wyndham's Holmes said that the idea of vacation rental in the U.S. is not a new one but that the rental markets in Europe are better organized and have "dependable and trusted businesses" that provide services not typically offered in the U.S.

"Americans are not so much resistant to vacation rentals as they are unaware of it," Holmes said. "Culturally, we are more accustomed to other types of lodging options, like hotels, which have traditionally been more widely available and marketed in the U.S., whereas Europe has enjoyed a more established rental market for a longer period of time."

As evidence, Holmes cited the 2007 PhoCusWright study, which found that the low use of vacation rental properties by U.S. leisure travelers in the prior 10 years had been primarily due to a lack of awareness.

Villa Hale Makoa KaiWyndham Exchange & Rentals has more than 25 rental brands and 97,000 vacation rental properties in almost 100 countries and now accounts for a little less than 20% of the total revenue of Wyndham Worldwide, Holmes said.

Believing that the market will grow in the U.S., Wyndham Exchange & Rentals last year acquired ResortQuest, the largest professional manager of vacation rentals in the country.

"We are bringing the same level of service we deploy in Europe to the U.S. marketplace," he said, with the goal of helping Americans get over trust issues with vacation rentals.

Holmes said Wyndham Exchange & Rentals provides assurances that the property will meet a client's expectations and keeps "professional, round-the-clock management available should they run into a problem. We believe that knowledge of the availability of vacation rentals, along with a strong, respected hospitality brand like Wyndham Worldwide can provide the sense of security and consistency that comes with entrusting your vacation to an established company."

Holmes said Wyndham's brand equity will also make travel agents comfortable about entering this market.

"It's important for the vacation rental industry to continually increase the general awareness of consumers, especially in the U.S., and expand its distribution in as many channels as possible, including travel agents," he said.
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