Thibault Masson:
Graham Donoghue is the CEO of Sykes Holiday Cottages and is one of the biggest property managers in the UK. What do holiday let trends for 2022 look like on your side?
Graham Donoghue:
Well, I think if we go back to 2021, in the UK, we were just about to head into our third national lockdown. I think it started on the 6th of January, it started. And that just took the wind completely out of our sales with regards to understanding how many bookings were going to happen and the volume. And it was quite a difficult period because it’s hard to predict when it’s all going to come back? Is it going to come back? How quickly is it going to come back? And it wasn’t until the government had outlined all these steps, step one, step two, step three, like a road to recovery. And it wasn’t really until the 29th of March before the government sort of said, hey, now people can go and they can get together. And where we started to see things really take off.
Last January, February, March was not a good place. We weren’t overly concerned about the volume in terms of, will it come back? We knew it would come back. It’s just that how quickly would it come back? So it wasn’t a great place for us to be as an organization, whereas as for2022, I mean, we’ve only just started it. Our financial year actually starts in October. So we were sitting in last year August, last September trying to plan for 2022, really with no idea how, how it was going to start. No idea whether we’re going to have another variant, no idea whether we’re going to have another national lockdown, no idea whether consumer confidence would be et cetera, et cetera. So I’ll come back to this.
When we were doing our planning and thinking about it, we were a little bit conservative, which is not normal for us. We were a bit like, “Was that year just a one-off?” Because 2021 finished enormously beautifully as it did for most vacation and rental companies globally. So we weren’t really sure. But as we’ve come into January, we have seen a real huge sort of a surge in demand, but all of that demand seems to be quite last minute. And that’s what most of my Friday posts have been in the last couple of weeks. We’re seeing demand through winter we’ve never seen before. Particularly around couples and people just want to get away and to have a break. So winter is… As we call it, winter here effectively in the UK. Winter is doing incredibly well and spring has started to do quite well. So the short lead times, that we’re not quite seeing the volume, what we’d normally see for the main summer period.
And I think that comes down to one simple factor. People are just a bit nervous. They’re just a bit nervous about committing. They’re a bit unsure about what may happen in the future. So they’re being a bit more cautious. Let’s just say about committing to things that are longer ahead. So incredible late volume, also at incredibly good yield. So huge demand. There is a lot of supply in the market because average occupancy in this time of year are not like the summer. But actually, we have a pretty sophisticated yield system. We operate like an everyday low price model, so that the systems are constantly monitoring supply and demand and making adjustments. So good rate, good volume. Summer’s a bit suppressed, but it’s beautiful because what we have at the moment is almost like a perishable stock and once it goes, it goes. And hopefully, when the summer comes, there’ll be lots of stocks still available for that demand to come in last minute. And I think it will.
That’s on the consumers’ side. I think what consumers are telling us they want is, they want to get away, they want to spend time, but they want flexibility. So we’re also seeing a lot of our customers asking us about our cancellation policies, asking us about flexibility, asking us about, well, what if there’s another version or variant you should say, of the virus comes out, what’s happened. Even though these people are booking, they’re still a little nervous as well.
On the owner’s side, what we’re seeing is, they’re a little bit nervous that this volume isn’t coming in for the summer quite yet. And that’s natural because they’ve just come off the back of a brilliant year and they’re expecting it to be brilliant again.
But they’re also seeing a lot of pressure in their cost base as well. Because as inflation is rising, particularly the cost of energy is rising, we are seeing more and more of our owners worried about how much margin they’re going to continue to make at that rate. So it’s this storm of price, value, demand and supply that’s all kicking off at the moment. And it’s probably quite a thin line. Who knows what will happen in the summer. Will all that demand come? And I think it will because typically we’re a constraint marketplace. But when it will come and how are we going to hold on now of our rates, versus what owners are expecting. Who knows?
Thibault Masson:
It’s very interesting. And what do you think is the influence of, hopefully, this year, cross border travel, international travel or travel to Europe for the UK will be easier or a bit more predictable, let’s say, hopefully, than 2021 or even the beginning of 2022. How do you think that may change your own prospects in the sense that you’re very strong obviously in the UK market. How do you think this may change, maybe the demand or the yield you could be getting this summer compared with last summer?
Graham Donoghue:
Well, maybe we were quite a unique case or we’re different from many other vacation rental businesses. Because we don’t not rely significantly on overseas travel. We’re 90% + domestic. When I speak to other CEOs globally, who’ve got a strong domestic presence, most of them have done pretty well and are pretty optimistic about the future.
I do think restrictions are going to continue to be relaxed. I do think that people are going to be more confident to travel and we will see more cross-border travel happening, but I don’t think it will be as buoyant as pure domestic. But because we don’t, as a business, rely on experiment, it doesn’t really impact us. In a way we do enjoy that volume, it tends to be in some of the businesses we have overseas. In New Zealand, people come from Australia into New Zealand. Or going into a business we have in Ireland, so people come from the U.S. et cetera.
So I don’t think there’s any massive impact. I think positively for everybody into vacation that decided to remain, I think restrictions are going to be eased and I’m fairly confident, demand will continue to come back and probably come back at a faster rate in terms of short term letting because of the type of accommodation it is and the security of accommodation and the desire for people to get together and probably an increased land on stay. I think that will come back quicker than some of the other categories.
Thibault Masson:
Another question here is for urban market cities, London for example, versus let’s say cottage areas, Lake District and the rest. Do you see that demand going back to cities a bit? And then again, maybe less pressure or less high demand for maybe higher rentals in the countryside. How do you see that playing out?
Graham Donoghue:
It’s difficult to see at the moment, based on the demand we’re seeing. I cannot see that the volume is going to disappear because we’ve always operated in a supply-constrained marketplace. There’s always been so much more demand. And just more of this demand is now converting than the supply exists. As I said before, I think cities will start to recover, but I think if I was drawing a curve, I would definitely see a continued sort of acceleration away and a strong curve in more rural areas versus cities in urban areas. I think there’s still more nervousness for some people to travel. I just don’t think they’ll be returning as quickly. But I do hope for the industry. I’m sure there’ll be enough volume to go around.
Thibault Masson:
Obviously, last year was so good, right to your point for owners getting a lot of bookings with high ADRs, probably terribly happy, maybe spoiled. What do you think property managers watching this, what can they tell their owners in terms of expectations to help owners understand that it’s hard to predict how things will be and things are in flux and ADR can go down. For example, it can go up or stay the same and bookings will solidify maybe in spring only, so they have to wait. And yes, even though demand was super high last year, owners should still keep a very flexible cancellation policy. So how do you think property managers can really try to explain that to owners?
Graham Donoghue:
The simple answer is good communication. But I mean, all the points you make, I think are the most important thing. First of all, communicate with your owners and be transparent about what we’re seeing in the market. Talk to other property managers to qualify what you’re seeing. Are you seeing something different from somebody else? And I do a lot of this and I use people like yourself and a whole bunch of other sources to sort of calibrate what I’m seeing.
But I would also be very confident, still, that we believe the market is going to be another really good year. That the exact shape of the market we don’t exactly know. So trust us as property managers to be good at what we do and to do our job. But also don’t be greedy as an owner, because there is definitely an inflection point that happens. Where if you push your ADR, you push tools too far, there becomes this reflection point of value versus expectations. And whilst you may get bookings, what you may get is more complaints or more higher expectations or lower Net Promoter Scores or whatever number you’re actually tracking as well.
We actually faced this last year where, if we had allowed our technology or tools or software to do what they were telling us to do, we would’ve kept increasing price constantly to a point where it made us feel uncomfortable. So there’s a fair price and a fair value. When people have got a choice about whether they go overseas or whether they stay domestically or travel on a vacation rental, they’ll be benchmarking it constantly.
So I think owners need to understand, it’s not like a limitless continual journey of constant, there’s a point where you have to be sensible as well. So good communication. Be really clear about what you’re doing to support the owners. Be really clear on the expectations of customers as well. But with an overarching strong message that we’re facing, there are a lot of positive tailwinds in the industry and the market as a whole.
Thibault Masson:
My last question would be on supply. You talked about the UK, of course, being a market where there’s a constraint to the supply, right? And meanwhile, in the U.S., you see big companies such as Vacasa, or VTrips speak in acquisitions, yet other acquisitions. How do you think this is going to play out? Does it mean as well that markets like the UK can only go one way towards consolidation? Are things yet. Are there still, again, more things to consolidate over? How will things go here?
Graham Donoghue:
I think if I step back and think of the industry from an investor point of view, investors are saying to me, “Wow, this is a really interesting industry. You’ve got great visibility of cash, this huge demand, you’ve weathered the storm through COVID, you’re very resilient.” And that’s made it very attractive for vehicles like SPACS or high multiples to be paid or private equity companies or more traditional IPOs, et cetera. I think that’s all going to continue and that will bring more investment into the category. That will bring more, probably expertise, more professionalism, more capital to produce more things.
And I think it is inevitable that consolidation will happen. Because I’m sitting here today with 22,500 properties, and I think we’re probably top five globally.
But if we take a broad guess at how many vacation rental homes are being looked after through different platforms or POD managers, whatever globally, I think we’re in the region of about 23 to 26 million. This means there’s a massive long tail and there’s massive fragmentation. And there’s a lot of liquidity out there. There are a lot of people who want to buy things, professionalize them, scale them, and grow them. I think that will lead to more consolidation. There’s a lot of consolidation happening at the moment, partly driven by me, partly driven by some of our other competitors.
If we look at what Vacasa that you mentioned, have managed to do, I’ll get the number wrong, but something in the region of 160 acquisitions or so. They now face another challenge, which is really about, can you keep growing and how do you balance that curve of road to profitability, versus top lines out of a growth? Which I think these businesses have to do at some point, if they’re going to command the valuations that they command. I think there’ll be consolidation. I think there’ll be more natural supply coming into the market because I think we are seeing more and more individuals that are thinking about what to do with cash, where they may have sat at the bank and they may have got relatives or low interest rates coming into the market.
So to give you another statistic, 50% of every single inquiry that we have now has a new lead, a new potential owner. They haven’t acquired the property yet. But they’re thinking of buying the property and they’re interested in coming into this sector. We get on average 30,000 new inquiries a year, so 15,000 roughly coming in. So there’s a lot of new supply coming into the market. There’s a sort of consolidation.
I think there’s also a movement between the categories. So people who maybe have rented it themselves, direct. I think the pandemic has led some of those people to realize that it’s quite difficult, it’s quite challenging. So some of them are moving to property managers, to be more professionally managed and as a property manager, we can yield the property better. We can justify our commission better for yield and revenue measurement and professional services. We’re seeing more of that happening as well. So yeah, I think it’s all positive and I’m seeing across all short-term letting sectors be in the traditional sense of holiday homes, cottages, villas, lodges, caravans, boats. You name it. There’s a lot of activity going on. So it’s a good time to be in a sector, in a category.
But we’re facing some headwinds as well. So the headwind around price, expectations of an owner, expectations of a customer and value, I think there’s the flexibility and the ever-changing regulations as well. I mean, I can’t keep up half the time with what is the new set of rules that we should or shouldn’t be applying, what legally do we have to do? What’s the right thing to do? How do we communicate it to an owner? As an agent for an owner, what can we just do ourselves? So, we’ve got four different sets of rules in this little small country we are in, that if you’re operating a large global business across multiple platforms, it must be so difficult.
I think the other two I would mention, and it would be wrong of me not to mention. One is just around general regulation in our industry. I see it growing. I see more and more of it. I see a lot of people that are misinformed. They’re trying to push for regulation and not really fully understanding what problem they’re trying to solve. And then the last part I think, and I think this is not a category issue. It is an issue that I think every business is facing at the moment is a war on talent, a real labor shortage. And the pandemic. For some reason, a lot of businesses have just woken up and said, “Ah, we need a digital strategy. We need some really good technology people. We need some good product people. We need to upskill to be able to move fast to accommodate.” And talent basically is being headhunted. And the salary inflation in the markets across lots of categories is just incredible. Never seen anything like it in my 24, 25 years of working at digital.
Thibault Masson:
Isn’t it all over, this labor shortage, isn’t it all over the whole, I would say holiday rental value in the sense that even cleaners. Like I was reading in the U.S. there’s this report that has just been out by a company called Extenteam. And basically, they were seeing how the shortage of cleaners, especially in cities, will hit urban rentals even more in the U.S. this year than vacation rental markets. Meaning that their growth, which should finally be positive in the U.S. will actually be hindered by the lack of cleaners in cities. Is it the same thing you’re seeing as well?
Graham Donoghue:
It’s exactly the same thing we’re seeing. I think I’m probably seeing a bigger delta in the more senior technology roles. Is where people are coming along and the salary increases, they’re being offered for headhunted staff is just eye-watering. But I think if I look at the hospitality industry in general, and I go across to our managed service industry between those two categories, I think there’s a real shortage. And so the daily rate is significantly gone up. In little pockets across the UK, we’re seeing where there’s a real shortage of supply. And what do you do? Do you pass the price on to the owner? Do you absorb that price? Do you pass the price onto the consumer?
So I think it comes back to the overall challenge of price and the inflection point where you’ve got to be careful. You could just price yourself out of the market if you’re not careful. And then customers are going on holiday, they’re almost looking for faults because they feel they have paid too much, relative to what the property is actually representing. Whereas before it would be, this seems fair value. Now it’s like, there’s really, is worth what I paid. So we have to be careful.
Thibault Masson:
Yeah, exactly. Even on your own reviews on your own platform, also reviews on the OTAs, are really linked to expectations and expectations are driven by the price. So very fair point, people may see even this year maybe reviews score one that some platforms at least go down, if prices are just too high.
Graham Donoghue:
Yeah. And complaints or issues generally they’re really always in three categories, cleaning, maintenance, and accuracy of the description. So we take about two and a half million people on holiday a year. We don’t get an enormous amount of complaints, but I reckon I could categorize 80% of our complaints until there are three buckets. Parking, COVID and refunds, and all of that fun stuff that we all went through. Generally, it’s the cleaning and it’s an economic model because if you get the cleaning right and the property is well maintained, it leads to higher, say, net promoter scores, it leads to higher feedback scores. It leads to a higher rebook rate. It leads to a happier owner. Because they don’t have complaints, et cetera. And it’s just this perfect economic flywheel that happens.
Thibault Masson:
What can we wish for your company for 2022?
Graham Donoghue:
We want to take people on holiday. We want to create connections between guests and between owners, and we want to do it in an environmentally and socially responsible way. So a big thing for us in the organization is to say, let’s make sure we create these connections, get more supply, get more demand, take them on holiday, have a really good time, but let’s find out the best way to do that as sustainably as we possibly can.
So the real wish for me is that we can find a way to unlock that, so all parts of those, all the stakeholders around, our people, our planet and that purpose sort of come together in a meaningful way. That is a big drive for us as an organization. So unlocking that during 2022 is going to be the focus of ours.
