Property Management Tech in the Age of Remote Work

The residential rental industry has been a hot topic over the last few years. Fluctuating interest rates, rising home prices, inflation, and adopting remote work policies have all played significant roles in the surge of demand for vacation rentals and, ultimately, property management technology.

As new players enter the short and long-term rental market, there are varying needs and tech sophistication levels. As a result, founders have an opportunity to benefit from booming demand from an M&A perspective.

Here’s what’s happening in the vacation rental market and why founders should sell into success instead of riding out this wave.

Remote work is the new normal, and the vacation rental industry is booming

During the onset of the COVID-19 pandemic, many companies shifted to an online work environment. Years later, organizations across the globe still give their employees the option to work from home.

According to a McKinsey survey*, 58 percent of workers in the U.S. (roughly 92 million people) can work remotely at least part-time. The survey also found that when offered, almost everyone takes the opportunity to work flexibly.

This trend is even evident on rental platforms such as Airbnb and VRBO. The extra flexibility of remote work gives people a chance to leave densely populated urban centers, which is driving the interest in buying and renting short and long-term vacation rentals.

Long-term stays (28 days or longer) is Airbnb’s fastest-growing category by trip length, more than doubling from the first quarter of 2019. Short-term rentals dominate the hospitality space, and its market share and demand are poised for further growth. The global short-term rental market was valued at $99.38 billion in 2021 and is expected to increase at a compound annual growth rate of 11.1 percent between 2022 and 2030.

Because of this increase in demand, property managers are finding more success and growing their businesses rapidly. With their growing business comes greater management challenges, making it essential to turn to software for support. This provides a significant opportunity for property management software companies to establish themselves as key players in this market.

Varying levels of tech sophistication require tailored solutions

Historically, a professional property management company would do everything, likely manually. Now, individuals are using technologies that take on all the heavy lifting. Some of these tech services include:

• Listing
• Scheduling
• Keyless entry
• Cleaning
• Trust accounting
• And other property management needs

According to Transparent Intelligence’s Global Property Manager Survey 2023, booking revenue for property managers far exceeded expectations in 2022. A 35 percent increase in revenue was expected, but the actual increase was 79 percent. And as revenue increased, so has tech adoption. Last year, 74 percent of respondents used or planned to use "fundamental" technology. This year, that number grew to 80 percent.

But property management tech needs are different depending on the end-user. For example, a new market entrant with a single vacation rental may not be sophisticated in terms of the business and accounting side of renting out their unit. In this case, property management software can help them facilitate and automate everything from compliance and regulatory functionality to trust accounting.

On the other hand, there are property management companies running multiple properties with hundreds of units. While their tech sophistication is a few steps higher, their businesses are much more complex. Property managers look for software that helps run their day-to-day operations more efficiently and better manage cost control.

Tech adoption is mainstream, and because of remote work and the subsequent boom in the vacation rental industry, individuals and companies alike require solutions to fit their needs and tech sophistication levels.

Property management tech could benefit from the surge in vacation rental demand

A decade ago, tech companies jumped in to replace legacy residential and commercial property management systems with targeted point solutions. Since then, there’s been massive growth in this market with the global property management software market expecting to expand by 5.6 percent from $3.15 billion in 2022 to $4.85 billion in 2030.

But the burgeoning new market of short-term rentals is something existing platforms can't service and the growing number of point solutions offered by start-ups has led to fragmentation in the property management tech market. Too many integrations and vendors cause more friction and only add to the complexity they were trying to solve.

As a result, bigger companies will look to consolidate by acquiring smaller point solutions or these short-term property management solutions will gain significant market share and possibly even compete in the residential and commercial. In other words, the biggest players in this space will look to acquire smaller companies to capture as much market share as possible.

The boom in the vacation rental market gives smaller property management tech companies three options:

1. Go after as much market share as possible in their specific niche.
2. Expand and build new products to address a broader range of needs.
3. Potentially acquire or be acquired to expand or consolidate tech capabilities to gain more of the larger market share.

Founders who recognize these opportunities are in a great position to grow, and potentially pursue an M&A before larger companies become a threat.

M&A activity is up in property management tech

In 2021, tech companies spent at least $264 billion buying up smaller potential rivals. This is double the previous record during the dot com boom in the early 2000s. As property management software users look for an all-in-one platform that includes everything they need, bigger companies will buy smaller and medium size businesses to incorporate their point solutions into larger offerings.

Some companies that have found a sweet spot in a market boom and have grown in equity start to wonder if they should keep riding the wave and sell when growth plateaus. But you can’t predict plateaus. There could be a slowdown in short or long-term vacation rentals due to a shift in consumer discretionary spending or the implementation of regulatory issues with short-term rental options in certain jurisdictions.

If you sell too late, you have an asset that was worth a substantial amount not long ago, but has dropped dramatically since. This is why we recommend selling into success to maximize your business opportunities. Ultimately success is going to be determined by your individual business dynamics and not market dynamics. If your company has seen good growth and retention metrics during this boom, it could be worth considering.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

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