III. Industry Analysis
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The Vacation Rentals market has experienced explosive growth in recent years, and reached $14.9 billion last year. Over the past five years, the industry contracted slightly. This contraction is largely expected because of an expected rise in the rental vacancy rate, which indicates a slowdown in demand for industry products relative to the supply on the market. Most importantly, industry performance is expected to be hindered by increasing rental vacancy rates, which are indicative of the oversupply of luxury units on the market; the rental vacancy rate is expected to increase an annualized 0.8% over the next five years, which will hamper industry revenue growth and profitability.
Key factors affecting the tourism market include:
- Domestic trips by US residents-This industry is sensitive to changes in the number of domestic day trips and overnight stays. The more consumers travel domestically, the more likely they are to spend on vacation rentals.
- Consumer Confidence Index-The Consumer Confidence Index measures consumers’ feelings regarding their current and future financial prospects. Changes in consumer sentiment have a significant influence on travel intentions, demand and expenditure.
- Inbound trips by non-US residents-This industry is sensitive to changes in the number of nights international visitors spend in the United States. The longer a tourist stays in the United States, the more money they are likely to spend.
- National unemployment rate-The national unemployment rate is a benchmark for determining the overall health of the US economy and has had mixed effects on industry demand. As the unemployment rate falls, individuals tend to have more money to spend on living expenses and afford higher rent prices. At the same time, with more money to spend, individuals may choose to purchase a home rather than rent, which can adversely affect industry demand.