Understanding Vacation Rental Management Companies
Within the UAE, especially Dubai, the vacation rental space has seen new companies blossom at a staggering rate since 2015. While most of these players are standalone entities looking for asset-light growth through management contracts, others are subsidiaries or verticals of existing real estate players in the market. These companies leverage the idle residential inventory of their parent companies while targeting the database of clients who own holiday homes in the market. Within the UAE, Staycae Holiday Homes LLC, Frank Porter, Maison Privee, Driven Holiday Homes, and GuestReady, to name a few, are the largest holiday home operators. All these companies operate holiday homes in the stead of an owner, taking on all responsibilities related to the maintenance of the product and guest service in consideration of a management fee. The consistent promise of these companies to owners is that they will deliver a premium on the market’s long-term rental rate while taking on the headache associated with operating a holiday home.
Typical Contract Terms
In our research of the UAE market, we have found that for holiday homes, management contracts are the only prevalent operating model in the market. The typical characteristics of these contracts have been defined below.
The typical vacation rental management contract has a tenure of 12 months with a variety of lock-in periods, ranging from no lock-in to 6 months, depending on the management company. The notice period to terminate the contract ranges from 1-3 months.
Termination at Will
Another clause featured in many contracts allows owners to terminate a contract during the lock-in period provided they pay a fee that ranges from AED 2,000-5,000.
Onboarding and Setup Cost
A standard practice across contracts involves homeowners being charged certain fees for the onboarding and setup of a unit. The common items included in these fees are AED 500-600 professional photography charges for the unit and linen cost which ranges from AED 900-950 per bedroom. Some companies charge a pest control fee which could be as high as AED 400.
The companies providing this service in the UAE charge between 18-25% of the top line as management fees.
It is standard practice for the contract to include between 14-21 nights for the homeowner, usually guaranteed during the off-season and subject to availability during peak season.
An interesting point in all contracts is the handling of housekeeping charges for the units. As these units are only cleaned as a pre-arrival standard for guests, vacation rental management companies cannot justify any guaranteed business to outsourced housekeeping companies. At the same time, the arbitrary nature of the cleaning makes it difficult to justify a payroll cost for a dedicated housekeeping team. As a result, these companies cannot leverage any economies of scale and are charged market rates for housekeeping. Accordingly, the contracts of these companies usually specify that the unit cleaning charge will be loaded onto the guest’s room nights. This seems to be a best practice from an owner’s standpoint as the market rates for these housekeeping services can really stack up into a significant cost item and diminish the homeowner’s return. While attempting to book these units, guests are normally informed of an additional fee for the one-time housekeeping or provided with a break-up of their room cost which includes the housekeeping cost.
It is a standard part of every management contract to declare a minimum reserve fund (AED 2,000-2,500) to be maintained for property expenses up to a certain maximum invoice amount. While some companies do not mention the reserve fund, all of them inform owners of the threshold amount below which they will execute invoices without the owner’s approval.
An important inclusion for homeowners (and a pain point for customers) is the need for management companies to confirm that they will charge customers a security deposit upon check-in. The manpower in a vacation rental management company is commensurate with the limited services offered. Accordingly, the front-line staffing is inadequate to offer in-person check-out services and the related unit scan to ensure no damage to or theft of property. The security deposit is all at once designed to discourage any theft or vandalism by guests while protecting the owner from this eventuality. The amount charged by the management companies varies across brand and unit types and is, therefore, not typically included as an absolute amount in the contract.
The vacation rental management companies in the UAE offer two sets of services: one related to the owner and the other related to guests.
The arrangement these companies have with an owner is very similar to the arrangement between a hotel brand and a hotel owner and includes the following services:
- Guest check-in/check-out and handling
- Product upkeep and maintenance
- Collection of payments on behalf of the owner
- Periodic performance reviews
- Sales and marketing services
When it comes to guests, in line with their promise of a clean apartment with no frills, vacation rental management companies have a lean list of services:
- The companies utilise a housekeeping team, usually outsourced, to conduct a pre-arrival cleaning of a unit. Any housekeeping during a stay is usually chargeable per cleaning. Some brands offer a weekly cleaning for stays with a minimum length of stay.
- Some companies develop arrangements with buildings to allow guests at their units to enjoy any additional facilities such as a pool or gym. The presence and availability of these facilities are not controlled by the vacation rental management company.
- For all other services typically available in a hotel, these companies act as a one-point concierge for their guests, either sharing contact details of relevant companies or reaching out on their behalf. These requests include laundry services, grocery delivery, food delivery, taxi services, and so forth.
The development of the vacation rental space is an exciting one that we will continue to follow. India remains the UAE’s largest foreign source market, thereby making the emergence of new and exciting accommodation options particularly interesting to our outbound travellers. In addition, the UAE hospitality market is more mature than India, and current trends in this market could signal potential future trends for India. Our growing holiday homes industry could benefit from unique ideas and best practices that are being deployed, not just in the UAE, but around the world.
Having completed over 2,000 advisory assignments over 25 years in South & South East Asia, the hospitality consulting team at Hotelivate has recently been busy offering its Strategic Advisory services to clients in the UAE & Oman. Recently concluded assignments include a 5-year growth strategy for a listed hotel company in Abu Dhabi, Revenue Optimisation Strategy for a prominent hotel & real estate ownership organisation in Dubai, a luxury resort contract negotiation in Ras Al Khaimah, a UAE country entry strategy for a conglomerate from South Asia and a high-end, experiential resort development Feasibility Study in Oman. Hotelivate is actively working towards offering all its services across the GCC region in the months ahead.
For more information, please contact Kush Anand at [email protected]