The vacation ownership industry is often viewed as a distant cousin of the hospitality business. But as the hotel industry tries to determine if the lodging cycle has peaked, the vacation ownership is laughing all the way to the bank.
According to The State of the Vacation Timeshare Industry: United States Study 2017, commissioned by the American Resort Development Association (ARDA)—with the survey conducted by Ernst & Young (EY)—sales volume increased for the seventh consecutive year, by nearly 7 percent from $8.6 billion in 2015 to $9.2 billion in 2016.
Rental revenue also increased, up 5 percent from $1.8 billion in 2015 to $1.9 billion in 2016 and the average daily rental price was up from $172 to $189. The 2016 U.S. timeshare industry consisted of 1,558 timeshare resorts with approximately 206,080 timeshare units—an average of 132 units per resort.
Operating performance metrics were equally positive last year. Average occupancy reached nearly 79 percent, compared with hotel occupancy at 65.5 percent in 2016, according to STR Monthly Hotel Review: December 2016. The weighted average maintenance fee charged per weekly interval was $970, up by approximately 5 percent from $920 per interval in 2015. Among respondents who have multiple resorts and reported results in both years, the average maintenance fee billed per intervals rose 5 percent, from $962 in 2015 to $1,007 in 2016.
In addition, sales volume has increased by more than 34 percent since 2012—an average of 8 percent annually. The average sales price has grown by 12 percent since 2012. Occupancy stands two full percentage points higher than it was in 2012. Rental revenues increased more 4 percent annually since 2012, as has the average billed maintenance fee. Construction was up in 2016 and has a strong outlook.
“Since 2010, the compound annual growth rate for the U.S. industry is 6.23 percent,” said David Gilbert, president of Interval International, at the opening of the 19th annual International Shared Ownership Conference in Miami Beach last month. "Internationally, we're seeing positive metrics as well. The majority of new internal resort affiliations have been resorts outside of the U.S.” He also added that lenders, too, are looking for opportunities to continue growing the business.
According to the 2017 study Shared Ownership Resort Real Estate Industry in North America, published by Ragatz Associates in April 2017, last year’s $516 million of sales volume represents a 2.2 percent jump, or $11 million more than 2015.
Globally, vacation ownership companies have a presence in more than 120 countries as per ARDA, with sales up to nearly $20 billion in 2016 from $14 billion five years earlier. Worldwide revenue rentals approached $3 billion last year and economic output neared $114 billion. ARDA President and CEO Howard Nusbaum explained to conference attendees that those successes are due to a variety of factors; consumers have greater product offerings from which to choose, including points systems that give them flexible access to cruises, rental cars and even safaris. He also attested that inter-generational travel is the industry’s sweet spot.
“Everyone gets the space and amenities that they want. Timeshare is a better vacation; it’s not eating pizza on the bed of a guest room with mom, dad and three kids. People who own this product are more satisfied,” said Nusbaum.
He went on to cite an 80 percent satisfaction rate among owners for more than 20 years and an excess of 50 percent of annual sales made by consumers who are already owners.
The average person will buy timeshare more than five times in their lifetime and that’s at least partially a reflection of these consumers’ propensity to spend; the average spend per trip for a timeshare family is $2,439.
Other speakers at the conference indicated that this is a market that’s far from saturated in terms of future development prospects.
Within the U.S., Tom Nelson, president and CEO of Holiday Inn Vacations and Orange Lake Resorts, wants to take his brands to California, Hawaii and ski locations. “There’s room to grow and the capital environment is fantastic right now, public markets and the lending community have been very supportive and that bodes well for all of us,” he said.
The financial structure behind timeshare operations in Mexico also make the country ripe for further vacation ownership development because most aren’t selling actual inventory, but instead offer a right-to-use program. So there’s no actual transfer of property or assets sold, giving local lenders more confidence in the investment. Combining hotel operations and timeshare operations in Mexico is one model with proven success. “You have access to putting heads in beds and you also have a client base coming in and that’s your security,” noted Real Club’s co-director Don Gordon.
Even without combined hotel operations, Alejandro Lemus Mateos, project director of The Villa Group’s timeshare division, said lead generation can also result from partnering with local hotels to generate vacation packages that attract low-cost customers. So the company still turns a profit from its lead generation process. He advised other developers considering a vacation ownership property in Mexico to “prepare with some sort of hotel allotments that allows you to bring in low-cost leads and provides them somewhere to stay so there are no accommodations conflicts with your guests.”
Jacques Van Schaardenburg, director, VK Hotels, also believes that for big timeshare groups in the U.S. there’s tremendous opportunity in Mexico, as well as throughout the Caribbean, while Colombia was another destination that was mentioned as having significant potential for timeshare development because of its beaches and urban destinations, growing air connectivity and lack of development during the past three decades. “Yes, there will be more competition coming, but that keeps us honest,” said Alejandra Padin, director of sales at Dawn Beach Club at the Westin Resort & Spa, St. Maarten.