Skift Take

This might be the summer of travel, but the economic uncertainty still has consumers choosing value above anything else.

We’re halfway into the year, and the short-term rental industry has been buoyed by summer travel picking up, despite prevailing economic uncertainty.  

Travelers have been prioritizing value and seeking affordable options, AirDNA’s mid-year outlook study found. The summer travel season of 2023 is expected to be extended as travelers seek off-season rates. 

Here are some highlights from AirDNA’s mid-year outlook report: 

  • Demand: Strong economic fundamentals and continued enthusiasm for travel have raised the demand growth forecast for 2023 to 10.4 percent year-on-year, up from 5.5 percent. Recovery from a mild downturn will sustain demand growth at 8.5 percent in 2024.
  • Supply: Mortgage rate increases and declining occupancy have slowed supply growth, but lower house prices and sustained high demand have boosted the supply forecast to 14 percent year-on-year in 2023, up from 9 percent.
  • Occupancy: Overall, 2023 occupancy will be between pre-pandemic levels and those seen in 2022. The economic recovery in 2024 will further slow the decline to 2 percent, with an occupancy level of 57 percent.
  • Average Daily Rates : Economic uncertainty and inflation have driven consumers to seek value, but better economic conditions have increased the average daily rate forecast to 2.1 percent year-on-year in 2023 (up from 1.7 percent).
  • Revenue per available rental: Although average daily rates and occupancy improvements are not sufficient for revenue per available rental growth in 2023, the forecast has improved to -1.1 percent (up from -1.6 percent). It is expected to stabilize in 2024, with the small decline in occupancy offset by gains in daily rates.

The Faraway Traveler

Cross-border travel has resumed, but the recovery is uneven globally. The strong U.S. dollar has made it cheaper for American travelers to go abroad. Total travel spending has increased by 15 percent compared to 2019, and the share of short-term rental reservations for international trips is up 5 percent compared to 2019.

However, coming to America is still expensive for foreigners. Overall travel spending in the U.S. is 17 percent lower than 2019 levels, but it has shown significant improvement over the past year, with a 50 percent year-over-year increase, according to the National Travel and Tourism Office.

Although there is strong demand for U.S. short-term rentals, the share of stays by international travelers remains 25 percent below 2019 levels. This presents opportunities for additional demand growth, particularly in major U.S. cities where more than 20 percent of demand typically came from foreign guests.

Compared to the predictions made in late 2022, mortgage rates have been in line with expectations. However, there has been a faster decline in home prices due to the higher rates, which has resulted in a slight increase in transactions. 

Another reason for the increased housing supply is that existing homeowners are opting to keep their properties due to historically low interest rates, the analysis found.  Instead of selling in a market with rising home values and low interest rates, homeowners are choosing to rent out their properties either for short or long-term periods until the housing market stabilizes. This shift has led to an increase in the forecasted supply of listed nights by 14 percent year-on-year in 2023, up from the initial forecast of 9 percent.

The surge in demand seen in 2021 continues to impact occupancies. In 2022, supply increased rapidly, resulting in occupancies that were 5 percent lower than in 2021. While 2023 will still see declining occupancy, the rate of decline has slowed to 3 percent due to higher mortgage rates affecting supply and ongoing demand strength. 

Overall, 2023 occupancy will be between those seen pre-pandemic and those seen in 2022. The economic recovery in 2024 will further slow the decline to 2 percent, with an occupancy level of 57 percent. Peak occupancy in July will resemble 2019 levels, and shoulder season occupancies are expected to remain higher, leading to permanently elevated occupancies compared to 2019.

The report found that hosts are facing challenges in raising their average daily rates as inflation impacts budgets and economic uncertainty influences guests to be more budget-conscious. Despite these factors, AirDNA estimates average daily rates to increase by over 2 percent in 2023 and approximately 2 percent in 2024.

However, the occupancy rate is expected to decline at a faster pace in 2023, overshadowing the modest average daily rate growth and resulting in a national decline in revenue per available room by 1 percent. On the other hand, in 2024, the rate of occupancy loss slows significantly while average daily rate growth remains similar to that of 2023, balancing each other out and leading to no change in revenue per available room on a year-over-year basis.

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Tags: airdna, economic outlook, future of lodging, occupancy, online travel newsletter, short-term rentals

Photo credit: Style Spotlight Townhome for booking as a short-term rental in Houston Texas on Airbnb. Source: Airbnb. Airbnb

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