Rising supply is a good as long as there is demand at a price that consumers are willing to pay. If not, we are looking at a softening market.
Depending on the data you trust, occupancy of short-term rentals is both up and down.
And they’re both true — it’s a matter of when (season) and where (region).
A recent short-term rental mid-year outlook from AirDNA predicted a 3% decline in occupancy for 2023. Another firm, Beyond, said that occupancy for July was pacing about 5 points below levels in July 2022.
But, according to data released by Transparent/OTA Insight this week, occupancy levels were 12% higher in the first quarter than in than the same period in 2020. And looking ahead, it said occupancy levels in key markets would be up 31% through the end of summer.
There are a number of reasons for the differences, including base-year comparison and seasonal changes. It also depends which markets you’re looking at.
Take Cape Cod, for instance — the idyllic summer weekend favorite that has enticed tourists with its seaside cottages and lobster rolls is undergoing a dry spell this summer. According to estimates from the Cape Cod & Islands Association of Realtors, the occupancy rate at vacation rentals is 20% lower this season than last.
Rising supply is one factor. In the case of Cape Cod, there were more than 16,000 short-term Cape rentals registered with the state this April, which is up from over 12,100 in March 2021.
As interest rates rise, and it becomes harder to sell homes, we can expect more supply of short-term rentals coming onto the market.
“We aren’t seeing a sizable shift in guest behavior that is fueling this fall in occupancy, but they just have so many options for their stay with short-term rental supply in the U.S. still growing in the double digits.” said Jeff Breece, manager of revenue management at Beyond Pricing. “The end effect is that we have 2022 prices at 2019 occupancy, which is bringing the industry down in 2023.”
Another reason for increased housing supply is that current homeowners prefer to hold onto their properties that were bought with historically low mortgage rates. Homeowners are choosing to rent out their homes instead of selling them in a soft market.
Anecdotal evidence, AirDNA analysis found, suggests that properties that would have been sold are now being rented out on a short-term or long-term basis until the housing market stabilizes.
Due to these factors, the supply forecast for listed nights in 2023 has been increased to 14% year-over-year, up from the previous forecast of 9%, putting pressure on occupancies.
So much so that some property managers in the Smoky Mountains are staring at empty properties for the upcoming July fourth holiday. A Tennessee-based property manager who handles 27 properties told Insider about the struggle to fill up nights in July.
Meanwhile, over 2,100 U.S. cities and towns have received their first Airbnb booking, the company stated. In 2022, Airbnb hosts in the U.S. hosted about 44 million guests in areas where there are no hotels, generating more than $10.5 billion. So the market is becoming more widespread now with a bigger pool of stay options.
Another – perhaps the primary factor behind falling occupancy – is value. Today’s consumer is price sensitive and higher nightly rates in peak season would mean that people turn to budget-friendly options.
According to a survey conducted by Vacasa, about 90% of summer travelers this year made adjustments to their travel plans to save money. These adjustments included opting for driving instead of flying and selecting a more affordable travel day.
This should explain the rising popularity of sites like Whimstay and Getawaygogo that offer last-minute deals, usually two weeks out, to budget travelers.
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Photo credit: Image of a living room. Photo by Rudy and Peter Skitterians. Source: Pixabay.