Vacation Rental Market: A Comprehensive Analysis of 2023

A Review of the U.S. Vacation Rental Market in 2023

A Strong Start to the Summer Season

The summer travel season of 2023 has kicked off with a bang for the short-term rental (STR) industry. With a robust labor market and cooling inflation, more travelers opted for STRs this past June than any previous June. This has been a cause for celebration for STR hosts and operators, as the surge in STR supply seen in 2022 hasn’t reoccurred in 2023. Revenue per available rental night (RevPAR) saw a slight increase of 0.3% year over year (YOY) on a national level.

The Impact of Inflation and Employment

Inflation has been a double-edged sword for operators, increasing the cost of basic supplies while making consumers more price-sensitive due to the rise in essential costs such as rent and food. However, the rate increases initiated by the Federal Reserve in March, along with easing supply chain tensions and sticky wages, have helped bring inflation closer to the target rate of 2%.

According to the Bureau of Labor Statistics (BLS), inflation, as measured by the year-over-year percent increase in the seasonally adjusted consumer price index, slowed to 3.1% in June, down from 4.1% in May. This is a significant decrease from the 8.9% rate seen in June 2022. Although we’re within striking distance of the Federal Reserve’s 2% target inflation rate, economists predict at least one more rate hike.

The employment situation remains robust, with June adding about 209,000 new jobs. This was a healthy increase, albeit lower than May’s 306,000 jobs. The unemployment rate dropped slightly, hovering around its lowest level since the late 1960s. Overall, the economic data for June was overwhelmingly positive for the STR market, providing little reason for consumers to delay holiday travel.

Key U.S. STR Performance Metrics for June 2023

RevPAR increased 0.3% YOY to $214.82, and available listings reached 1.53 million, up 15.2% YOY. Total demand (nights) rose 14.3% YOY, while occupancy was 1.1% lower YOY at 64.5% (+7.1% vs. 2019). Average daily rates (ADRs) rose 1.5% YOY to $333.19, and nights booked increased 25.6% YOY.

Occupancy has been declining on a YOY basis for the past 16 months as property-level performance returned to more sustainable levels after the highs seen in 2021. In June, this occupancy slide slowed to its smallest level yet, at just 1.1% below last year — still more than 7% higher than pre-pandemic levels for June.

The occupancy rate decline was slowed by a combination of supply growth slowing in May and June from the frenetic pace of 2022, as high as 24.5% in some months, to a relatively moderate 14.8% YOY increase in May and a 15.2% YOY increase in June.

Demand Reacceleration and New Listings

On the demand side of the occupancy calculation, the surge in new bookings seen in May translated into a reacceleration of demand in June with YOY growth of 14.3%, up from 11.0% in May. Moreover, the surge in new bookings for future travel continued in June, with YOY growth of 25.6%, up from 22.8% in May and 14.4% in April. If looming economic difficulties kept some guests from booking earlier in the year, the surprising strength in the economy encouraged them to make travel arrangements in June.

The reacceleration in demand occurred in all location types, and each location type saw demand growth in June of greater than 10% YOY, outpacing the predicted growth from what we saw in booking pace in previous months. Properties in small cities and rural locations as well as midsize cities experienced the fastest growth YOY in demand of 24.0% and 19.3%, respectively.

ADR Growth and Market Performance

Although inflation has eased considerably in 2023, consumers are still on the hunt for good value, and rate increases have been difficult to come by for many operators. Nationally, ADR increased 1.5% YOY on average, down from 2.8% in May. The spread between inflation and ADR widened slightly in June after the acceleration in May narrowed it to its lowest level in a year.

When examining the top 50 markets, the weakness in coastal locations is particularly pronounced on the Gulf coast, with many summer holiday mainstays such as Panama City, Destin/Fort Walton Beach, Santa Rosa/Rosemary Beach, all in Florida, and Gulf Shores/Mobile in Alabama, seeing decreases in ADRs. However, St. Petersburg, Florida, is a notable exception, seeing growth of 3.3% YoY. Competition from international destinations thanks to the strong dollar could be forcing hosts to lower rates in these typical vacation destinations.

On the other hand, topping the ADR growth rankings are high-end Northeastern coastal resorts Long Island and Cape Cod, with ADR growth of 19.7% and 14.3% YOY, respectively. Large cities Los Angeles (15.0%) and Phoenix (10.1%) also had high ADR growth, which was especially notable as these markets also experienced very high listing growth of 23.4% and 33.5% YOY, respectively, suggesting that a changing mix of home sizes and quality in the market might be impacting ADRs.

Looking Ahead: Booking Trends and Expectations

With the uptick in bookings over the past two months, we have seen a steady increase in pacing trends for the back half of the summer and moving into fall. For the rest of summer, through Labor Day, demand is pacing 6.6% higher than at the same time in 2022. However, demand is not pacing as high as the uptick in the number of available listings, pushing occupancy levels down further, with the biggest declines in small and midsize cities.

ADR growth will continue to moderate, pacing up 1.4% for the rest of summer, matching the 1.5% growth rate in June. If pacing holds, hosts will earn about 8.8% lower revenue per available rental night (RevPAR).

That said, we expect both demand and occupancy to end the summer meaningfully higher than how they are pacing now. This is primarily because of a shorter booking window than last summer and lead times shrinking. Simply put: guests are booking more last-minute. The average lead time for a stay in June fell from 54 days in 2022 to just 44 days in 2023, a 9.3% decrease. With fewer people booking far out in advance and more bookings coming in last minute, as long as economic growth remains robust, we expect bookings to continue to roll in.