The short-term rental industry has experienced notable fluctuations in supply and demand in recent years. Factors such as higher interest rates and a slowdown in bookings post-COVID-19 have played a significant role. However, the industry may be on the cusp of a rebound, with some positive indicators on the horizon.
Slower Growth in Supply
According to recent data from AirDNA LLC, a short-term rental analytics platform, the growth in the number of listings has slowed compared to the previous year. In 2023, there were approximately 1.56 million listings across the United States, marking a 14.7% increase from 2022. However, this year, the number of listings is expected to reach around 1.65 million, indicating a more modest 5.8% annual increase.
Demand on the Rise
Demand for short-term rentals has shown a significant improvement. In May, demand increased by 11.4% compared to the same month in 2023, a sharp contrast to the 1.8% year-over-year decline observed in May 2023. Year-to-date, demand is approximately 6.8% higher than last year. This resurgence is a positive sign for the market, reflecting a rebound in consumer interest and confidence.
Market Outlook for 2024 and Beyond
Industry experts suggest that fewer new listings, combined with increased consumer confidence, will support the short-term rental sector for the rest of 2024 and into 2025. While 2023 was a challenging year, with occupancy rates dropping below pre-pandemic levels and revenue per available room (RevPAR) declining by more than 8%, there is optimism for a turning point. The stabilization of inflation and the potential for the Federal Reserve to begin cutting rates in the fall could further stimulate the market.
The short-term rental market experienced a significant boom during the pandemic. In 2021, demand grew most substantially, increasing by 18.5% compared to the previous year. That same year, occupancy hit 62.2%, up from 56.5% in 2019. Key financial metrics also saw notable gains: the average daily rate increased by 10.8%, and RevPAR grew by 21.3% over 2020.
The “Golden Handcuffs” Effect
Despite a decline in demand since the pandemic’s peak, many property owners have retained their rental homes. This phenomenon, often referred to as the “golden handcuffs,” suggests that owners are hesitant to sell their properties until mortgage rates drop, potentially yielding better selling prices. As a result, a steady supply of rental homes has remained on the market.
Urban vs. Rural Dynamics
The landscape of short-term rental listings is shifting. Large cities are experiencing a decrease in supply due to increased regulation and concerns about housing affordability. In these urban areas, listings are expected to grow by only 0.3% this year, with supply declining in many markets. Conversely, smaller cities and rural areas are seeing significant growth. Listings in these areas increased by 25.6% in 2023, and a further 17.7% growth is anticipated this year. Destinations like national parks and beaches have remained popular, particularly in regions with limited hotel options, attracting travelers seeking unique experiences.
Conclusion
The short-term rental market is currently in a state of flux, influenced by economic conditions, consumer behavior, and regulatory changes. While challenges remain, such as the potential impact of new regulations and fluctuating mortgage rates, there are signs of recovery and growth, particularly in non-urban areas. As the market continues to adapt to these dynamics, it will be intriguing to observe the industry’s evolution in the coming years.
Barb is the president of NASTRA and has spent her professional career in hospitality and real estate. After acquiring her first short-term rental in 2018, Barb moved her focus to legal advocacy after she sued the city of Nashville over a permit issue. Over the last three years, she has mentored more than 2,800 new STR hosts and is the Community Leader for Airbnb in Nashville, as well as an Airbnb “Ask a Superhost” Ambassador. Barb has appeared on numerous radio broadcasts, television shows, and podcasts to talk about her love of hosting. She also manages and co-hosts a number of short term rentals across Tennessee and Arkansas. Barb and her husband Pat own a hotel brokerage, development and consulting company. Look for her upcoming podcast series, “Women of Airbnb.”