European Market Review: May Showcases Soaring STR Demand and Occupancy

Key Takeaways:

• May experienced a record 24% increase in demand year-over-year, pushing occupancy rates to the highest since August at 57%.
• Average daily rates (ADR) modestly increased by 2.2% year-over-year to €166.
• Despite a 16% growth in listings, stringent STR regulations in cities like Barcelona, Lisbon, and Rome continue to hinder full supply recovery.

May European short-term rental (STR) performance ushers in the start of another roaring summer of demand. Last month, total demand nights for the European continent reached a record high of 40.4M nights. 

After last summer’s blistering heat and massive crowds, travelers appear to be starting their trips earlier this year. May saw a remarkable 24% increase in demand compared to last year, while supply grew by 16%. With demand growing faster than supply, average occupancy across Europe reached 57%, a 6% increase year-over-year (YOY) and the highest occupancy rate since August.

While occupancy soared, nightly rates saw modest growth last month. Average daily rates (ADRs) across the European continent averaged €166, up 2.2% YOY. 

At a Glance: May STR Performance in Europe

• Available listings were up 16% year-over-year (YOY)
• Demand reached 40.4M, an increase of 24% YOY
• Average daily rates (ADR) rose 2.2% YOY to 166 €
• Occupancy was up 6% YOY and up 8.1% compared to 2019
• Revenue per available rental (RevPAR) increased 8.3% YOY to 95 €
• Booked nights increased 20.3% YOY

European Central Bank Announced Its First Interest Rate Cut 

In a momentous turn, the European Central Bank (ECB) announced its first interest rate cut in five years on June 6th. Rates were lowered from 4% to 3.75%. While the ECB suggested this could be the start of further rate reductions, it emphasized that future rate decisions would depend on how inflation behaves. They cautioned that they are not committing to a specific rate path yet.

The ECB decided to cut interest rates in response to the steady and consistent decline in inflation that Europe has experienced over the past year and a half. As of last month, inflation in the Euro area was at 2.6%. In contrast, the US has not made the same progress, with inflation at 3.3% as of May. The Federal Reserve has yet to announce its first interest rate cut.

With its first interest rate cut in place, the European Central Bank is set to boost consumer confidence, private spending, and economic activity in the second half of this year. Lower borrowing costs should also make it easier to get home loans.

Major Cities in Italy, Spain, and Portugal See Slow Listing Recovery 

May was another strong month for listing growth in Europe. Available listings reached 3.6 million, up 16% from last year. With 154,000 new listings added, they made up 4.5% of all available listings in May. Overall, available listings in Europe are now 21.7% higher than in 2019.

However, not all European countries have seen the same supply recovery.  Five countries still have fewer listings than in 2019. Supply over the last year has been anywhere from 1% to 25% lower than 2019 levels in:

• Hungary (-0.3%)
• The Netherlands (-2.2%)
• Czech Republic (-14.9%)
• Ireland (-17.1%)
• Croatia (-25.3%).

In these countries, lagging demand has significantly contributed to the slower recovery in supply.

Where demand hasn't returned, it's understandable that supply hasn't either. However, it's puzzling when supply doesn't recover despite strong demand. This is the case in Italy, Spain, and Portugal. Since 2019, demand in these countries has increased by 11% to 22%, but available listings have grown by less than 7% since the pandemic.

STR regulation that suppresses supply in major tourism cities may play a large role in why these 3 countries have seen limited supply growth since the pandemic. 

Below are two of the largest cities for short-term rental (STR) supply in Italy, Spain, and Portugal, respectively, along with a snapshot of the STR regulations in place:

Madrid, Spain

Properties must obtain a tourism license to legally operate a short term rental. Eligibility depends on whether the property has a separate street entrance from any permanent residential units in the building. Renting out individual rooms or apartments within residential buildings with common entrances is effectively prohibited. There is currently a freeze on new licenses for short-term rentals. 

Barcelona, Spain

Properties must get a tourism license to legally operate a short term rental. Private room rentals are prohibited and new tourism licenses have been under a moratorium for several years. Properties with licenses can only be rented for a maximum of 120 days per year if the owner does not live on-site.

Lisbon, Portugal

Lisbon's STR regulations require properties to get a local accommodation license. The city has imposed caps on the number of rental licenses issued in certain historic neighborhoods to manage the impact of tourism. As of October 2023, with the enactment of the new “Mais Habitação” laws, no new licenses are being issued in Lisbon.
Porto, the second largest city in Portugal, has adopted the same regulations as Lisbon. 

Rome, Italy

Properties must be registered with SUAR (Sportello Unico Attività Ricettive), the centralized service for accommodation activities, to operate as a short term rental. In central areas of the city, only detached single family properties can be rented. Properties may only be rented for a maximum of 60 days a year.  

Florence, Italy

Airbnb owners in Florence must register with the local authorities and get a unique identification code. Since October 2023, there has been a ban on new short term rental licenses in the city’s historic center. 

Prior to the pandemic, STR supply in Barcelona and Madrid made up an impressive 11% of all supply in Spain. Listings in Lisbon and Porto made up an astounding 27% of all supply in Portugal. STRs in Rome and Florence made up 9% of all supply in Italy.

Since the pandemic, these cities remain leaders in STR listings in their respective countries. However, many have not yet returned to 2019 levels and their weak recovery is reflected in the slow supply growth at the national level.

Despite strong demand recovery with the return of international travelers over the last year and a half, STR regulations in these cities are effectively limiting supply growth. Across the 6 major cities named above, supply is still well below or just slightly above 2019 levels. While demand is above 2019 levels in several cities, the lack of supply is artificially holding back demand in places like Barcelona and Lisbon.

Supply Growth Leads to Declining Occupancy  

Slow supply recovery is true in other major cities across Europe as well. Among the top 50 European cities, supply has grown over 20% year-over-year (YOY) but remains 3% below 2019 levels.

When looking at individual cities, supply growth has varied over the last year. Cities that have experienced the most supply growth, have seen the steepest occupancy dips. Cities with the most supply growth have seen the biggest drops in occupancy. For example, Warsaw, Poland; Belgrade, Serbia; Napoli, Italy; and Paris, France, have experienced more than 35% year-over-year growth in available listings. Occupancy has consequently dropped by over 10% in all four cities. This declining occupancy has also led to lower revenue per available rental (RevPAR) for hosts, as they face more unbooked nights and have to reduce their nightly rates.

On the other hand, in Porto, Portugal; Madrid, Spain; and Barcelona, Spain, regulations have slowed listing growth. This slower growth in listings has led to stable or increasing occupancy and RevPARs for short-term rentals over the past year.

Europe Demand Pacing Up 18% for the Next Six Months 

Bookings for Europe continue to grow steadily. Current demand on the books for July and August is up 18% year-over-year (YOY). Similarly, the shoulder months of September and October are also seeing an 18% YOY demand increase.

Among the top 20 European countries, the following nations are currently leading for growth in demand on the books, July through September:

• Poland (+33% YOY)
• Norway (+29% YOY)
• Germany (+28% YOY)
• Czech Republic (+27% YOY)

On the other hand, demand pacing is lagging in: 

• The Netherlands (+15% YOY)
• Portugal (+14% YOY)
• France (+13% YOY)
• Ireland (+13% YOY).

For those looking to travel off the beaten path this summer, here are four popular destinations where demand for July through September is skyrocketing year-over-year. Travelers aiming to avoid the crowds and stick to a budget are finding Eastern European destinations to be a great option.

• Kosovo (+76%)
• Albania (+66%)
• Bosnia-Herzegovina (+58%)
• Moldova (+49%)

Sporting Events are Heating Up Summer Demand

Between the EURO 2024 football championships, the Paris Olympics, and the Tour de France, this summer is going to be an eventful one for sport fans.

The group stage games for EURO 2024 are happening as we speak. In our recent blog, we took a look at how demand, supply, and rates were shaping up leading up to the Group Stage. Don’t miss our blog on EURO 2024 if you want a sneak peek at which matches are booking up STR listings the fastest and what hosts should expect in knockout rounds.

The Paris Olympics are just one month away, and we’re seeing demand and supply reach record heights in Paris and its suburbs. Current demand on the books within Paris is up 27% compared to the two weeks leading up to the start of the games.

In the suburbs, demand is up an astounding 79% compared to the two weeks prior. Parisians are seizing the opportunity to earn some extra cash during the Olympics, and new listings are coming online at a record pace. May listings were up 45% YOY in Paris and up 73% YOY in its suburbs. Check out our interactive Olympics dashboard to get an idea of where demand, supply, and rates are heating up the most

Do you want to be at the finish line for this year’s Tour de France? If so, head to Nice. This year is the first time since 1975 that the Tour de France will not be concluding in Paris. The race will end in the south of France on July 21st. Current demand on the books for July 20th and 21st is up 36% versus the week prior. While booked rates are not seeing a significant increase, rates for available listings are currently up 12% versus the week prior.