Europe Market Review: Strong February Gives Way to Bumper Spring for Short-Term Rentals | AirDNA

Typically considered a low demand period, European short-term rentals continued their trajectory of supply recovery, with available listings exceeding 2019 levels by 4.7% and 2022 levels by 12%. However, more impressive than available listing growth was available night growth. Available listing nights grew 28.1% vs. 2019 and 11.3% vs. 2022. The result of hosts opening more days of their calendar was greater YOY growth in available nights than demand nights last month. Occupancy declined 2% YOY as available listing night growth of 11.3% exceeded demand growth of 9.1% YOY. Despite occupancy declines, ADRs rose 9.3% YOY, enabling RevPAR growth of 7.2% YOY.

At a Glance: Key European STR Performance Metrics for February 2023:

• RevPAR rose by 7.2% YoY
• Available listings held strong, 4.7% above 2019, 12% YoY
• Total demand (nights) was 26% higher than 2019, 9.1% YoY
• Occupancy was down 2% vs. 2019, and down 1.6% vs. 2022
• Average daily rates (ADRs) up 9.3% YoY and up 38% vs 2019

Top 20 European Countries Split on Occupancy Performance

Short-term rental demand and supply trends in Europe varied across countries during what is historically the least busy period of the year. In February, Norway (+40.7%), Austria (+39%), and Greece (28%) experienced the highest growth rates in demand, showcasing a strong appetite for short-term rentals in these destinations. In terms of supply, the largest increases in available listings over last year were seen in Sweden (+32.1%), Poland (+34.7%), and Norway (+51.3%), indicating a willingness by hosts to meet the demand. Interestingly, Croatia experienced the highest growth in ADR (23.9%), despite a significant decline in available listings (-17.7%), suggesting a changing market landscape and broader economic pressures as demand in the nation fails to keep pace with last year (-55.6%).

12 of the top 20 European countries saw YOY occupancy declines last month, driven by available listings far exceeding demand nights. The bottom performers were Croatia (-28.5%) and Denmark (-26.7%) which both saw occupancy fall more than 20% YOY. Leading YOY occupancy growth in February were Belgium (+6.9%), Netherlands (+8.6%), and Austria (+15.8%). In all three countries, strong occupancy in February was driven by YOY demand growth far exceeding YOY supply growth. In Austria, YOY demand growth (+39%) was more than double YOY supply growth (+18.3%). 

Impact of Regulatory Changes in Addressing Affordability 

In February, Ireland and Portugal ended their respective Golden Visa programs, which granted non-EU nationals the opportunity to acquire EU residence through financial investment in the countries. Following suit, Spain may be the next country to end the program as Congress there mulls over a bill submitted last month which would eliminate the possibility of obtaining a Golden Visa by purchasing real estate in Spain. The decision to terminate the visa program has been attributed to concerns over rising real estate speculation, an issue to which short-term rentals are often erroneously cited as a key contributor. 

Many markets have attempted to tackle the issue of housing affordability through the implementation of stringent short-term rental regulations. However, this approach may be misguided, as broad price increases have been seen across the European real estate market. According to Eurostat data, the increase in home prices has been consistent since 2015. The rise in property values has affected all types of properties in the Euro Area, but the increase has been lesser among owner-occupied units—those where the owner is using the property as their own primary dwelling—relative to the broader market. Growth in house prices in other types of property—including those destined for second homes or rentals—has been higher. This calls into question the effectiveness of short-term rental regulations in addressing the root causes of rising home prices in the Euro area.

Homes which are not occupied by the owner commonly fall under the category of a second home or investment property. Often leveraged as cash-flowing assets, these types of properties are not easily comparable to traditional long-term housing, as they cater to a different market segment and offer a different set of amenities and services. The rise in home prices since the pandemic can be attributed to a broad increase in demand and mounting inflationary pressures across the real estate industry. The price increases in non-owner-occupied properties have a propensity to be more dramatic than the broader real estate market and tend to be confined to higher-tiered units and upscale renters. This is further supported by the fact that short-term rental RevPAR has increased at the greatest rate among higher-end units since 2019. In February, among entire homes and apartments, RevPAR relative to the same month in 2019 had increased by 28.2% for luxury units, 23% for upscale units, 22.1% for midscale units, 21.2% for economy units, and 17.3% for budget units.

The largest cities in a country are often the first to implement regulation in a myopic effort to tackle housing affordability. With tourism in urban areas having been hardest hit since the pandemic, both short-term rental demand and supply have been severely impacted, and many of these areas are yet to recover to 2019 levels. Short-term rentals provide revenue streams for hosts and nearby businesses, generate tax revenue for local governments, and create job opportunities for the community. For urban markets faced with a new set of regulations, a full recovery may not even be within the realm of possibility, rendering an economic loss to the community of all of the benefits that short-term rentals provide. In February 2023, available listings in Europe's top 50 cities remained 21.5% below 2019 figures, while demand lingered 15%% lower than 2019. Notably, this was the best month yet for the largest markets compared to pre-pandemic periods, and recovery has been slow and steady. But the prolonged vacuum of demand has dealt a significant blow to short-term rental operators in many urban tourist destinations. Having been hit hard in their pocketbooks, many operators in the top 50 markets have chosen to repurpose their properties for long-term rentals or move to a new market entirely.

On the flip side, further investment is being seen outside of urban areas, many of which have experienced substantial growth in tourism figures in the last three years. Short-term rentals are a driving economic force that bolsters the existing forms of accommodation through alternate offerings that would otherwise not exist. European markets outside of the top 50 saw a 42%rise in demand compared to pre-pandemic levels in February, while available listings have increased by 11% during the same period. This presents an opportunity for further investment in these areas, and an increase in barriers to entry could hinder economic growth in regions that benefit from it the most.

Despite contrasting levels of growth in demand and supply between the top 50 markets and everywhere else in Europe, both have been able to recover to pre-pandemic levels of occupancy in the last year.

When isolating the focus to changes in short-term rental supply and demand in Ireland, Portugal, and Spain, we conducted a comparison between the top five largest markets and those outside of these. By comparing total annual data from 2022 to 2019, we can see that both demand and supply in the top five markets of each of the three countries were slower to recover compared to other areas. Interestingly, Portugal and Spain were able to increase demand figures in areas outside of their top five largest markets, with growth rates of 11% and 3.4%, respectively. Although demand outside of the top five markets in Ireland remained lower than in 2019, these areas performed better than the top five largest markets. Supply growth relative to pre-pandemic levels remained stunted across the focus countries, irrespective of market size. However, the markets outside of the top five markets in Portugal, Ireland, and Spain fared better in the period, down by 6.9%, 19.8%, and 7.3%, respectively. Meanwhile, available listings in the top five markets had been leveled in Portugal by 21.1%, Ireland by 48.1%, and Spain by 28.9%

Growth Continues Into Summer

Demand pacing trends indicate that growth and momentum within the European short-term rental industry are set to continue over the next six months. As of March 11th, the continent was tracking record-setting demand pacing over the next six months, up by an impressive 32.8% year over year and 24.5% compared to 2019. May was the standout month, with nights booked pacing 42.6% higher than in 2019 and 42.5% higher than in 2022. With May typically considered a less busy month for tourism after the Easter break, this signals that travel seasonality is expanding beyond peak periods. That said, travelers remain eager to lock in their summer accommodations. As for the months of June, July, and August, nights booked were pacing up by 32.3%, 33.7%, and 34.9%, respectively, over 2019.

A closer examination of the top 20 countries in Europe reveals similar trends in nights booked. The month of May saw the greatest year-over-year change in demand pacing within the next six months in Austria, Italy, Portugal, Ireland, the Netherlands, Germany, France, and Finland. What’s more, all but one of the top 20 countries (Denmark) were trending toward double-digit growth in total nights booked between March and August. Poland, Austria, and Italy were leading the way in growth, with total nights booked over the next six months up by 65.6%, 58.6%, and 50.0%, respectively. These trends bode well for the European short-term rental industry, with travelers showing a keen interest in exploring the continent's diverse cities and landscapes throughout the year.

As part of our ongoing commitment to accuracy, we continuously implement data methodology improvements, leading to updates to some of the information in this report as of December 21, 2023. For further questions, please contact us.