Europe Market Review: Rising Supply Brings Diverse Options, But Guest Trends Shift Towards Original Offerings | AirDNA

The European short-term rental (STR) industry saw a significant increase in demand in January 2023, with year-over-year growth of 13.6 (18.8% vs. 2019). Revenue within the continent also saw a boost, with growth of 25.4% compared to the previous year, thanks to a 10.4% increase in average daily rate (ADR) and continued demand growth. The supply of available listings in January 2023 was also higher, surpassing the pre-pandemic levels of 2019 and reaching  10.8% growth compared to the previous year.

Occupancy was up 3.9% YOY in January but down 1.6% vs. 2019. This can be attributed to growth in available listing nights of 20.8% vs. 2019, outpacing demand growth of 18.8% versus 2019. Finally, revenue per available rental (RevPAR) showed remarkable efficiency in the period, with a year-over-year increase of 14.7% (27.9% compared to 2019).

At a Glance: Key European Short-Term Rental Performance Metrics for January 2023:

• Demand nights were up 13.6 year over year (YoY) and 18.8% vs. 2019
• Available listings were up 10.8% YoY
• Revenue was up 25.4% YoY
• Average daily rates (ADRs) were up 10.4 YoY
• Occupancy was up 3.9% YoY
• RevPAR was up 14.7 YOY

Europe's Top 20 Countries: Occupancy Impacted By Shifts in Demand and Available Listing Nights 

As the continent turned the page into 2023 in January, a glimmer of uncertainty lingered among a few of the top 20 countries, with adverse macroeconomic conditions still palpable. However, recovery remained on track. On a year-over-year basis, the growth of demand in 14 of the top 20 European countries outweighed the growth of available listing nights, resulting in an increase in occupancy levels.

In January 2023, Portugal (+21.7%), Austria (+20.6%), and the Czech Republic (+12%) experienced substantial growth in YOY occupancy. The growth in demand for short-term rentals in these countries exceeded the growth in available listings, indicating a significant opportunity for increased supply to meet unfulfilled demand.

On the other hand, Croatia and Denmark saw a decline in demand, with drops of 53.8% and 23.4%, respectively. These two countries recorded the steepest occupancy declines among the top 20, with occupancy levels falling by 32.6% in Croatia and 20% in Denmark. This decline was caused by a decrease in available listing nights that was comparatively softer to the decrease in demand. The number of available listing nights in Croatia decreased by 31.5%, while Denmark declined by 4.5%.

Similarly, in Sweden (-5%), Hungary (-1.4%), Switzerland (-0.9%), and the United Kingdom (-3.4%) YOY occupancy levels saw a decline. However, short-term rental demand in these countries was higher compared to the previous year. The growth in available listing nights in these nations exceeded the growth in demand, leading to lower occupancy levels in the period. This resurgence in available listing nights aids a recuperation to typical occupancy rates after a period of impaired supply instigated by the pandemic.

In terms of demand growth, Austria took the top spot in the period, with a 50.8% increase in nights booked compared to last year. The country also saw a 25.1% increase in available listing nights and a remarkable 20.6% growth in occupancy levels.

The January figures for the top 20 countries indicate that the European short-term rental market is recovering but at different rates in different countries. The growth of demand in some countries had outstripped the growth of available listing nights, which led to increased occupancy levels, while in other countries, the reverse is true. Regardless of the individual market conditions, it's evident that the European short-term rental market is on the road to recovery, and opportunities remain for growth and expansion.

Can Europe’s Fastest-Growing Real Estate Type Maintain Momentum?

It's well known that travelers are on the hunt for unique and authentic accommodation experiences, and the latest data supports this trend. Aside from a brief period in fall 2022 when B&Bs were the leading category for demand growth, Unique Stays have consistently been the top category for demand growth since 2019. In January 2023, travelers booked an impressive 100.3% more nights in Unique Stays in Europe compared to the same period in 2019. This growth can be attributed to the shift in consumer preferences towards one-of-a-kind stays, coupled with a growing abundance of options and algorithmic prioritization by listing platforms.

Looking at the available supply, Unique Stays also saw the fastest growth in January 2023, with a 38.8% increase compared to 2019 and a 34.4% increase compared to 2021. B&Bs also saw an increase in their supply on a year-over-year basis as travelers become more comfortable with shared accommodations post-pandemic. The B&B category grew by 23.2% compared to last year but remains stunted by 9.1% compared with pre-pandemic levels. Despite this growth, these categories only made up 2.9% and 2.8% of total available listings in January 2023. In contrast, Apt/Condo/Lofts and House/Villas made up 58.3% and 35.9% of total market share, respectively, and, therefore, played a larger role in the overall supply growth in Europe in January. While Apt/Condo/Lofts remained 0.3% below 2019 figures, European STR growth in January can primarily be attributed to House/Villas, which grew by 12.8%.

Market share of total listings has changed hands between the four real estate categories since January 2019, with House/Villas gaining 2.6% and Unique Stays gaining 0.7%. Conversely, Apt/Condo/Lofts and B&Bs each lost 2.9% and 0.4% of their market share in the same period. This shift in market share can be attributed to changing traveler preferences in the post-pandemic era. Urban areas typically hold the largest share of Apt/Condo/Lofts, which have yet to fully recover from the pandemic in terms of supply. As more options surface outside of urban areas, it's understandable that the market share of Apt/Condo/Lofts has declined. In contrast, House/Villas and Unique Stays have become increasingly popular among travelers due to the desire for more experiential, spacious, and private accommodations, resulting in the category's market share growth. B&Bs, which often require sharing common areas with fellow guests, have seen a decline of 0.4% in market share, as they had become less desirable during the pandemic era.

Analysis of real estate trends across the top 20 European countries revealed that Unique Stays experienced the highest rate of available listing nights growth in 18 of the top 20 countries compared to January 2019. The exceptions in the comparison period, Greece and Austria, saw their highest available growth in supply nights among House/Villas, up by 76.7% and 98.7%, respectively. Out of all the countries, Poland saw the largest growth in available nights for Unique Stays at 120.9%, followed by Belgium (116.8%) and Sweden (110.8%).

The growth of Unique Stays is a reflection of the changing preferences of guests towards the distinctive and personal experiences offered by this type of short-term rental accommodation. The supply of Unique Stays has risen to meet the increasing demand for this category, as demonstrated by the fact that in 17 of the top 20 countries, Unique Stays saw the strongest demand growth compared to January 2019. Only in Norway, Greece, and Austria did Unique Stays not lead the demand growth but instead saw the second-highest growth, with House/Villa otherwise being the top-performing category in those countries.

The correlation between supply and demand growth plays a major role in determining occupancy levels. In Norway and Sweden, available listing nights of Unique Stays increased more quickly than demand, resulting in lower occupancy levels compared to January 2019. For example, in Norway, the demand for unique stays was only up by 27.0%, the lowest among the top 20 countries, while the available listing nights rose by 71.7%, causing occupancy to drop 26.0% below January 2019. Similarly, in Sweden, despite a 96.3% increase in demand, available listing nights grew by 110.8%, leaving occupancy 6.8% lower than in January 2019. On the other hand, countries such as Portugal, Italy, Belgium, and Germany have managed to maintain high occupancy levels for Unique Stays, signaling an opportunity to service the growing demand in this real estate category.

On pace to continue their demand growth lead, nights booked for future stays in Unique Stays were 89.3% higher than at the same point in 2019. However, the growth in demand was not limited to Unique Stays, as B&Bs, House/Villas, and Apt/Condo/Lofts also recorded higher nights booked, with 71.5%, 68.2%, and 25.5% growth, respectively. These booking patterns are in line with the changing preferences of travelers post-pandemic, as different unit characteristics are gaining popularity over those favored in previous years.

Regardless of the type of real estate, property owners can adapt to the changing consumer preferences by enhancing their listings to be more appealing. Guests are searching for uniqueness, and it will be crucial for hosts to cater to the demands of guests by offering unique and personalized experiences in order to stand out from the competition.

A Look at European Demand Trends in the Next Six Months

Based on current pacing figures, the European continent is expected to reach record demand levels over the next six months. As of February 12th, demand nights on the books were pacing 24.4% above 2022 and 32.6% above 2019 between February and July. Booking behavior is indicating that guests are not hesitant and are ready, willing, and able to lock in their short-term rental accommodation for stays in the near future.

As of February 12th, 19 of the top 20 countries are showing positive growth in demand year over year for the next six months. Among the group, Austria led with 55.0% more nights booked compared to last year, followed by Poland (53.9%) and Portugal (53.8%). The only country that was trending toward a decline in demand was Denmark, with 26.3% fewer bookings year over year. However, when compared with 2019 figures, three countries in the top 20 were lagging (the Czech Republic with -22.7%, Hungary with -6.2%, and Ireland with -4.4%). Otherwise, 16 countries were experiencing double-digit gains relative to 2019. Germany was leading the way as of the observed date, with 84.2% more demand, followed by Austria, with 79.7%, and Finland, with 62.5%.

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.