European Market Review: Summer Travel Booms with International Guests Back in Full Force

Short-term rentals (STRs) in Europe ended the first half of 2023 with plenty to brag about. The market witnessed record-breaking demand totaling more than 162.3 million nights stayed in the last six months, 12.5% more than in the first half of 2022. Revenue is at all-time highs, with hosts earning more than $27.7 billion in the first half of the year, an increase of 25% year over year (YOY). Available listings, which had just recovered to pre-pandemic levels at the beginning of this year, saw 10.3% YOY growth in the first half of the year. With so much growth momentum, June STR performance ended the first half of the year on many of the same positive notes.

At a Glance: June STR Performance in Europe

• Available listings were up 9.2% YOY and 4.5% from 2019
• Demand was up 9.6% YOY, 8.5% vs. 2019
• Average daily rates (ADRs) were up 12.7% YOY and 36.9% vs. 2019
• Revenue was up 23.5% YOY and 48.5% from 2019
• Occupancy was down 0.3% YOY and down 2.2% vs. 2019
• Revenue per available rental (RevPAR) grew 12.4% YOY and was up 33.9% from 2019

International Travel and Regulation in Europe

Two major factors had a strong influence on the performance of short-term rentals in Europe during and after the pandemic. 

The first factor is international travel. In our last European review, we discussed how the lack of international travel during the pandemic led to large dips in demand in European countries heavily reliant on international travelers. The brunt of demand loss was felt by cities that typically receive a large majority of international travelers. 

The second factor is regulation which can limit STR supply and suppress demand. In recent years, many European countries have been moving towards stricter regulation of short-term rentals, especially in cities like Barcelona and Amsterdam. More stringent regulations have come in different forms: ranging from stronger taxation laws to mandated government registration, to laws limiting the areas and time periods in which short-term rentals are allowed to operate.

Slowdown of International Demand and Regulation Caused STR Declines in Demand-Lag Capitals

Of the top 20 European countries, six have yet to see the return of demand to pre-pandemic levels resulting in lagging supply: the Czech Republic, Croatia, Denmark, Hungary, Ireland, and the Netherlands. 

In five of our six countries experiencing a lag in demand, the capital cities make up the largest proportion of demand in the country. Let’s dig into STR performance of these capitals to get a better understanding of what’s caused lagging demand in these countries. 

Across our demand lag capitals, the slowdown of international travel immediately following the implementation of COVID-19 travel lockdowns was severe. In April 2020, the first full month of pandemic lockdowns, Prague, Czechia, witnessed a 70% YOY decline in demand. Demand fell for another year and was 89% below 2019 demand at its lowest point in April 2021.

A steep decline in demand in the first year of the pandemic followed by a slower but sharp decline in supply is a trend that we see across all the demand lag capitals. Budapest, Hungary and Copenhagen, Denmark saw demand fall as low as 89% and 83% below 2019 levels when they reached their troughs in April 2021. Supply in both cities fell to more than 50% below 2019 levels before beginning their recovery in early 2022. Notably Zagreb, Croatia has followed a similar trajectory but given its significantly smaller market share of overall demand in Croatia (3% in 2019), it has seen the smallest declines in supply and demand vs 2019. 

While the slowdown of international demand was damaging for all the demand lag capitals, capitals that had strict STR regulations in place suffered greater STR declines. 

In Amsterdam, Netherlands, regulations limit the number of nights hosts are able to rent out their homes to 30 nights per year. In Dublin, Ireland, the city has designated rent pressure zones (RPZs) where hosts can only rent out their homes for 90 days per year. Prior to the pandemic, around 80% of trips in both the Netherlands and Ireland were made by international travelers. The combination of steep slowdown of international travelers and strict regulation of the two capital cities, led to a precipitous decline in supply and demand in Amsterdam and Dublin. At their lowest points during the pandemic, demand compared to 2019 was down 88% in Amsterdam and down 84% in Dublin. Supply at its lowest was down 71% in Amsterdam and down 70% in Dublin compared to 2019. 

With regulations limiting supply and suppressing demand, Amsterdam and Dublin have been the slowest to recover from pandemic declines. For the last year in Amsterdam, despite supply and demand being well below 2019 levels, occupancy has actually exceeded 2019 levels – an indication that perhaps there is unmet demand that could be met if there wasn’t stringent regulation.

Milder supply and demand declines outside of the capitals, bolstered by domestic and cross-border travel 

Unlike the capital cities, the areas outside of the capital are less reliant on international travel.  A closer look at STR performance outside of the capitals shows much milder declines in supply and demand. Whereas the capital cities in our demand lag countries witnessed sharp demand decline through April of 2021, outside the capital, demand fell dramatically (40-60% YOY) in the immediate aftermath of COVID-19 lockdowns but fluctuates with travel seasonality from then onwards. YOY supply outside the cities fell to lows ranging from 10-33% through the spring and summer of 2020 but began stabilizing in the fall of 2020.  

Travel lockdowns may have prevented international travel, but Europeans were still traveling domestically and to other EU countries when cross border travel was allowed to resume in summer of 2020. European suburbs saw a rise in demand as people wanted to get away from cities under strict COVID restrictions. Lower ADRs outside of capital cities were also attractive for travelers. Despite record low occupancy in cities like Amsterdam or Copenhagen, in 2021, ADRs outside of the two capitals were more than 30% lower for apartments/condos and more than 25% lower for homes/villas. 

Overall with less dependence on international travel, supply and demand have made stronger recoveries outside of the capital cities. Most of the demand lag countries have been seeing overall positive demand growth vs 2019 since the early months of 2022 and supply in the last 6 months has returned to pre-pandemic levels outside of Amsterdam, Budapest, Copenhagen, and Prague. 

In the demand lag capitals, supply and demand have yet to return to pre-pandemic levels but we are seeing stronger YOY growth in the capitals versus outside the capitals as the return of international travel has brought demand back to the capitals. As international travelers continue to return, we should expect overall demand and supply in our demand lag countries to make stronger recoveries. 

Faster supply recovery than demand recovery in occupancy decline countries 

On the other end of the spectrum, Finland, Norway, Poland, and Sweden are countries that have seen supply and demand recover back to pre-pandemic levels. However, faster recovery of supply over demand has led to steep occupancy declines in all four countries for the last year.

At the beginning of 2022, Covid-19 travel restrictions were slowly lifting across Europe. Countries were eliminating their isolation periods, dropping pre-testing and vaccination mandates, and opening their borders to non-EU travelers. 

Among our occupancy decline countries, Norway was the first to lift all travel restrictions for non-EU travelers starting in February 2022. Poland and Sweden scrapped all their restrictions in March and April, and Finland finally ended all restrictions in July. 

With the lifting of travel restrictions, came the return of supply to pre-pandemic levels in our occupancy decline counties. By May 2022, all four countries were seeing supply levels that exceeded 2019 by anywhere between 2 and 11%%. In our occupancy decline countries, supply at its lowest during the pandemic was only about 20% below 2019 levels and was able to make a quicker recovery than demand that had fallen as much as 37% in Finland to nearly 60% in Norway, Poland, and Sweden. The faster recovery of supply over demand throughout 2022 and in the first half of 2023 has led to occupancy levels well below 2019 in all four of our occupancy decline countries.. Last month, Poland (-13%), Sweden (-19%), Finland (-20%), and Norway (-20%) saw occupancy levels more than 10% below 2019 levels.

Occupancy decline has slowed ADR growth but fueled demand

Declining occupancy has chipped away at the pricing power of hosts and Finland, Norway, Poland, and Sweden are seeing some of the smallest YOY growth in ADR pacing. ADRs for the next six months are pacing 7%, 8%, 13%, and 17% above last year for Norway, Poland, Finland, and Sweden respectively. In comparison, countries such as Croatia or Czech Republic, are leading growth with ADRs pacing 33% and 26% above last year for the next six months. 

But lower ADRs in our occupancy decline countries is playing a large part in driving strong demand pacing. Poland, Norway, Hungary, and Sweden are leading demand pacing with 38%, 37%, 30%, and 29% more nights on the books for the next six months than last year. European travelers that are wanting to be more price conscious are looking outside of the more popular European destinations to find better deals. Finland, Norway, Poland, and Sweden are attractive options. ADRs in Norway for example, are pacing 39%, 36%, and 30% lower than ADRs in Greece, United Kingdom, and Croatia, the countries seeing the greatest ADR pacing growth for the next six months.

While occupancy in Poland, Norway, Hungary, and Sweden has been suffering from too much supply, as demand starts to catch up with supply, we should expect occupancy levels to recover.

Summer and fall demand pacing 

As of July 9th, demand for the next six months for the European continent is pacing 17% above last year. July and August are seeing 10% and 12% YOY growth in demand pacing and  September and October are pacing 41% and 35% above last year.  

For the remainder of the summer through October, Poland, Norway, and Sweden, are leading YOY growth in demand pacing and Switzerland, the Netherlands, and Croatia are seeing the smallest YOY growth (12%, 11%, and 7% respectively). 

Among our top 50 largest European markets, Eastern Europe is taking the lead in demand pacing growth with several markets that are seeing 50% or more YOY growth. Bucharest, Budapest, Vienna, and Kraków are seeing 54%, 52%, 50%, and 50% YOY growth in demand pacing for July through October. A few Italian markets are also seeing strong YOY growth. Demand is pacing 48%, 41%, and 40% above last year for Milan, Palermo, and Florence, respectively. 

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.