Hitting all-time highs in demand, revenue, and average daily rates, the European short-term rental market demonstrated record-breaking growth in the first half of 2023, largely driven by the return of international travelers

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

The short-term rental (STR) market in Europe ended the first half of 2023 with plenty to brag about. The market witnessed record-breaking demand totaling more than 177.8 million nights stayed in the last six months, 20% more than in the first half of 2022. Revenue is at all-time highs, with hosts earning more than $31.6 billion in the first half of the year, an increase of 40% year over year (YOY). Available listings, which had just recovered to pre-pandemic levels at the beginning of this year, saw 11% 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 10.4% YOY and 4% from 2019

Average daily rates (ADRs) were up 17.9% YOY and 43.4% vs. 2019

Revenue was up 38.3% YOY and 70% from 2019

Occupancy was up 2.8% YOY and 4.7% vs. 2019

Revenue per available rental (RevPAR) grew 21.2% YOY and was up 50.1% from 2019

International Travel and Regulation in Europe

In our previous European review, we took a closer look at where the top 20 European countries are on their path to recovery to pre-pandemic levels of supply, demand, and occupancy.

Two major factors have 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. 

Given that the two factors have had varying effects on STR recovery in our top 20 European countries, we thought it would be helpful to do a deeper dive into how international travel and regulation are influencing countries at different stages of recovery. 

Demand-Lagging Countries (Czechia, Denmark, Hungary, Ireland, Netherlands, Croatia)

Lack of international demand and growing regulation has led to lagging STR recovery 

In all of our demand-lagging countries except Croatia, the capital cities receive the large majority of demand in the country and are heavily reliant on international travelers. The drop-off of international demand when COVID-19 lockdowns came into place in March 2020 led to severe declines in supply and demand.

In Prague, Czechia, for example, demand fell 70% YOY in the first full month of pandemic lockdowns. Demand continued to fall for another year and was 89% below 2019 demand at its lowest point in April 2021. Supply saw a slower tumble but was 62% below 2019 supply in January 2022, its lowest point. A similar trajectory can be seen in all the demand-lagging capitals where a steep decline in demand in the first year of the pandemic was followed by a slower but sharp decline in supply. 

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. The combination of the abrupt stop to international travelers and strict regulation of the STR market in these two capital cities led to precipitous declines in supply and demand. At their lowest points during the pandemic, demand compared to 2019 was down 88% in Amsterdam and down 86% in Dublin. Supply at its lowest was down 71% in Amsterdam and down 70% in Dublin compared to 2019. 

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

Demand Return Countries (Italy, Portugal, Spain)

The return of international demand has set new demand records and sparked new tensions and regulations

International demand recovery has caused demand to reach new record highs in our demand return countries.

Unlike the 70-90% declines in demand versus 2019 that we saw in our demand-lagging countries, Italy, Portugal, and Spain saw slightly milder demand declines of 60-70% at their lowest points during the pandemic. With the help of strong domestic and cross-border travel from their European neighbors throughout 2021, demand in all three countries returned to pre-pandemic levels by January 2022. Italy, Portugal, and Spain ended all COVID-19 travel restrictions for non-EU travelers in June, July, and October 2022, respectively. With the return of non-EU travelers, the first half of 2023 witnessed 30%, 32%, and 17% demand growth vs. 2019 in Italy, Portugal, and Spain. 

While demand is currently well above 2019 levels, supply has not recovered as quickly in our demand-return countries. Even at its lowest levels in August 2021, supply was 34% below 2019 levels in Italy and 24% below 2019 levels in Portugal and Spain. Since then, supply has slowly been returning, but as of last month, supply compared to June 2019 was still down 10% in Italy and 2% in both Portugal and Spain. 

With demand at record highs and supply still below 2019 levels, Italy, Spain, and Portugal are seeing significant occupancy and ADR growth. Occupancy for the first half of 2023, compared to the first half of 2022, was up 19%, 18%, and 11% for Italy, Portugal, and Spain, respectively. High occupancy enabled hosts to raise their rates, and ADRs in Italy, Portugal, and Spain were up 18%, 14%, and 11% for the first half of 2023 compared to the first half of 2022.

But high prices are not stopping travelers this summer. June marked the first summer month in three years where Italy, Portugal, and Spain had no travel restrictions in place. Pent-up travel demand, particularly from the United States, has led to massive crowds and tourist-filled streets in the popular cities and destinations of Italy, Portugal, and Spain. 

In some cities, the huge crowds and concerns about housing availability and affordability have led governments to implement new regulations on short-term rentals, as well as cruises and anti-social behavior. In Florence, Italy, the mayor announced an immediate ban on new short-term rentals in its historic center as of June 1st this year. Milan and Venice have been considering further restrictions as well, and nationwide STR regulations are currently being discussed in Italy. In Palma, Spain, the Supreme Court upheld the city’s ban on short-term rental apartments in February this year. A ban on private room rentals has been in place in Barcelona, Spain since 2021, and the city limits licenses for entire apartment/home rentals. In Portugal, a nationwide ban on new STR licenses in urban areas was implemented in February of this year. 

With city and nationwide regulations limiting future supply growth, it will be hard for supply to catch up with demand growth, and ADRs and occupancy will likely stay elevated in our demand return countries. 

Occupancy decline countries can offer lower ADRs for price-conscious travelers

With ADRs on the rise in popular European destinations in countries like Spain or Italy, countries where occupancy is declining may offer some relief for travelers that have been squeezed by high inflation. 

In Finland, Norway, Poland, and Sweden, 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 countries. Last month, Finland, Norway, Poland, and Sweden saw occupancy levels 12%, 19%, 11%, and 16% below 2019 levels. 

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 through to October are pacing 7%, 9%, 15%, and 19% above last year for Poland, Norway, Finland, and Sweden, respectively. In comparison, countries such as Croatia or Czechia that are leading ADR growth are pacing 36% and 27% above last year through October. 

Looking at what travelers have paid for trips that are already booked for the remainder of July through October, travelers to Poland, Finland, Sweden, and Norway are paying $116, $144, $157, and $160 per night, respectively. Meanwhile, travelers to Greece or the United Kingdom, countries where ADRs are pacing the highest for the next three months, are paying $257 and $245 a night, respectively. 

Lower ADRs in our occupancy decline countries are playing a large role in driving strong demand pacing for the countries. Norway, Poland, and Sweden are leading demand pacing through October with 36%, 35%, and 30% more nights on the books than last year. Our future booking data shows that price-conscious travelers are looking outside the more popular European destinations to find better deals, and occupancy decline countries have been a good option.

As of July 16th, demand for the next six months for the European continent is pacing 16% above last year. July and August are seeing 11% and 10% YOY growth in demand pacing, and  September and October are pacing 38% and 34% above last year.  

Among our top 50 largest European markets, Eastern Europe is taking the lead in demand pacing growth, with several markets seeing nearly 50% YOY growth. Budapest, Vienna, and Bucharest are seeing 49%, 47%, and 47% YOY growth in demand pacing for July - October. A few Italian markets are also seeing strong YOY growth. Demand is pacing 47% above last year for Milan, while Napoli, Florence, and Palermo are seeing 38% more nights on the books for July to October than last year. 

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

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