Europe Market Review: Demand Keeps Growing in Europe with Focus on Higher-End Rentals | AirDNA

The European short-term rental (STR) market experienced an increase of 10.3% more demand year over year in March, with over 21 million nights stayed during the period, representing a 10.1% growth compared to 2019. The strength in demand was reflected in revenue, which rose 21.4% compared to the previous year. Meanwhile, the number of available listings in March increased by 9% compared to the previous year and remained slightly above 2019 figures (3.5%). This marks the third consecutive month of supply growth relative to the pre-pandemic period of 2019.

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

• Revenue increased 21.4% year over year and 46.5% vs. 2019
• Available listings stayed just above 2019 levels (+3.5%) and up 9% YOY
• Total demand (nights) rose 10.3% YOY
• Occupancy was down 3.3% vs. 2022 and down 7.1% vs. 2019
• Average daily rates (ADRs) rose 10.1% YOY
• RevPAR grew 6.5% YOY and 23.6% vs. 2019

Southern Markets within Top 50 Outperform Southern Demand Growth

In Q1 of 2023, aggregate demand in the top 50 STR markets in Europe remained 18.6% below the levels recorded in 2019. By contrast, markets outside the top 50 registered a 31.9% demand increase in the same period. However, when examining the individual performance of the top 50 markets, a striking disparity can be seen in the demand growth levels between markets located in the North of Europe and those in the South.

The chart below shows the top 10 and bottom 10 demand performance markets of the top 50 markets relative to Q1 2019. Interestingly, all of the top 10 demand performers within the top 50 markets were situated in southern European destinations, which was in stark contrast to the markets that saw the deepest declines, predominantly located in northern Europe. Bucharest, Palermo, and Budva, Montenegro, emerged as the leading performers, exhibiting Q1 demand levels 58.9%, 58.5%, and 52.1% higher, respectively, compared to the corresponding period in 2019. Among the bottom 10 markets, Amsterdam, Dublin, and Cologne were the biggest laggards with Q1 2023 figures down by 64.3%, 60.7%, and 60.4%, respectively.

Notably, the markets within the top 50 that experienced the highest YOY growth in Q1 ADRs were in Croatia. In the first quarter of 2023, ADRs in Hvar (+58%), Medulin (+47%), and Grad Pula (+31%) exceeded last year by over 30%.  Outside of Croatia, the highest rate increases among the top 50 markets were seen in Barcelona, Spain (+27%), Cologne, Germany (+25%), and Bologna, Italy (+25%).

Mix Shift in Demand Drives Rate Increases in Croatia Off-Season

The YOY rate increases during periods of low seasonality in Croatia can be primarily attributed to a mix shift in demand rather than a decline in the number of available listing nights. In Q1 2023, the demand in Croatia favored properties in higher price tiers compared to the same period last year. 

As illustrated in the chart below, properties in higher price tiers gained in market share what lower tiered units lost in the period. Between Q1 2022 and Q1 2023, Luxury and Upscale units gained 5.1%, and 3.7% of total demand market share respectively. On the other end of the spectrum, Budget, and Economy lost 5.5% and 2.7% of demand market share respectively, while Midscale lost just 0.6%. 

The rise in demand for higher-tiered units, which typically maintain higher rates, accounts for the dramatic increase in rates observed during a low seasonality period, despite the concurrent decline in both demand and available listings. As a larger proportion of demand is directed towards luxury and upscale properties, ADRs across Croatia are being influenced more heavily by the the rates of these properties compared to the previous year.

The rate increases during off-season periods in Croatia can be better understood by examining the shift in demand toward higher-priced tiered units. This shift has contributed to the overall increase in ADRs across the country, as luxury and upscale properties have gained a larger share of the market demand, subsequently skewing the rates upwards.

Demand & Supply Growth Among Majority of Top 20 Countries

In March, demand among the top 20 countries showed strong growth, with 17 of them surpassing the demand levels of 2022. Norway led the pack with an impressive 41.6% increase in demand compared to March last year, followed by Austria with an increase of 27.6% and Portugal with 25.1%. Conversely, Croatia (-49.3%), Denmark (-22.1%), and Switzerland (-3.3%) saw decreases in YOY demand.

In terms of available listings, March saw an increase across 19 of the top 20 countries. Norway, Sweden, and Poland were the leaders in supply growth, with listings up by 50%, 28.4%, and 29.1%, respectively. Croatia was the only country to experience a decline in available listings, falling by 19.3% compared to last year. The decline in listings within Croatia can be attributed to decreased demand during an already slow travel period.

Occupancy levels were mixed among the top 20 countries in March, with 8 countries seeing increases relative to last year. 

The greatest increases were in Germany (+4.2%) , Belgium (+4.3%), and Austria (+6.9%) and the greatest declines were among Croatia (-27.6%), Denmark (-21.6%), and Poland (-17.2%).

STR Demand Remained Strong Despite Heat Wave in Alps 

A severe heat wave swept across the European Alps during the winter of 2022-2023, significantly affecting snowpack levels and forcing a temporary suspension or complete halt to the ski season. Surprisingly, STR demand remained resilient, as the number of nights stayed across the Alps destinations in France, Italy, Switzerland, Germany, and Austria between December 2022 and March 2023 was 22.3% greater than the period between December 2021 and March 2022. It was also 65.6% greater than the same period between December 2018 and March 2019.

Austria predominantly accounted for ski destination markets with the most significant decline in demand relative to the previous ski season, with eight of the bottom 10 destinations located within the country. The most substantial declines in demand were observed in the Swiss regions of Surselva (Laax), Verwaltungskreis Obersimmental-Saanen (Gstaad), and Albula (Lenzerheide), with respective decreases of 14.1%, 13.5%, and 11.7%.

Schladming (248.5%) and Piesendorf (170.3%), both in Austria, were the two leading destinations in terms of YOY demand gains, followed by Meran/Merano in Italy (92%). Meanwhile, the French Alps claimed five destinations in the top 10. And Montgenèvre (79.2%), Les Orres (7.3%), and Pralognan-la-Vanoise (66.3%) were the leading destinations among their French counterparts.

All in all, despite the presence of adverse ski conditions in many destinations in the European Alps, STR demand remained robust across various alpine destinations. Significant gains were seen among select destinations, indicating a potential shift in traveler preferences and destination choices in light of environmental conditions.

Summer Demand Picks Up, Outpacing 2022 and 2019 Figures

As of April 9, nights booked for future travel were up 34.2% compared to 2022 and up 22% compared to 2019. Eager travelers appear to be securing their summer reservations well in advance. As of the observed date, Q2 demand was trending 30.2% over the previous year, and Q3 was pacing toward a 39.8% increase compared to 2022. Reservations made thus far have been booked at rates that are double-digits higher than the previous year, with the highest premiums paid for stays in September (21.7%) and the lowest in June (13%). The elevated rates in September reflect the strength of demand for this otherwise shoulder season month, which is trending 77.7% higher than in 2022.

Excluding Demark, where demand was trending downward in Q2, a comparable trend can be observed in the top 20 nations, with demand outpacing last year’s figures over the next six months. Furthermore, the most significant gains in demand pacing among the top 20 countries was in September. As of April 9, Poland experienced the most considerable change in nights booked compared to the previous year, with the largest increase in September bookings (161.5%). Austria and Croatia followed, with respective increases of 76.4% and 129.1% in September bookings.

The current booking trends among the top 20 nations underpin a change in traveler behavior, both in terms of lead times and extending seasonality. Historically, September has been considered the tail end of the summer vacation season in Europe. Although with the current state of pacing figures, it could very well become a more highly traveled period, and hosts may be able to charge an even greater premium to guests booking last-minute accommodations in high-occupancy markets.

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.