U.S. Market Review: August Occupancy Wilts as Temperatures and Supply Heat Up | AirDNA

After July set the all-time record for nights stayed in one month, U.S. short-term rental (STR) demand cooled in August: demand grew 2.7% year-over-year (YOY), compared to the 6.5% growth in July. Still, this was the biggest August ever, with 17.4 million nights booked, despite a punishing heat wave across much of the nation, devastating wildfires in Hawaii, and a hurricane passing through Florida.

August travelers benefitted from an economy that continues to reduce inflation without triggering the recession that often follows Federal Reserve tightening. According to the Bureau of Labor Statistics (BLS), 187,000 jobs were added in August—an improvement on the more than 157,000 jobs added in July. This not only signals a strong August but also a sustainable level of hiring moving forward.

Unemployment increased slightly to 3.8% and is expected to remain stable in the long term. The BLS reported that labor productivity also increased in the second quarter, putting pressure on inflation without the economic drag associated with higher interest rates. Despite higher gas prices pushing up the consumer price index, core inflation — which strips out volatile food and energy prices — continued to decline in August.

At a Glance: Key U.S. STR Performance Metrics for August 2023

• RevPAR declined 8.4% YOY to $181.09
• Available listings reached 1.53 million, up 13.7% YOY
• Total demand (nights) rose 2.7% YOY
• Occupancy was 7% lower YOY at 56.8% (-5.2% vs. 2019)
• Average daily rates (ADRs) 1.5% lower YOY to $319.06
• Nights booked increased 4.8% YOY

After several months of occupancy strong enough to approach 2022 levels, occupancy rates unexpectedly dipped below 2019 levels in August. A sudden surge in available listings in August significantly contributed to that dip. The difference between the actual available listings and the pre-COVID trend narrowed to 130,000 listings — its thinnest margin since March 2020.

The reversal is even more apparent in YOY growth rates, with supply on the rise after five months of declining rates. On the other hand, demand growth, which had been fluctuating within the 5-15% range since the end of 2022, also dipped to 2.7% in August, simultaneously with the steady supply growth.

The lingering impact of the summer’s blistering heat wave may be responsible for the decline in demand growth: booking growth sharply declined in July, which is when the heat really began breaking records. 

The July decline in bookings may have been a delayed effect, as people with previously planned trips may not have reacted quickly to news of high temperatures. July and August 2022 also saw sharp accelerations in booking growth, meaning that July and August 2023 faced difficult comparisons. While booking growth declined in August, the number of nights booked held steady, falling only modestly from 17.5 million in July to 17.4 million in August. 

These numbers were likely influenced by natural disasters that heavily affected tourist markets in both Florida and Hawaii. After removing these two states from the U.S. totals, demand growth actually increased to 9.0% YOY — much closer to the growth rates we’ve seen so far in 2023.

In July, occupancy landed well above pre-pandemic levels. Although neither a supply acceleration nor a demand slowdown alone would have changed the established occupancy trend, together, they pushed occupancy below 2019 levels. The third contributing factor is that August occupancy in 2022 was closer to 2019 levels than any other month besides March.

So, where did these supply and demand changes occur? The demand decline was widespread, although mountain/lake resort locations saw a particularly large decline, tying with urban locations for the slowest growth at 5.1% YOY. On the other hand, available listing growth actually declined in small city/rural locations but significantly increased in the resort and suburban markets.

Several markets experienced a more acute drag on demand than others. Travelers avoided central Florida markets, including Orlando and Lakeland/Winter Haven, as the heat and potential landfall of Hurricane Idalia made travel risky. Cape Coral/Fort Myers, still recovering from the destruction of Hurricane Ian in 2022, saw the steepest decline. Still, Gulf markets Panama City, Destin/Fort Walton Beach, and Santa Rosa/Rosemary Beach also reported weak demand, either from the withering heat or the widespread fear of storms.

Interestingly, Sarasota, St. Petersburg, and Fort Lauderdale saw large increases in demand, perhaps as a destination for people displaced by the storm. Although still a deadly and destructive storm, Idalia made landfall in the relatively less-developed Big Bend area and passed through the state quickly, producing less flooding than Ian. The affected STR markets should be able to recover more quickly than Cape Coral/Fort Myers. 

On the other hand, Jersey City/Newark saw a sizable increase in demand YOY, perhaps due to some travelers looking for alternatives to New York City, where renewed regulations have ruled out most STRs for stays less than 30 days long. Minneapolis also had a large demand increase and has even recovered to 2019 demand levels in the past few months. Phoenix/Scottsdale and Coachella Valley also continued their pattern of strong off-season performance.

Low occupancy is usually associated with weak ADRs, and negative growth rates in most locations continued into August. In July, five of the six location types experienced lower ADRs than last year, and in August, four of the location types experienced lower ADRS.  Small city/rural locations and large city-urban areas had the quickest ADR growth.

A look at future bookings still suggests that, despite the slowing demand and drop in booking in August, interest in the off-season remains strong. September is pacing 8.4% higher YOY, and the pace increases to 10.1% and 11.8% in October and November, 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 20, 2023. For further questions, please contact us.