The U.S. short-term rental market rang in the new year with strong demand, following a growth reaching 19.8% YoY in December 2022, well in excess of the 16.7% YoY growth for November. Despite new listing growth cooling from the high levels seen earlier in the year, occupancy levels in December reached the smallest gap since March, at 1.2% below 2021 levels.

U.S. Market Review December Rings in the New Year with Strong Demand | AirDNA

U.S. short-term rental (STR) performance exceeded expectations in December 2022 as demand surprised on the upside, growing 19.8% year over year (YoY). This was well in excess of the 16.7% YoY growth for the month of November. At the same time, new listing growth cooled from the very high levels seen throughout the earlier months of 2022, narrowing the gap between December 2022 and 2021 occupancy.

Occupancy levels in 2022 have fallen throughout 2022 as listing growth has outpaced rising demand. This gap reached a maximum in June 2022 with occupancy 10.1% lower than in June 2021. This gap declined to about 3% by September and October before increasing significantly again in November to 5.1%. December saw the occupancy gap shrink to the smallest level since March, at 1.2% below 2021 levels, perhaps signaling the start of more normalized YoY performance comparisons. 

With 2022 ending on a high note, we can now look back at industry performance over the past year. U.S. short-term rentals earned over $62 billion ($141 billion globally) throughout the year (up 25.1% YoY), with almost 200 million nights stayed and over two million listings receiving at least one booking. Overall occupancy ended the year at 58.7%, a significant drop from the 61.3% in 2021. 

The final December results were welcome news and slightly beat our current forecasts. Likewise, economic data continues to show strength, even as economist consensus gives a roughly odds-on chance of a recession in 2023. Inflation fell to just 6.5% in December as measured by YoY Consumer Price Index growth, down from 7.1% in November as the Fed has continued and is expected to continue with regular rate hikes. 

According to the Bureau of Labor Statistics, payroll employment increased by a healthy 223,000 in December, the smallest monthly gain since the beginning of the pandemic and evidence the Fed is slowing economic growth; however, unemployment remained quite low in December, at 3.5%. An economy full of employed people that are prioritizing travel over other types of spending has so far kept STR demand growth robust despite an expectation of further economic weakness.

At a Glance: Key U.S. Short-Term Rental Performance Metrics for December 2022:

Available listings reached 1.33 million – up 24.6% YoY and +19.5% vs. 2019

Total demand (nights) rose 19.8% YoY, 31.7% higher vs. 2019

Occupancy declined 1.2% YoY to 53.3% but is up +15.5% vs. 2019

Average daily rates rose 3.3% YoY to $321 and are up 30.7% vs. 2019

December demand, especially in booking, surprised with its strength. After a slight slackening in November (+17% YoY), YoY demand growth increased to 20%. Bookings during the same month grew even faster, at 24% higher YoY, making December the third-highest YoY booking growth month in 2022. A weak comparison year in 2021, when the Omicron variant was spreading, allowed for a relatively easy month for prior year comparisons. Demand demonstrated strength throughout 2022, remaining well above pre-pandemic levels and ending the year 20% above 2021’s record year. High December booking likely is a good sign for demand moving into 2023 as well.

Moreover, demand growth was widespread geographically in December, with all top 50 markets but Cape Coral/Fort Myers seeing significant YoY growth. Cape Coral/Fort Myers are still recovering from the devastating impact of Hurricane Ian earlier this year. Southwestern mainstays Phoenix/Scottsdale, AZ, and Las Vegas, NV, have seen consistent gains over the past two years, and December continued this trend of strength. Swiftly expanding supply of available listings has helped to accommodate new demand in these two markets. There was also new interest in spending the holidays on the Northeast Atlantic coast as Long Island and Cape Cod took the number one and three spots for demand growth in December. Long Island only recently returned to pre-pandemic supply levels, and Cape Cod is well below, boosting December occupancies in these two markets to well in excess of the previous year. Houston also saw large gains from December travelers in 2022 off a relatively weak December 2021 demand, moving from the middle of the markets to the top five. Florida markets, in many cases constrained by off-season closures, generally were among the bottom markets for demand growth.

Although demand growth was excellent throughout the year, the big story of 2022 was supply growth. December was no exception, and the month set a new record for available listings. Although still short of its all-time high by about 50,000 listings, the gains made in December pushed total available listings in the top 50 markets above 600,000 for the first time since January 2020. The average monthly available listings for all of 2022 finished 22% higher than in 2021.

The incredible pace of listing growth in 2022 created strong headwinds for occupancy and, in turn, revenue per available rental (RevPAR), but year-over-year comparisons for December showed that the unexpected strength in supply growth seen in November did not cement into a trend. YoY listing growth fell slightly in December and appears to have peaked.

A mix of lower occupancy, a particularly strong comparison year, and potentially slowing inflation led to a lower ADR growth rate in December compared to November. Although small and mid-sized cities were able to maintain moderately high growth above 6%, large city urban and suburban locations saw significant slowing in ADR gains. ADR growth in mountain/lake destinations was up just 0.7% YoY for the month and may turn negative in future months.

Looking at the specific price tiers within mountain/lake destinations provides some additional context for the low ADR growth. There is evidence that performance is diverging among the top and lower tiers, as luxury properties in mountain/lake destinations still had robust ADR growth of 5.0% YoY. Upscale properties had an essentially unchanged ADR, while budget, economy, and midscale properties all saw declining ADR.

Now that the final data for 2022 is in, a look at the entire year may provide some general trends and hints as to future performance. One broad theme of 2022 is that STR performance achieved a more normalized YoY pace after demand recovered in aggregate in early 2021. On the other hand, of the top 50 markets, 20 still have not recovered 2019 levels of demand. Supply regulation may be restricting recovery in some of these markets, such as New York City, which may limit future demand growth, but some may merely be recovering on a delayed basis. There is some evidence that markets that have not yet recovered are experiencing faster growth rates than recovered markets as they “catch up” to their pre-pandemic levels. In fact, for these unrecovered markets, the size of the shortfall from pre-pandemic levels explains about 42% of growth in demand in 2022. For markets that have recovered, this “catch up” factor plays essentially no role, and comparing current demand levels to pre-pandemic levels fails to explain demand growth.

This adds some important context to a ranking of the top markets for demand growth. Many of the top demand growth markets in 2022 were unrecovered markets, and some of their growth almost certainly came from the “catch-up” factor of recovering demand rather than generating completely new demand for travel to their city. While New York had the highest growth rate, it still has not achieved the demand levels seen in 2019 and might not be able to reach these levels with regulations restricting new supply. Meanwhile, Phoenix/Scottsdale, Las Vegas, and Houston saw large gains while hosting demand in excess of 2019 by stimulating new travel. 

Strong demand coupled with falling occupancy was an unintuitive trend relevant for most of 2022. Strong supply increases throttled occupancy in aggregate, but some markets were able to increase occupancy significantly. This was especially true from markets that have had their supply growth constrained by regulation and difficulty in development, such as in Washington DC, New York, Maui, and Oahu.

Turning to future pacing, as of the beginning of 2023, January’s forward booking pace is somewhat muted, with demand up just 9.7% YoY. Growth then picks up in February and March, up 12% compared to last year, signaling strong demand as spring break approaches. 

A less ambiguous demand driver in the near future is the Super Bowl. The Phoenix area is hosting the Super Bowl in 2023 in February. One of the premiere travel events of the year, the Super Bowl attracts sports fans and football enthusiasts from all over the country. Conventional wisdom dictates that the effect of a Super Bowl on lodging performance is more pronounced in rate than in demand, and Phoenix pacing follows this pattern. Phoenix demand in the weeks leading up to and after the Super Bowl is approximately 30% higher YoY but is 47.7% higher on Super Bowl Sunday, creating a noticeable boost even among already high demand growth. However, ADR, which is between 10-20% higher YoY in the first week of February, has a pronounced jump to 35.5% higher on Monday, February 6, that builds to an 82.9% YoY growth on February 12, Super Bowl Sunday. This amounts to a premium of about $340 compared to the corresponding Sunday in 2022.

December 2022 rounds out an entire year of strong demand gains in the STR market. Although individual operators may have noticed a shortfall in performance of individual properties compared to 2021, two themes help explain the so-called “Airbnbust.” The first is that the performance of 2021 was the result of a unique combination of factors, namely the pent-up demand of the pandemic and the lack of supply in both STR and traditional hotels. This meant that performance comparisons carried out on a YoY basis were against an especially strong data point for most of 2022. 

The second theme of 2022 is that the STR market responds fairly quickly to incentives. By March, the fabulous performance of the previous summer began to translate into a rapid acceleration in the pace of available listing growth. Whereas traditional hotel supply may have a 12-24 month construction delay, the flexible nature of STR supply allowed the individual performance of rentals to be victims of their own success as the new listings outpaced even the continued strong demand growth. 

Still, while lower occupancies take a little shine off of the STR gold rush, there is cause for optimism for dedicated operators. New listing growth is falling steadily. Travel remains a top spending priority for Americans, as evidenced by the upside surprise in December demand. Additionally, each year of new record-breaking STR performance builds on the previous, as more travelers become comfortable with staying at STRs and have positive experiences doing so. 

The U.S. short-term rental market rang in the new year with strong demand, following a growth reaching 19.8% YoY in December 2022, well in excess of the 16.7% YoY growth for November.

U.S. Market Review December Rings in the New Year with Strong Demand | AirDNA

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