U.S. Market Review: February Sees Higher Demand and Supply Growth | AirDNA

In the short-term rental (STR) world, February is typically a tale of two months.

On one hand, STR demand usually slows to its seasonal low point during the second month of the year. And on the other hand, February is historically one of the strongest months for new STR reservations as travelers begin to make their plans for the months ahead.

As far as these two big-picture trends go, February 2023 was true to form. However, within that predictability, the actual data around demand and booking activity is pleasantly surprising—especially given the air of economic uncertainty we’re all feeling as of late.

STR guests tallied 12.1 million nights stayed in February. This marks the lowest level of STR demand since February 2022 but still represents an increase of 8.1% on a year-over-year (YOY) basis.

For future stays, there were also 16.6 million nights booked throughout the month, an increase of 7.5% YOY.

What does this mean in broader terms? In short, it’s a good sign for hosts, managers, and investors. After two months of healthy booking activity—a combined 32.7 million nights—the first half of 2023 is poised to be another solid year for STR demand at large.

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

• RevPAR fell by 5.8% YOY to $170.39 million
• Available listings reached 1.34 million, up 26.4% YOY
• Total demand (nights) rose 8.1% YOY
• Occupancy declined -8.7% YOY to 53.59%, -0.9% vs. 2019
• Average daily rates (ADRs) rose 3.1% YOY to $317.94
• Nights booked are up 7.5% YOY

What are the current ADRs and supply trends?

More old news: The number of available listing nights continues to grow at a quicker pace, up 26.4% in February compared to 21.7% in January.

Contrast these numbers with the stellar performance we saw in 2021 and the beginning of 2022, and you’ll understand why the industry has experienced 12 straight months of lower occupancy rates. But there is good news, too: Occupancy rates are still well above pre-pandemic levels.

Pricing power seems to be well-maintained at these occupancy levels, with ADR growing at 3.1% YOY.

Although some slowing of ADR growth was observed in December and January, strong demand growth helped reverse this trend in February. Part of the rate gain may also be due to persistently high inflation. 

The Bureau of Labor Statistics reports the consumer price index (CPI) growing at 6% YOY in February, slightly lower than January’s 6.3% rate but still considerably higher than the 2% target rate the Federal Reserve has long considered its standard. High inflation paired with a historically tight labor market—buoyed by 517,000 new jobs in January and 311,000 in February—has led Jerome Powell and the Federal Reserve to indicate a willingness to raise interest rates even higher than initially expected and to hold them high for longer.

Conversely, wage inflation seems to have cooled despite strong job growth, so far avoiding the “wage-price spiral” that could bring about strong and sudden monetary restraint. Recent bank failures have also spurred concerns from financial markets that quickly rising rates are creating instability—perhaps encouraging a more measured approach, at least in the near term.

Still, the reaction from the Fed is in response to renewed strength in the economy, particularly in retail sales in January. Despite a slight pullback in February, the overall trend indicates that consumers still have the confidence to spend, and with most prioritizing travel, the upcoming spring/summer travel season may exceed expectations from just a few months prior. If higher interest rates are discouraging new STR supply, it is difficult to note it in the February supply growth numbers, with listings up 26.1% YOY and nights supplied up 20.0% YOY in February, both up from January levels. Demand, rates, and RevPAR in February all suggest that good news is still good news for the STR market.

Booking has cooled from January, with nights booked 7% higher than in February 2022. This still represents an additional 1.2 million nights booked over 2022 and strongly indicates that demand will remain positive in the near term.

• Demand nights are the nights stayed during that month
• Nights booked are reservations made during that month for any future date

The swift and overwhelming reaction, in terms of supply growth, to the high performance of 2021 meant that much of 2022 was maligned by accusations of “Airbnbust.” The term most accurately refers to diminishing unit-level performance even as the market grew in aggregate. On the other hand, occupancy is still meaningfully higher than before the pandemic, and negative occupancy change could be viewed as the market regaining long-run equilibrium through supply growth.

Speculatively, continuing increases to unit-level performance might arise as high interest rates dampen new investment and thus new supply, but a tight labor market and an economy that skirts outright recession bolster demand; however, so far, higher interest rates have not consistently lowered new supply. Some of the most dramatic increases to supply in the last year occurred in March, April, and May of 2022, so YOY occupancy performance over the next few months will be an indication of whether we will continue reverting to pre-pandemic levels of occupancy or if a structural change has occurred that has set the STR market on a permanently higher occupancy path.

Immediately following the pandemic outbreak, available STR listings declined significantly. They have been rising since but still have not regained the pre-Covid trend. Nonetheless, there does not yet appear to be any evidence of a new decline, and a slightly lower monthly number of listings is typical of February. On a YOY basis, the number of available listings increased pace significantly, rising to 26.1%, compared with 21.6% in January. 

As we look at listing growth by location type, the increase is most apparent in large U.S. metropolitan areas, where listing growth has continued to accelerate throughout the past year. In both urban and suburban areas of these cities, YOY listing growth has gone from around 10% at the beginning of 2022 to over 30% at the beginning of 2023. Throughout coastal and mountain/lake destinations, there has been further deceleration in listing growth, with a 17% YOY increase in mountain/lake destinations and an 11% increase in coastal markets. 

New listings are also increasing pace, with February’s growing at 23.7% YOY, up from 22.1% in January. The number of listings is at an all-time high for February, but when looking at new listings as a proportion of all available listings, the figure puts this past February in the middle of recent years and tracking just below 2022. As described earlier, several months following February in 2022 had high numbers of supply growth and new listings, so the performance of this statistic over the next few months could have implications for occupancy growth over the next year.

Turning to a deeper dive into industry trends by U.S. location types, demand cooled or plateaued in all locations across the U.S. In coastal resorts, demand growth plateaued at <1%, while growth decelerated in other locations. Small city/rural locations and mountain/lake destinations each declined by more than 1%.

Changes were observed in ADR growth as well. Large city-suburban areas were the only locations to experience an acceleration in growth from 6.7% YOY to 7.6% YOY.

Among the markets, summer refuges in the Northeast strongly dominated demand growth, with Long Island (114.9% demand growth YOY) and Cape Cod (73.6% demand growth YOY) both handily taking first and second place despite Phoenix/Scottsdale (60.3% demand growth YOY) hosting a Super Bowl on top of being one of the hottest STR markets of the last year. These two Northeastern markets historically have seen extreme seasonality, hosting very few guests in February. Moderate increases in shoulder season activity have thus led to large percentage gains. Las Vegas (27.6% demand growth YOY) rounds out the top four, with demand growth less than half of Phoenix/Scottsdale, and the distribution for the remaining 46 markets is much more even. Only two markets had losses to demand in February. Cape Coral/Fort Myers, the market with the largest downturn in demand, suffered a supply shock from Hurricane Ian it has yet to recover from as well as an outbreak of red tide.

Occupancy across the markets was more mixed than demand, reflecting the surge in supply experienced across the U.S. in the past year. For instance, Phoenix/Scottsdale, although the third-highest demand growth market with a growth rate of 60.3% YOY, had the lowest occupancy change at -13.6% YOY due to supply increasing 85.5% YOY. Phoenix/Scottsdale has been a top growth market in the past year, and undoubtedly, additional supply was motivated to become available as hosts attempted to take advantage of the Super Bowl. In all, markets losing occupancy outnumbered those gaining about 3 to 2.

The strong demand in February is poised to continue through the summer travel season if forward pacing is an accurate gauge. Although dipping very slightly in April, pacing resumes a strong growth pattern afterward and is between 11-12% higher throughout the summer compared to the same time in 2022.

With February data on the books, attention is shifting to the months ahead and spring travel. Spring break, famously popular among students and cabin-fever-stricken individuals alike, usually takes place in March and April. An analysis of U.S. markets’ forward booking produces some clear favorites and some surprise up-and-comers.

Perennial family vacation destination Orlando, Florida, tops the list of high-demand locations this March and April, despite pacing well below (-15.1%) where it was this time last year. On the other hand, Phoenix/Scottsdale makes second on the list because of its incredible STR market growth since last February. Tourist mainstays Gatlinburg/Pigeon Forge, Tennessee, and Panama City, Florida, as well as warm-weather Miami, finish the top five.

Besides Phoenix/Scottsdale, some surprises make the top growth list. Jersey City/Newark, Minneapolis, Minnesota, and Chicago are all cooler weather spots not conventionally paired with images of spring break but nonetheless have seen the largest demand growth in forward bookings compared to the same time last year.

Coachella Valley, home to the eponymous music festival, boasted the highest March/April ADR of the top 50 markets. Cape Cod, capitalizing on its recent surge in occupancy levels, has the top ADR growth.

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 22, 2023. For further questions, please contact us.