Short-term rental (STR) occupancy rates decreased ever-so-slightly in March 2022 (60.4%) versus March 2021 (60.6%), but not for lack of demand.

In fact, STR demand was actually 24.7% higher than this time last year and 16.1% higher than in March 2019. And March 2022’s occupancy rates were still higher than those recorded in March 2019 (58.2%).

The recent occupancy decrease is actually due to an increase in available listing nights, of which there were 25.1% more than this time last year and 11.9% more than in 2019. As supply increases, demand must catch up, meaning occupancy will sometimes decrease as a result. But this -0.3% change should cause little concern for the industry as a whole.

Average occupancy rates fell most in small city/rural areas and in destination/resort areas. Overall, year-over-year demand was up 22% in small city/rural areas and up 15% in mountain/lake destinations but ultimately could not match supply growth. This caused occupancy to drop -6.3% in small city/rural areas and -5.5% in mountain/lake destinations. 

STR demand has failed to keep pace in some markets that recorded substantial increases in 2021. The following mountain destinations all saw significant year-over-year demand declines in March:

However, when compared to 2019, each of these markets except Lake Tahoe is still exceeding 2019’s demand levels, especially the Pocono Mountains which is up 120%. 

Occupancy rates have grown more than 8% year-over-year in the 50-largest U.S. cities in both suburban (+8.1%) and urban (+9.5%) neighborhoods. The cities with the strongest occupancy growth include New York (+24.1%), Boston (+30.6%), and Washington, D.C. (+39.3%). These cities have seen enormous increases in demand over the past year but have yet to see much, if any, increase in available listings—given that they are still more than 30% below 2019 demand levels.

Declining occupancy levels have had little influence on average daily rate (ADRs). ADRs increased by 10.4% in March compared to last year, which represents a slowdown from the 18% and 13.2% increases in January and February, respectively. And ADR growth is expected to slow even further as we get into peak summer travel season. As of early April 2022, rates are trending 11.7% higher for the rest of spring and 5.9% higher for summer compared to the same periods last year.

Growing demand and occupancy levels in major U.S. cities are allowing STRs in these denser markets to catch up to ADR increases that have already taken hold in other areas. Specifically, cities that have historically attracted both business and leisure travelers have seen the strongest ADR growth (+20%) in recent months:

In March, AirDNA tracked 19.7 million nights booked which is on par with March 2019 booking activity but 9% lower than March 2021—when activity surged as the number of COVID-19 cases declined and vaccines started to roll out across the country.

Booked nights were up, though, in urban areas (+13.4%) as guests began to venture back to larger cities. But bookings were down (approximately -19%) in destination/resort markets compared to last year.

Given the strong start to the year—when booked nights were an average of 30.3% higher than last year—U.S. STR demand is pacing well above 2021 levels. For April and May, demand is pacing 29% higher than last year. For summer, it’s pacing 26% higher.

The strong forward booking activity has led to a rebound in booking lead times in March, with the average STR guest booking 45 days in advance of their stay. (This is down from an average of 55 days prior to the pandemic but significantly higher than the 32-day average in 2021.) The difference in lead times is important when comparing and contrasting last year’s pacing figures, as it shows us how guest behavior has evolved over time.

With demand for summer 2022 currently exceeding 2019 and 2021 levels, we expect that lead times will expand even further. Many top summer destinations are already close to reaching max capacity during peak times.  

The return of international travel should continue to help spur demand in the largest U.S. cities as well. Spending by international travelers has reached 50% of 2019 levels, compared to being down -91% just a year ago, according to a February report by the National Travel and Tourism Office (NTTO).

So far, demand in the largest U.S. cities has been the one sector of the STR industry that has yet to fully recover. In March, demand in these cities was still below 2019 levels by about 13%. However, demand in these cities’ suburban areas has managed to completely recover and has been exceeding 2019’s levels since January. On the other hand, demand in urban areas of these same cities is still 25% below pre-pandemic levels. 

As we monitor on-the-books performance for the next few months, it looks like more of the same—that demand will continue to lag when compared to pre-pandemic levels. But there are several tailwinds that could accelerate urban recovery:

Return to the office: More workers in the office means more remote employees will be traveling for in-person meetings, as we see a return to semi-normalcy with urban life.

International travel: As much as 40% of demand in these large cities came from international travelers in pre-pandemic times. With borders now open and travel restrictions being eased throughout the world, we expect a large uptick in inbound travel to the U.S. this summer.

Remote work: Are returns to office spaces and continued remote work both drivers of demand? Yes! A portion of the population will never return to the office. These nomads will provide new demand to STR units as they look for lodging that can accommodate longer-term stays.

With these tailwinds, we expect that demand will continue to improve and eventually exceed 2019 levels this summer. The urban recovery mixed with continued interest in staying in STRs in small city/rural markets and destination/resort markets will bode well for 2022 and support strong investor interest in the sector. With that in mind, new supply will continue to weigh on occupancy levels, and the record highs from 2021 won't be sustainable in 2022.

STR occupancy rates decreased ever-so-slightly in March 2022 (60.4%) versus March 2021 (60.6%), but not for lack of demand.

AirDNA Market Review | U.S. March 2022