2023 may be the year of the off-season. Throughout the year, pacing data indicated short-term rentals (STR) may get a boost from an extended travel season. October made good on those projections with a 15% year-over-year increase, a significant hike from the 11% increase we saw in September.

U.S Market Review: Off-Season Attraction Draws Demand in October | AirDNA

2023 may be the year of the off-season. Throughout the year, pacing data indicated short-term rentals (STR) may get a boost from an extended travel season. October made good on those projections with a 15% year-over-year increase, a significant hike from the 11% increase we saw in September. At the same time, October's supply growth was also unseasonably large, with available listings climbing 16.8% YOY and marking the first year on record with more available listings in October than in September. Though high supply growth that outpaces demand can lead to lower unit-level performance—occupancy fell 1.6% YOY last month—occupancy levels still remain much higher than pre-pandemic norms. Average daily rate (ADR) eked out a small 1.1% YOY gain as well, but it wasn’t quite enough to boost revenue per available room (RevPAR), which fell 0.5% YOY.

The seemingly unstoppable U.S. labor market continues to boost consumption of all kinds, including travel. According to the most recent jobs report from the Bureau of Labor Statistics (BLS), 150,000 new jobs were added to U.S. payrolls in October. Though this was a considerably slower pace than the nearly 300,000 jobs added in September, the October unemployment rate of 3.9%—up from 3.8% in September—remains near or below what economists generally consider the natural level. 

On the heels of this data, The Federal Reserve seems satisfied to hold off on further rate increases. The tight labor market hasn’t triggered a wage-price spiral, with average hourly earning growth slowing over the past three months even as productivity surged in the third quarter. The BLS reported October inflation was 3.2% YOY, which sits above the Fed target of 2%. Core inflation, which offers an inflation rate that excludes volatile food and energy prices, continued its gradual descent, growing at 4.0% YOY in October compared with 4.1% in September. Oxford Economics notes that slower growth likely lies ahead as the delayed effects of high interest rates, stagnant fiscal policies, and unsustainably low savings rates conspire to dampen the economy’s remarkable 4.9% annual growth rate in Q3.

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

Available listings reached 1.59 million, up 16.8% YOY

Occupancy was 1.6% lower YOY at 56.1% (+8.1% vs. 2019)

Average daily rates (ADRs) grew 1.1% YOY to $298.71

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Available listings grew significantly month-to-month in both September and October, a surprise given that listings historically grow the most between March and July to take advantage of the summer travel season. Small gains or no gains are typical for the rest of the year, with a seasonal low point in February. 2023 has been something of an exception, as available listings have climbed every month since March. This surge in available listings has narrowed the gap with the pre-COVID-19 trend line to its thinnest margin since the beginning of the outbreak

Although the total available listings grew a healthy 16.8% YOY, the pace of new listings has slowed considerably from the highs seen in 2022. Growth in new listings has curbed since March, suggesting that the rush of new listings for the booming 2022 summer travel season contributed to last year’s pace. 

As the Federal Reserve increased interest rates over the past eighteen months, many have speculated about how those hikes would impact the number of available listings. 

On the one hand, higher interest rates make it more difficult to buy new properties, as typical mortgage payments have nearly doubled since early 2022. This, combined with extremely low housing transactions, could still cause a decline in the number of new properties being brought to market. The slowdown in new listings seems to support this idea, though softer occupancies could also be a contributing factor.

On the other hand, the “golden handcuffs” phenomenon, referring loosely to the idea that people locked into low-interest rate mortgages tend to hold on to properties longer, may mean that people are equally as hesitant to exit the STR market as they are to enter it. The increase in the proportion of listings from 2022 that remained listed into 2023 correlates strongly with the effective federal funds rate over the last year. While correlation does not necessarily imply causation, this relationship is still striking.

As available listings grew, occupancy continued to fall just short of the levels seen last year. However, occupancy performance has still exceeded what we expected at the beginning of the year. Occupancy has now bested pre-COVID-19 performance for two months, cleaving close to 2022 levels after briefly dipping below 2019 levels amid the August heat wave.

Affinity for off-season travel appears to be widespread, with every location type seeing higher growth than in September. Small cities and rural locations again took the top spot for growth, while urban locations were the slowest growing. This disparity in growth rates has produced significant changes to the STR landscape over the past few years. 

In 2019, urban locations had the second-most average monthly listings of the six locations. In October, it had the fifth-most, exceeding only mid-size cities. Meanwhile, the quick and consistent growth of small city/rural locations has propelled them from fifth to third after they eclipsed suburban markets early this year. Tighter regulations seem to be at least one factor inhibiting urban locations. After the drop in listings post-COVID-19, many large cities such as New York, San Francisco, Boston, Washington, DC, and Seattle have yet to regain the levels of pre-COVID-19 listings.

Rates Remain Stable, Even Dropping in Some Locations

Turning to rates, ADR growth had a more mixed picture in October. Most location types saw slower ADR growth, and suburban locations even produced ADR lower than a year ago. Small city/rural locations had the highest growth rate and had a quicker pace than in September. 

Collectively, this growth seems to stem from a mix shift: the change of the property types in a location as some listings drop out and new, different ones join. The AirDNA Repeat Rent Index (RRI) is a statistical method that removes the effect of mix shift, focusing instead on how much each host has raised their prices, and it suggests that existing hosts were reluctant to change prices. More on that here.

If we examine the top 50 markets, it may be that some of the small town/rural growth might not be a product of mix shift alone but rather offsetting changes across locations. While the ADR growth in each of the top 50 markets is split evenly between growth and retraction, the RRI is generally negative — meaning that most hosts have reduced their rates from a year ago. A notable exception is the highest RRI growth market, Jersey City/Newark. Since New York began strictly enforcing its STR regulations, neighboring New Jersey is now a more attractive alternative for those wishing to travel to the Big Apple. Meanwhile, October in New York had a high growth rate for ADR after lower-priced properties dropped out; its RRI growth was -5.1%, in line with the general decline of pricing power seen across the top 50.

Regulations and Natural Disasters Impact Demand

The effect of New York’s heightened restrictions on short-term stays can be seen in demand as well. The New York market had the third-lowest demand growth at -11.1%, exceeded only by Hurricane Ian-affected Cape Coral/Fort Myers (-14.0%) and wildfire-stricken Maui (-21.9%). Jersey City/Newark had the largest demand gain by far of 61.4%, and some other nearby Northeastern markets, such as Long Island (34.9%), Cape Cod (31.8%), and Boston (26.5%), also enjoyed large demand gains.

Speaking of New York regulation, there is still considerable uncertainty around how many of the affected units will manage the change. Although there hasn’t yet been a collapse of rentals, there has been a significant migration away from short-term stays to more medium-term stays (i.e., 30 days or longer), presumably to better conform with the new regulations. New York has long had a large share of properties listed for medium-term stays, but how well the market can absorb this sudden surge remains to be seen.

The pace of demand growth for the next few months is up between 9-11% compared to the same time last year, indicating a robust holiday season for the STR market. The extended forecast leaps up into the 18-25% range for the first few months of 2024, and although we don’t expect demand to increase quite that much, the high pacing might indicate that lead times are lengthening, that is, that guests are booking further in advance than previously. 

Not all STRs will experience the same lift for the same holidays, however. Looking at the pace over the holidays compared to the corresponding days in the previous year, it appears travelers are most interested in spending time with the family or enjoying a peaceful and quiet holiday. Small town/rural locations have the quickest growth rates, followed by mid-size cities. On the other hand, while the differences in growth rates are dramatic for Thanksgiving and Christmas travel, growth is more widespread and much higher for the New Year’s Eve celebrations, with resort and urban locations growing at 30% or more.

For-sale properties, new amenities insights, “days available” data … it’s been a busy month for AirDNA! In case you missed it, the all-new AirDNA just launched in September. But we didn’t stop there. We’ve been adding new features ever since. These are some of the top changes you’ll notice in October that will help you make smarter, faster investment decisions.

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U.S Market Review: Off-Season Attraction Draws Demand in October | AirDNA

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