UK Holiday Let Market Review: 2023, the Year of Recovery | AirDNA

In the wake of a surge in "Staycation" destinations during the pandemic, there were concerns that the UK holiday rental market might take a hit with the reopening of international travel. However, the summer of 2023 told a different story: resilience is the name of the game, with the industry not only bouncing back to its pre-pandemic levels but also exceeding expectations in some markets. Let's dive into the trends, challenges, and opportunities that shaped this remarkable summer for UK holiday lets.

The broader landscape of the UK economy offers a hopeful backdrop.The UK economy as a whole is relatively healthy after a difficult couple of years, with employment going up year over year, albeit at a slower rate than what we saw pre-pandemic. This is a key indicator for short-term rental demand, as if more people have jobs, they have more interest in traveling. Adding to the optimism, the Bank of England hit the pause button on interest rate hikes for the first time in September 2023. This signals a potential cooling-off period for inflation, even though inflation rates are still running higher than their European and American counterparts. While the UK is firmly not out of the woods yet, the outlook for travel remains positive.

A Summer of Growth

With some stability in the economy, demand for holiday lets in the UK finally returned to 2019 levels in April 2023, and grew into the summer. The numbers speak for themselves: a 15% increase in listings compared to last year, 17% more nights booked, and a 1.5% rise in occupancy rates from the previous summer. When compared to 2019, we saw an 8% increase in listings and an 11% uptick in demand nights, leaving the best summer on record for the sector in the UK, effectively making this the standout summer for the UK's short-term rental sector.

Interestingly, last-minute bookings emerged as a new consumer behavior: guests were booking later this summer than in previous years, perhaps waiting to see where the economy and travel prices went before committing to staying in the UK or traveling abroad. This meant that March 2023 saw fewer new bookings than March 2019, but May-August all saw higher booking activity than pre-pandemic.

Despite a slight dip in occupancy in August compared to 2021 and 2022, average daily rates (ADR) and revenue per available room (RevPAR) have grown by 12% and 10%, respectively, meaning that hosts are able to make more money.

The Urban-Rural Divide

While the overall numbers are encouraging, location played a significant role. City centres are still recovering after being heavily avoided by guests during the pandemic, with demand still 30% below 2019 levels. On the other hand, rural and scenic destinations like seaside towns and hillside or lake retreats saw a 15-25% increase in demand vs. 2019. Given the ongoing challenges to international travel, it's not surprising that these traditionally British holiday spots are thriving.

However, major cities are showing signs of a comeback, registering a 36% increase in nights stayed compared to last summer. Cities like Liverpool, London, and Manchester led the pack with supply increases of 64%, 46%, and 44% respectively.

Record-Breaking Supply

The supply of holiday lets is at its highest level ever, with 346,000 available listings in August — including 280,000 entire place listings. This includes a diverse range of options, from houses, cottages, and apartments to unique stays like tree houses and yurts.

However, new rules in Scotland and proposed planning permission changes in England could pose challenges. Scottish destinations like Glasgow, Aberdeen, and Argyll and Bute have already experienced drops in supply due to these regulations, sparking concerns that Scotland could mirror Amsterdam’s steep decline in supply, where available listings in August were down a huge 64% from their previous peak.

The International Factor

Brits seized the opportunity for convenient getaways this summer, making up 62% of all stays in the country. Meanwhile, international guests made up the remaining 38%, led by visitors from the US, representing 10% of stays. This marked a return to pre-pandemic levels after pandemic rules and costly requirements kept international guests away over the past few years. US travelers particularly favoured cities like Edinburgh and London, and rural areas like the Highlands.

Looking Ahead

For the remaining months of 2023, demand is up 20-25% from the same time last year, followed by a more subdued pace as we enter the new year.

Yet, a resurgence is expected in May and June 2024, spurred by the “Taylor Swift Effect” that previously sparked a demand and ADR boom for U.S. STR operators. Repeating the “Taylor Swift effect” of her US tour this year, demand and rates are booming for the dates of her shows. Available rates are boosted in Liverpool and Edinburgh especially, with Edinburgh’s lack of supply pushing rates above £1000 per night for the nights of her shows.

Looking further ahead, supply is projected to keep growing, albeit at a more measured pace. Though occupancy might see a minor dip as the market finds its balance, elevated rates due to inflation and consistent demand will likely keep RevPAR on an upward trajectory for UK hosts.

The UK's short-term rental market has shown remarkable resilience and adaptability over the past few years, adapting to shifts in traveller behaviour and economic situations. As we look ahead, the industry remains poised for growth, albeit with new challenges on the horizon.