What is Occupancy Rate?
Occupancy rate for a short-term vacation rental is the number of booked nights divided by the sum of the available nights and booked nights.
Whether you’re new to short-term vacation rentals or an industry pro, it’s important to understand the methodology behind core vacation rental metrics. This blog post takes a deep dive into how AirDNA calculates Occupancy Rate, including how we landed on this methodology and how it stacks up with other lodging industry approaches.
Occupancy
Unlike cars or books which are non-perishable goods, last night’s vacant vacation rental can’t be sold tonight. Each unbooked night is lost forever, no longer available for reservation. Because unsold nights translate into lost opportunities for revenue, occupancy is a closely-watched metric for hosts and property managers looking to maximize revenue. Similarly, real estate investors use occupancy during analysis of market demand and saturation.
In its simplest form, occupancy rate is calculated by dividing the number of booked nights by the number of available nights from active listings. Vacation rentals have a unique set of qualities that cause us to take a closer look at what should be considered available supply vs. active supply.
What does “available” mean?
When talking about occupancy rate, available nights means the sum of all nights that were available for booking. Availability is determined by analyzing vacation rental listing calendars, which classify each calendar day one of three ways:
- Available: available for reservation
- Reserved: has been booked
- Blocked: has been blocked and is not available for reservation. A vacation rental may be blocked because an owner decides to use it for personal reasons. In the hotel industry, a room may be pulled from inventory for maintenance purposes. These have similar effects on supply and calculating an accurate occupancy rate.
Because a reserved listing had to have been advertised as available in order to be reserved, we must add all available and reserved nights together. This gives us the true number of available-for-reservation (a.k.a. supply) nights. Therefore, the calculation rendered on the back end looks closer to this:
Booked Nights / (Available Nights + Booked Nights)
What is an “active” listing?
The term active has different meanings across the vacation rental industry. For example, active can refer to any vacation rental that is visible on a listing platform, such as Airbnb.
For purposes of calculating occupancy rate, AirDNA defines active listings as those with at least one reservation during the reporting period. AirDNA only includes active listings in its occupancy rate calculations. If we were to include every available night from every available listing in our occupancy calculation, it would return a falsely low occupancy rate. This is due to variations in vacation rental host behaviors and motivations, impacting their attentiveness to managing listing calendars and their responsiveness to reservation requests.
It’s imperative to assess short-term rental occupancy differently than traditional hotel occupancy, in order to accurately reflect performance in the vacation rental market.
Here are three host cases that would falsely skew occupancy downward, if included in the occupancy rate calculation:
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Event-based hosts
Some hosts create new listings to capitalize on market compression from high-demand events, without being dedicated to actively hosting or managing their calendars afterward.
Take, for example, the 2018 Super Bowl in Minneapolis, MN: the three months ramping up to the event saw a spike in the number of total available and active listings (total available listings jumped 381% and active listings increased 303%). While both saw a sharp drop in the month after the Super Bowl, active listings quickly recovered and continued an upward growth trend.
On the other hand, available listings continued to decline in numbers for the five months following the event -despite the popular Memorial Day holiday in May. This is likely because many new hosts were simply looking to cash in on high demand for lodging during the big game, but less interested in a longer-term commitment to hosting. AirDNA data from the Super Bowl show that there’s a lag in the time it takes event-based hosts to actively manage their calendars or remove their listings altogether.
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Make me move hosts
There is a growing number of hosts who list and actively monitor their properties on Airbnb and HomeAway, but have priced their listings at an extremely above-market price point.
Make me move hosts typically list their full-time primary residence and set a high price to offset the inconvenience of leaving for a brief period of time, in order to accommodate a guest. These types of hosts are not actively competing for reservations in the marketplace and are not motivated to participate like active hosts are.
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Dormant listings hosts
Think of these as once-active listings that have gone into hibernation (they might wake up or they might just keep sleeping). Hosts may decide to go dormant for a number of reasons, including: new ownership, a transition to longer-term renting, or personal reasons.
We define dormant listings as rentals that had advertised available days on their calendars, but did not have any reserved calendar days for at least three consecutive months. Dormant listings may appear available for booking, but their calendars are often neglected. In fact, Airbnb and HomeAway actively discriminate against these hosts by reducing their appearance in search, but dormant vacation rentals can still be found on listing platforms.
Segmented occupancy metrics
AirDNA provides several customized options for analyzing occupancy. Which ones you use largely depends on who you are and what you’re trying to accomplish. These segmented vacation rental metrics utilize the same basic formula discussed above, but with filters applied to the input vacation rentals:
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Hotel comparable occupancy
In order to track more closely to the traditional hotel industry, we offer occupancy data on a subset of listings consisting exclusively of studio and one-bedroom entire place vacation rental listings.
Hotel comparable occupancy can be found in Market Summary and Trend Reports, and is largely used by hospitality and tourism professionals. Especially when used in tandem with traditional hotel data, this metric affords users a more holistic view of lodging supply and demand within a specific area.
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Listing-type occupancy
In AirDNA’s MarketMinder product, occupancy rate can be customized by listing type, such as entire home, private room, or shared room listings.
Hosts often use this to get a clearer picture of how they are performing against similar-type listings in their market and and in turn gain insights to help them be more competitive in the future.
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Bedrooms & accommodations-based occupancy
MarketMinder also allows users to filter occupancy based on the number of bedrooms a listing has or the number of people a listing can accommodate.
Real estate investors use this to help them make decisions about the ideal size investment property, for the market they’re operating in.
AirDNA’s methodology and accuracy
At AirDNA, our mission is to be the most trusted global provider of diversified private accommodation data. With our combined years of industry experience, we have developed a method for calculating short-term vacation rental occupancy that best reflects what’s actually happening in the marketplace. By using total number of available nights from active listings, we capture the bulk of the supply; those actively competing for guests.
Independent analysis has consistently shown our data to be highly accurate. Global real estate services and investment firm, CBRE, relies on our vacation rental data and has consistently found AirDNA’s margin of error to be less than two per cent. Through hundreds of data partnerships, we continue to refine and strengthen the data made available to our clients through our suite of online products and reporting tools.
