The biggest day-to-day decision any host or property manager needs to make on a regular basis is what are the optimal daily rates for their rental properties. This is often a daunting task that relies heavily on intuition and historical occupancy with little insight into future market demand.
AirDNA’s new vacation rental pricing tool now provides real-time future occupancy rates and competitors’ booked rates to better inform your pricing strategy. It is the first tool that can determine blocked vs. reserved days up to six months into the future, which allows us to produce a demand score for any property in every market worldwide.
Spot Market Opportunities with Demand Score
Every market has a custom Demand Score ranging from 1-10, which is directly tied to the predicted occupancy rate on that day. A score of 1 represents low occupancy (low demand), while a score of 10 represents high occupancy.
To make it easy to spot periods of low or high demand, the colors in the pricing calendar range from dark red (a demand score of 1) to dark green (a demand score of 10).
When viewing the future demand calendar, it is important to note that demand scores are generated by looking at demand distribution throughout the entire year. In other words, you might see mostly red days or mostly green days over a long period of time due to a market’s overall seasonality.
We think demand score is the most critical data point available in the industry today; it can help you decide when to price below competitors to drive occupancy on low-demand days, or when to hold out with premium rates if expected demand is high.
The Science Behind Demand Scoring
By analyzing the historical occupancy rates and booking lead times of every short-term vacation rental, AirDNA has built an algorithm that predicts travel demand up to six months into the future based on real-time future bookings.
How far in advance travelers book short-term rentals varies greatly between cities and property types. Large homes in summer getaways are often booked over six months in advance, while 1-bedroom apartments in urban centers receive a majority of bookings within 30 days of a reservation’s start date.
To create an accurate demand score for any group of properties, we create a booking curve based on average occupancy rates and how far in advance those properties were booked in the previous twelve months. This allows us to analyze real-time booking fluctuations from this standard booking curve to identify periods of high and low demand.
This demand model is instantly created based on the market, rental type, beds, and accommodates filters available in the tool. Here is an example of what happens behind the scenes to generate a demand score.
Atlanta, Georgia – Standard Booking Curve & Real Time Occupancy as of January 23rd 2019
The dashed blue line shows the expected occupancy rate six months into the future on any given day. The dots represent the actual occupancy on each day starting from today’s date. Using some math, we can determine a demand score based on the distance between expected and actual occupancy rates.
If you’re a vacation rental manager, this is game-changing. You now have a real-time forward looking view of market demand and can react with rate adjustments while your competitors are still playing a guessing game.
Pricing in Practice: Optimizing Your Rates for High Demand Events
The Super Bowl is a few weeks away and everyone in Atlanta, Georgia is trying to cash in on the hundreds of thousands of sports fans flooding into the city. The influx of new properties listed by uninformed Airbnb hosts is making it difficult to get a good read on the market and how to price your 2-bedroom rental property a few miles from the stadium.
After filtering the data to show only comparable 2-bedroom entire home rentals that accommodate four people on Saturday, February 2nd, you see that there are 283 properties booked and 426 properties still available. Out of the total 709 properties on the market on this day, 283 are booked, providing us with a 40% occupancy rate two weeks from the event.
The Demand Score picks up that this is a high demand day of 8, but why is the Super Bowl not a perfect 10? The reason is because there has been a 27% increase in 2-bedroom rentals (149) that have come online to rent their place just for this event. You can see this by looking at the total number of active units the week before the event vs. the week of the event.
If you were like most other people, you’d poke around Airbnb or another software product, see that the average rental is listed at $1,000 per night, then assume that this was the going market rate. But what you see with the updated vacation rental pricing tool is that the median BOOKED property was rented for only $209 – 79% lower than what people are currently asking.
With this large of a spread between booked and available rates, what is the optimal price for your property?
The data shows that a bunch of new rentals have come online and that people are drastically overestimating the short-term rental demand for the Super Bowl. Our property needs to undercut the competition to make sure we aren’t left vacant for the big game.
In the hover-over tooltip you can see that the 2-bedroom rentals that are pricing more conservatively (25th percentile) are priced at $550 per night and that the properties that are pricing more aggressively are at $1,700 per night.
A good rate for an average quality rental would be around $500 a night, over double what the average property was booked for, but still less than the vast majority of misinformed rentals on the market. If no booking inquiries are received within a few days or the number of booked properties per day does not accelerate, then start reducing the rate each day as the event approaches.
Pro Tip for Savvy Vacation Rental Managers
It is worth noting that the goal of revenue management is to maximize total reservation value and not nightly rate. In other words, a three night reservation at $500 per night is better than a one night reservation for $1,000, especially for large events.
Custom minimum night stay requirements are critical to maximizing reservation value. For the Super Bowl, you can see that most people are arriving Friday and departing Monday so a 3-night minimum stay is recommended.