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You Take Revenue to the Bank, not ADRs or Occupancy | Episode 12 | STR Data Lab™ by AirDNA

What areas are seeing the highest amount of demand? Two hundred fifty thousand new jobs were added in November; does that mean there is a smaller chance of a recession? Are ADRs going up or down? Are people still buying second homes when the interest rates are this high? This week we answer all these questions and more with Jamie Lane and Mariah Kamei!

In November, nights booked increased 13% year-over-year, but this is the weakest reading that we have seen in 5 months. People are still traveling and are looking forward to exploring more hidden gems next year because demand is here to stay in the small-town rural areas. Urban markets are also making a comeback in the year to come; people are ready to explore cities again.

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Read the November Review:

https://www.airdna.co/blog/airdna-market-review-us-november-2022

Listen On:

Transcript

00:00:14:04 - 00:00:19:23

Speaker 1

Hello, Jamie Lane. Merry, merry, merry Christmas. Happy holidays.

00:00:19:26 - 00:00:20:28

Speaker 2

Happy holidays.

00:00:21:12 - 00:00:28:08

Speaker 1

Oh, my gosh. I love your, I love your attire. You and I both are feeling very festive today. I can tell.

00:00:28:16 - 00:00:43:27

Speaker 2

Yeah. And it's last week before we sort of head out for for the holidays and feeling festive. We're filming here on a Friday, getting ready for the weekend. I'm ready to start my Christmas shopping this weekend.

00:00:43:27 - 00:00:49:00

Speaker 1

I was just about to ask. I was like, are you behind her ahead? What kind of Christmas shopper are you?

00:00:49:16 - 00:00:54:16

Speaker 2

So for me, starting on the 17th is ahead. Starting on the 23rd is behind.

00:00:55:06 - 00:01:22:06

Speaker 1

Yes. Yes, I will be starting on the 23rd. So I will be behind, which is on brand for me. But you are. Yes. You are prepared kind of guy. I agree. I completely agree. Speaking of being prepared today, we're going to walk people through our November numbers. How November shook out for us and talk a little bit about how we expect to end the year before New Year's.

00:01:22:06 - 00:01:28:24

Speaker 1

And then maybe maybe we'll even give people some some idea of what it's going to look like in January, in the spring, huh? Shall we?

00:01:29:06 - 00:01:52:04

Speaker 2

Yeah. So, Mariah, we’re –I was just out in Denver with you. We filmed the Outlook report. We spent a lot of time sort of preparing ourselves for the year ahead. Not very often. We get to spend a whole week together sort of talking about the industry, talking about our own business, talking about what we're seeing sort of the tone of the year ahead.

00:01:52:04 - 00:02:04:09

Speaker 2

So I'm starting off after spending a week with me, are you feeling better or worse about the direction of both our industry and the economy?

00:02:05:00 - 00:02:27:24

Speaker 1

Oh, my gosh, I love these loaded questions. Well, I always– One, let me just state I always feel better after talking to you about both of those things because you give me a good, realistic perspective on it. So, yeah, I'm I'm going to I'm going to go with the middle. I'm like, I'm cautiously optimistic. I always love that Mel Brooks line.

00:02:27:24 - 00:02:55:07

Speaker 1

Hope for the best. Expect the worst. So I yeah I'm not it's not all I'm not I don't have rose colored glasses about what next year could look like that said I'm really excited for what I think will be a very innovative year for folks in our business. Right. It's a time to get creative. Maybe things that sound really easy, like bookings last year and those ADR’s staying high.

00:02:55:16 - 00:03:20:06

Speaker 1

Maybe that felt a little bit easier last year than it's going to feel next year, but that doesn't mean that there isn't still lots of room for growth and it isn't still a solid business to be in. So I'm feeling good about being in the biz. I'm feeling really good about all the stuff that we have planned for our customers next year in terms of product, innovations and growth and also just in terms of us being on the road, hanging out with them.

00:03:20:06 - 00:03:20:17

Speaker 2

Yeah.

00:03:21:22 - 00:03:22:11

Speaker 1

How about you?

00:03:22:24 - 00:03:42:07

Speaker 2

Yeah, I am. Broadly, it was a decent week over the past two weeks for economic news and when job growth is up I'm generally happy when unemployment's going up and job gains are down, you can usually predict by mood, by what's coming out of the BLS.

00:03:43:06 - 00:03:46:22

Speaker 1

I'm going to tell my team that I'm going to give them that pro tip.

00:03:47:12 - 00:03:59:14

Speaker 2

Yeah. So and in November we had over 250,000 new jobs added. And you think back to like 2018, 2019, that would have been an amazing month.

00:03:59:29 - 00:04:00:08

Speaker 1

Right.

00:04:01:15 - 00:04:33:07

Speaker 2

For for job growth. Unemployment still at 3.7%. And I think most importantly and we talk about this a lot, we are seeing inflation coming down. So we got the latest inflation read this week at 7.1% down from prior months. So we are seeing that weaken. We saw the Fed come out and only do a 50 basis point increase in the federal funds rate.

00:04:33:07 - 00:05:12:14

Speaker 2

So they are maybe they're at least pivoting to slower rate of increases and what they're expecting in terms of inflation begin to slow. And we do have a lot of tailwinds as we head into 2023. With still significantly lower gas prices here in the U.S. shipping costs coming down. We're still seeing elevated home values and rents, but we do expect those to come down with sort of weakening housing market.

00:05:12:14 - 00:05:50:27

Speaker 2

So and all signs to me point towards and we're going to continue to see a lower inflation going forward. That's going to give the Fed reason or at least conviction behind and that they can slow their interest rate increases. Hopefully we pause in early 2023 and the Fed has said very strongly that they don't expect to lower rates next year, which the market did react to this week was a pretty tough week in the market.

00:05:50:27 - 00:05:53:07

Speaker 2

I hope you didn't look at that.

00:05:53:19 - 00:05:56:24

Speaker 1

You know I never you know, I never do. Ignorance is bliss. Right?

00:05:59:23 - 00:06:20:25

Speaker 2

But I mean in terms of recession odds I think over the and since we talked last and maybe over the past month, maybe they've dipped down slightly. So at least on the economic front, there's reason to at least feel good as we are not terrible as we head into the holidays.

00:06:21:06 - 00:06:30:24

Speaker 1

I think I'll take it. I think that was a lovely Christmas present. The Fed gave us.

00:06:30:24 - 00:06:37:22

Speaker 2

Yeah. And other forms of travel like and I pay very close attention not only to our data, but I'm.

00:06:38:08 - 00:06:38:19

Speaker 1

Right.

00:06:39:10 - 00:07:06:29

Speaker 2

And the other travel data. So we look at TSA throughput. It was only down 5% relative to 2019 in November, and that was our best read ever in terms of recovery of airline travel over the pandemic. Look at Otto trips from our friends at Arrivalist, and those were up 3% relative to 2019. Overall travel spend is up.

00:07:06:29 - 00:07:37:23

Speaker 2

We're seeing further recovery in international travel to the US, not just from the US. And our friends at STR showing in hotel demand still exceeding 2019 levels. So we've seen I think three months in a row. So sort of the other checks that I have on travel are still very robust and we don't see any sort of weakness showing up there.

00:07:39:03 - 00:07:57:28

Speaker 1

I love that and I love that. Of course, we do not just look at our we're not in our own little vacuum looking at our own data. Lots of strong indicators that demand is really healthy right now. What did we see four nights booked last last month? I think we saw it increasing 13% year over year, right?

00:07:58:16 - 00:08:11:10

Speaker 2

Yeah. So that is great. Up nights booked up 13%. I say it's great. It's the weakest reading we've had in the past five months.

00:08:11:16 - 00:08:12:16

Speaker 1

Okay. Okay.

00:08:12:28 - 00:08:42:28

Speaker 2

It is slowing on a year over year growth basis as we sort of head into the end of the year. And you see that in forward pacing too. So as we look out to winter and even in the spring on the books, demand is about 10% up versus last year. So still positive, very positive, but in double digit growth, you can't.

00:08:44:13 - 00:08:47:11

Speaker 1

That's always the hard part, right? The indexing on the high.

00:08:48:15 - 00:09:34:15

Speaker 2

You can't get mad about that, though. We are seeing occupancy and average bookings per listing go down and you see the numbers. It's some of the and we had seen less declines in occupancy through the fall. So it was actually a decent fall after pretty strong declines in occupancy over the summer. Right now the figures are sort of spreading out again and we saw a 5% decline in November, year over year where we had been seeing about 2 to 3% in September and October.

00:09:35:02 - 00:09:54:04

Speaker 1

I love. I mean, I don't love that, but love that context to that number. Let's talk about what's driving that. So it's always kind of like, you know, when you just look at the numbers on the surface, all they put demand is up. Why is occupancy down? What is happening there? I believe I think I think it's about supply, right?

00:09:54:04 - 00:10:51:12

Speaker 2

Jamie Yeah, it's been the topic that people want to talk to. Yeah, it's definitely driving the headlines today. It's definitely and what we see people talking about on the blogs, talking about in in the Facebook chats, what we hear clients most concerned about is how much new supply has been coming into their market and when or if we expect that to slow, if people will see sort of the reduced revenue opportunity and sort of pull out of the short term rental market, there was a and I would call it a bit fearmongering article that came out around if if every short term rental sort of disappeared, how that would sort of flood the market with

00:10:51:20 - 00:11:19:03

Speaker 2

with homes and depressed housing values. And obviously we don't think that's going to happen. There's still so much demand out there, so much money to be earned in the sector. That was a bit funny for me to see that people were maybe predicting that. But we do see in November supply was up listing, comps were up 25% year over year.

00:11:20:03 - 00:11:25:29

Speaker 1

Just kind of crazy high. I think when I think about that, I'm like, but nobody's buying houses right now.

00:11:26:13 - 00:11:41:24

Speaker 2

Yeah. And so I've done some digging into that. One of my favorite sites to just sort of check sentiment is going into Google Trends and putting in some different search terms.

00:11:42:03 - 00:11:44:21

Speaker 1

Very good. Pro-tip, Jamie Lane, very informative.

00:11:46:11 - 00:12:20:21

Speaker 2

And one I think is relevant, at least to us is the search terms sort of buy second homes. So getting a sense of the interest of people still buying a second home today. And you can look at that relative to prior years. We did see a massive uptick in that search term after the start of the pandemic. It's been very elevated over the past two years relative to 2018, 2019, and we're still not seeing any decline in that search volume.

00:12:20:28 - 00:12:49:24

Speaker 2

So people are still interested in buying a second home. We do see overall purchases, overall listing counts, all that declining anywhere from 20 to 30%. But when you look at and your view, your growth in supply for short term rentals in the US, we haven't yet peaked. We still see that continuing to tick up when we look at new listings.

00:12:50:08 - 00:13:00:07

Speaker 2

So how many new listings do we see in the U.S. come on to Airbnb in Vrbo in November, we're about 64,000 new listings.

00:13:00:15 - 00:13:01:02

Speaker 1

Wow.

00:13:01:06 - 00:13:07:15

Speaker 2

The highest read we've seen in November over the past five years.

00:13:07:27 - 00:13:10:25

Speaker 1

So that's crazy.

00:13:11:20 - 00:13:25:20

Speaker 2

Yeah, well, we expect supply growth to slow and all our sort of forward indicators are showing like, hey, supply growth should slow, but we don't yet see that actually showing up yet.

00:13:26:13 - 00:13:44:05

Speaker 1

See, and Jamie Lane is why I love our data and I love that we also pull data from other sources because it's so easy to read a headline, which by the way, is designed to get you to click on it. So it's a sensational as possible. I particularly love the ones where you it says something in the headline.

00:13:44:05 - 00:14:05:24

Speaker 1

You click on the article and the article literally says the exact opposite of what the headline said. And you're like, Well, that was confusing. So even though I think as humans, we all want to sort of take the shortcut, we want to trust what the news is saying to us, there's, you know, really like peeling it back a layer or two and looking at the data because it is it's a confusing story is a confusing message.

00:14:05:24 - 00:14:29:18

Speaker 1

Okay. Housing prices are, you know, haven't really started to go down, even though maybe demand for purchasing houses is declining. Why is– why wouldn't supply be sort of declining, too? Well, people still believe in the industry and still believe in the investment possibility. I know I asked you that loaded question on the last podcast. I won't ask you again.

00:14:29:26 - 00:14:59:08

Speaker 1

But, you know, I mean, I'm feeling I'm feeling relatively confident about making some real estate purchases next year as well. So there you go. All right. So supply definitely is driving occupancy down a little bit. I think the other thing that of course, we address in our latest report is ADR. So average daily rates, we you know, is it so simple as for me to just say, okay, supply is up and so that's leading to lower ADR.

00:14:59:08 - 00:15:07:06

Speaker 1

Is it a more nuanced story there? How should we be looking at our revenue for sort of in the year getting into next year?

00:15:07:18 - 00:15:14:21

Speaker 2

Yeah. So you don't take occupancy to the bank, you don't take ADR to the bank, you take revenue, right? And so.

00:15:15:10 - 00:15:16:02

Speaker 1

That’s a great quote.

00:15:17:25 - 00:15:48:14

Speaker 2

Revenue per available listing was essentially flat year over year, up 0.4%. So occupancy was down 5% average daily rates and outpace the falling occupancy up just over five and a half percent. So that is sort of saving revenues at the moment is not really able to charge more per night. And we don't just see that overall.

00:15:49:02 - 00:16:31:18

Speaker 2

We see that across just about every location type now. Most markets are still seeing increases in ADR’s. The weakest ADR growth is in Mountain Lake markets, where we had seen some pretty significant supply growth. But really every type of location is is seeing growth outside of mountains from 4 to 10% in November. So we're fortunate for that with the caveat that inflation was up 7%.

00:16:32:04 - 00:16:36:18

Speaker 2

So we're still not growing at above inflation levels.

00:16:36:26 - 00:16:37:07

Speaker 1

Right.

00:16:37:22 - 00:17:06:26

Speaker 2

And a big part of rising expenses of inflation is rising expenses. It's costing you more to operate a short term rental. So if maybe overall expenses are up anywhere from 5 to 10%, you're only growing ADR’s from 5% then and there's a strong likelihood your profitability might be decreasing for your for your operations.

00:17:08:07 - 00:17:32:15

Speaker 1

Got it. Got it. Well, that's where you just have to sort of like plan out all those scenarios. I'd say get ahead of that, especially if you're a vacation rental manager and you have homeowners expectations. In addition to your own expectations to manage. That's why it's so, so important for folks to dig into these these data points. Look at things like pacing so that you can, you know, let folks know if things are going to be completely different, right.

00:17:32:16 - 00:17:46:29

Speaker 1

Sooner than later. And also the driving factors behind that, which I think is so important. I love that. I think that is going to be the title of this podcast. You take revenue to the bank, not occupancy.

00:17:48:22 - 00:18:22:27

Speaker 2

Yeah. That's– I'm going to be an important calculus over the year ahead. How much rate do you give up to keep maintaining your occupancy? And if you're not keeping a close eye on RevPar then you may be discounting too much you and there's definitely as much of an art to pricing as a science and we can help you with that science piece.

00:18:23:14 - 00:18:47:05

Speaker 2

We can help you and get the data but and it does take sort of some testing. And if I decrease in my rates, what is that subsequent increase in occupancy? And does that uncover or do I hold my rate? Yes, I'll start to see maybe a little bit slower occupancy, but overall revenue, still revenue growth is still positive.

00:18:48:16 - 00:19:11:15

Speaker 1

Love That's such great advice and such. Yeah, I love this kind of calculus. It is. But we're we're the scientists in the labs helping you guys figure some of this out. So looking ahead a little bit. Just a little bit, what are we looking at in terms of speaking of speaking of pacing, demand, pacing and sort of what people can expect over the holidays.

00:19:11:15 - 00:19:19:03

Speaker 1

And if people are like me and they're already making their New Year's resolutions, what are they what are they looking at here coming into the New Year?

00:19:19:16 - 00:19:54:14

Speaker 2

Yeah, and it's, and a lot of and more of the same. So we look at winter demand's up 9% relative to last year. We look at spring demand's up 8%. But we do see really changing demand patterns. So fastest growth as we head into spring is coming in in urban areas. Okay. So you think back to last winter, spring we're dealing with what was that?

00:19:54:14 - 00:20:02:22

Speaker 1

Omicron Think now what's after I mean, Delta, I don't know, Alpha Beta, but anyway.

00:20:03:04 - 00:20:08:03

Speaker 2

I know. Yeah, I know. I got COVID back then. It wasn't fun.

00:20:08:20 - 00:20:11:27

Speaker 1

Well that’s how you remember.

00:20:11:27 - 00:20:41:27

Speaker 2

But it did sort of coming out of that. In the winter of COVID March, April, everyone started booking and we saw a really strong booking activity coming out of that. So we are going to be coming up against those comps. Last winter, we still saw a lot of people going to maybe nontraditional areas. So we saw sort of weird seasonality trends in the winter.

00:20:41:27 - 00:21:23:27

Speaker 2

And we're we're essentially lapping a lot of those comps. So like one of the markets with a negative pacing are like beach markets that people were going to last winter. So like Destin is down, pacing down like 20% this winter. The outer Banks pacing down and those are markets that it was more of an anomaly last year that people were going in not necessarily a red flag that we're seeing and the plate pacing start to decline this year and it's still up substantially relative to 2019 levels.

00:21:24:09 - 00:22:00:20

Speaker 2

So that's where, if you look at in our coastal markets and demand is essentially flat to slightly negative and even substantially negative and in some markets headline that looks bad. But if you dig into it, it sort of makes sense. Really encouraged with the recovery in urban travel, we are seeing really strong bookings coming out of Europe with international travelers coming in, booking well in advance for those trips.

00:22:00:29 - 00:22:01:12

Speaker 1

Right.

00:22:01:20 - 00:22:34:17

Speaker 2

We also this winter, the strongest location for pacing is still small town/rural. So it's been one of my biggest surprises over the past year is how strong demand has maintained in these areas. That could have easily just been sort of a pandemic blip of, yes, people were avoiding, avoiding cities, wanting to go to all these small towns throughout the country.

00:22:34:26 - 00:22:36:09

Speaker 1

Totally, yeah.

00:22:36:21 - 00:23:08:06

Speaker 2

But we're actually seeing demand continue to grow. I think people are realizing that these are actually great locations to visit, especially when you can stay in a short term rental. Most of these smaller towns, cities don't have a big traditional lodging supply hotel or maybe bed and breakfasts. And in short term rentals are are able to feed that type of lodging and support that.

00:23:08:06 - 00:23:19:28

Speaker 2

So I love to see that. I love that it's pushing people to explore new areas, giving them that option, and that the short term rental industry can support that.

00:23:20:17 - 00:23:43:02

Speaker 1

I love that. I love that people are maybe visiting more of the potato house, that famous listing. But certainly true for us at the last couple of years, we've been finding sort of these little tiny towns in Colorado to stay in that have a lot of small town charm. You can avoid some of the big crowds. So rather than going to Vail, we went to Salida, which has a tiny little resort next to for skiing.

00:23:44:16 - 00:24:02:06

Speaker 1

So it's nice to see that trend hold true. But I think you're absolutely right. And I think we spend a lot of time talking about last year as an anomaly, right. In terms of like where you're looking at things that were just like demand went places that it normally doesn't. And so, you know, you can't expect that necessarily to be true this year.

00:24:02:06 - 00:24:18:25

Speaker 1

I also booked far in advance for the spring a big holiday vacation that we're going on. So people are maybe sort of getting back to some of their old more common patterns in terms of how they look at travel. And that needs to be accounted for in some of your sort of projections for next year as well.

00:24:19:18 - 00:24:26:25

Speaker 2

Yeah. And and all this small town talk gets me excited about watching some more Hallmark movies.

00:24:26:25 - 00:24:54:16

Speaker 1

So Jamie Lane, you're speaking, my love language. Oh, you know, what? Do you know what I want to. Fun fact, Jamie Lane. I was listening to NPR as I do a shameless NPR plug and they were they had the most beautiful word for it. It's called holiday wallpaper because you play it in the background, you play the Hallmark movie in the background while you're just doing whatever else you're doing at the at the house.

00:24:54:23 - 00:25:14:20

Speaker 1

Yeah. And then they were talking about how much fun it is because they film in the summer, like they literally put ice packs in their coats because they're so hot. So. Yeah, so, so yeah. So tell, tell me more about your hallmark because our fans need to know this. Our fans need to know this. Are you watching Hallmark movies too?

00:25:14:28 - 00:25:24:19

Speaker 2

And it's really driven by my father in law who just loves them. And every time we're at and they live nearby, they're really helpful with the kids. So.

00:25:25:00 - 00:25:28:13

Speaker 1

Yes, shout out to in-laws.

00:25:28:16 - 00:25:36:02

Speaker 2

Exactly like you say. It's just always on. There's there's something and and they usually get sucked into it. So.

00:25:37:08 - 00:26:02:11

Speaker 1

You know what? I love a happy ending. I love it when the girl gets the guy and everybody is home for Christmas and it's white Christmas, all the rest. Speaking of happy endings. I think we are ending 2022 on some really high notes here as a business. Super excited to see what happens next year. Again, I think there's lots of reason for optimism.

00:26:03:04 - 00:26:11:12

Speaker 1

Jamie Lane, any parting words for our our viewers before we wish them a happy New Year?

00:26:11:12 - 00:26:43:06

Speaker 2

No, I think we went through everything sort of in top line numbers. And we do. And I do wish everyone a happy holidays and a successful 2023, excited. I know we've been planning out our conference roadmap. Excited to see everyone in person. If you want to get together at a conference, please reach out. We're happy to meet and I think it's going to be a great year ahead.

00:26:43:19 - 00:27:01:10

Speaker 1

Oh, my gosh. I know. Yeah, we're going to be out and about, folks meeting with you, hopefully getting more folks on the podcast as well. Always interested to hear perspectives from innovators and leaders in the space, as well as people that are just getting started getting their feet into the business. And yeah, I think your first conference is STR Forum.

00:27:01:10 - 00:27:03:09

Speaker 1

Is that your first of the year? Are you?

00:27:03:09 - 00:27:07:26

Speaker 2

Yeah, the, I am in a STR Forum down in Miami. I'll be there.

00:27:07:26 - 00:27:09:25

Speaker 1

Speaking of Florida.

00:27:10:14 - 00:27:12:26

Speaker 2

The third week of January.

00:27:13:22 - 00:27:31:19

Speaker 1

I think a lot of the events this year in Florida. Jamie we may we might be spending a lot of time in Florida. We need Airbnb recommendations. Guys, let us know where to stay. Well, happy happy holidays to everyone and happy New Year. We'll see you on the flip side in 2023.

00:27:32:09 - 00:27:33:05

Speaker 2

Happy New Year, everyone.

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