Summer 2023 is here, signaling an exciting season for the U.S. short-term rental (STR) market. Encouraging signs of an economic upturn and key performance indicators present a vibrant picture for the industry, as examined in our Mid-Year Outlook Report.
In the first half of 2023, the economy has exceeded expectations laid out by economists and media alike, giving the STR sector ample reason to celebrate. A notable shift has been the decline in inflation. The Consumer Price Index (CPI) shows inflation dropping from 5% in April to 4.1% in May year-on-year (YOY), marking a significant relief from the towering 8.9% inflation rate in June 2022. This downturn in inflation offers the Federal Reserve room to hold off on economic cooling measures until July's end.
Adding to the positivity, the U.S. workforce expanded by an impressive 339,000 jobs in May. Although the unemployment rate saw a minor uptick from April, it remains near historical lows, heralding good news for both the broader economy and the STR market, especially for demand growth.
A surprising economic improvement in May directly influenced the STR sector, causing an 11.9% YOY upswing in nights stayed. Average daily rates (ADRs) followed suit, growing by 3.4% YOY, a leap from the 1.8% increase seen in April.
Take a peek at the vital U.S. STR performance metrics for May 2023:
Revenue per available room (RevPAR) inched up 0.2% YOY to $178.75
The number of available listings hit 1.498 million, a 15.3% YOY surge
Total demand (nights) increased by 11.9% YOY
Occupancy was slightly down at 56.8% (-3.1% YOY) but up 5.6% against 2019
ADRs climbed 3.4% YOY to $314.67
The number of nights booked saw a significant 23.2% YOY rise
Historically, the run-up to May has been a gauge for the competitiveness of the STR market. An influx of listings in anticipation of summer has often been observed, with the number of listings remaining relatively steady till the next season. Assuming a similar pattern, the pace of listing growth seems to have tempered in 2023, with this year's average additional monthly available listings (240,000) being about 20% lower than in 2022.
May 2023 saw the slowest growth in available listings in the last 18 months, at 15.3% YOY. While still impressive, the growth hasn't matched the robust pace set since 2021, when hosts and investors began capitalizing on the burgeoning STR market.
One reason for the slower growth could be the increased interest rates implemented by the Federal Reserve in March 2022 to curb inflation, which significantly slowed housing transactions. The number of new listings—a key driver of overall listings—has also been lower YOY for three consecutive months.
This slower growth trend may be a welcome respite for many STR hosts. Despite the slight decline in occupancy YOY, there's no need for alarm as the rates are still performing better than pre-pandemic levels.
This positive performance is reflected in the ADRs. After underperforming compared to inflation since May 2022, May 2023 saw a substantial rise in ADR growth across all locations, except Small City/Rural areas. This growth was highest in Suburban areas, where ADRs soared by 4.8% compared to a mere 0.5% in April.
However, the ADR growth faces challenges from the resurgent international travel. The global inflation scenario and the strengthening U.S. dollar—making U.S. goods and services, including lodging, relatively pricier—imply stiff competition for U.S. STR hosts, especially those catering to high-end markets. On the bright side, inflation is trending downwards and is expected to decline further in 2023, albeit remaining above the 2018 and 2019 levels through 2024.
Despite global challenges, domestic factors indicate a promising upcoming season. Demand growth in May slightly sped up to 11.9% from 11.4% in April, while booking growth—a good predictor of future demand—jumped to 23.2% from 14.8% in April.
The future booking pace for June, July, and August of 2023 also hints at a potential surge in demand. In particular, September pacing consistently being 15-20% higher YOY may indicate a lengthening of the peak travel season, a trend noted by resort locations post-pandemic.
In summary, the summer of 2023 is gearing up to be an interesting time for the STR market, with robust domestic demand and improved performance metrics. Although international factors present challenges, overall indicators paint an optimistic picture of growth and opportunity.
