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Greater Palm Springs is made up of nine separate Californian cities all packed together at the north western tip of the Salton Sea, constituting an enormous inland resort destination right on the edge of the Colorado Desert.
It is a massive economic engine. Its tourism industry brought in $8.7 billion last year, beating 2019 by 16%, making it a thriving target for STR investment.
For the latest in our series of Destination Spotlights, we’ve pulled short term rental data to provide the inside track on how this popular destination is performing but we’ll also make comparisons with nearby LA and San Diego. All the data is for stays in each year as of August 11.
Palm Springs
We start with Palm Springs itself, the western most city and home to the area’s international airport. Palm Springs has had a slow 12 months. RevPAR (revenue per available rental) is down 8% in raw terms to $142 — but don’t forget that we have to factor in inflation when looking at our business plans too. This has been running at an annual 3.2%. That means RevPAR has sunk more than 10% in real terms, presenting a challenging business environment for local property managers. It’s also still slightly down on 2021.
How has this happened? Occupancy has declined 9% and guests are booking later, which could be encouraging property managers to discount nightly rates sooner. Booking windows are down 14% at 86 days. While ADRs (average daily rates) were up 1% in the past year to $417, that’s still a slight drop in real terms. Palm Springs performed better across all these measures in the previous 12 months and its recent numbers tie in with the overall trend affecting the US over the first half of the year.
The other cities in the valley are close by. For that reason we’d expect their trajectories to be similar. But it would be a mistake to assume they’re the same. These are distinct cities and Greater Palm Springs covers a massive area — 240 square km in all, stretching more than 70km from the San Gorgonio Pass to the Salton Sea.
Coachella Valley
Coachella Valley, not to be confused with the wider rift valley that also goes by the name the Cahuilla Basin, sits at the southeastern extreme of Greater Palm Springs next to the water. Vacation rental RevPAR here has also stumbled, falling 7% to $141, aided by a 10% fall in occupancy. RevPAR is virtually level with where it was in 2021. ADRs have held up this year, sporting slight real terms growth, having risen 4% annually to $448.
Palm Desert
Right in between these two destinations sits Palm Desert, which is covered in golf courses, country clubs, boutiques, restaurants and art galleries. Here the story changes. RevPAR is up 1% at $136 — still a fall in real terms but markedly better than Palm Springs and Coachella Valley. ADRs are up 21% on average to $395 — which could still represent attractive value for visitors. However, property managers here have had a bit of a rollercoaster ride. There was a big 13% fall in nightly rates in the previous 12 months and, this year, occupancy is down 16% to 34% compared with a 62% increase the previous year. These variations in performance aren’t for the faint hearted.
Rancho Mirage
In neighboring city, Rancho Mirage, property managers are seeing a completely different picture again. RevPAR has grown 14% to $253, significantly above 2021 levels. ADRs are up 17% to $672 and occupancy has nudged down 2% — but still sits at a respectable 38%. Is this a sign that prime properties in Greater Palm Spring make the most reliable short term rental investments? Interestingly, booking windows here are also drastically higher than the area average at 161 days. This outstrips all other areas in this study and it’s the only city that has witnessed incredible growth in booking windows — they’ve grown rapidly year-on-year, climbing an incredible 51% this year and 35% last year.
At The Coast
Greater Palm Springs may be a tourist magnet but it isn’t the only destination in this corner of California high on the list for Airbnb investment. The resort cities are very much associated with two destinations that sit along the coast — Greater Los Angeles and San Diego — and many tourists will include these in a multi-stop trip.
LA
Los Angeles is a world-class city, famous for its diverse cultures and home to Little Tokyo, Chinatown, and Little Italy. It also hosts the world famous Sunset Boulevard, Beverly Hills and a Disneyland, one of the city’s major attractions. LAX airport is the second largest in the US and connects to 101 domestic and 85 international routes. Los Angeles Tourism expects 50 million visitors this year, coming close to 2019 levels.
The short term rental market in Greater Los Angeles has also had a bit of a bumpy ride, with RevPAR down 13% at $187 this year following a 37% spike last year. Occupancy has suffered in LA, falling 16% to 41%, while ADRs have flatlined in real terms with growth of 3% to $452.
In a clear example of how these Californian hotspots can’t be second guessed, the RevPAR story in San Diego is the opposite of LA — rising this year after falling last year. In 2023, RevPAR in ‘Callifornia’s beach city’ is up 11% to $114 compared to a 4% fall the previous year. But this is clearly a very different market to LA, with average nightly rates far lower at $300 following a 5% annual fall. Occupancy is the strongest it has been for three years, however, at 38% (up 18% in the past year).
Key Takeaways
- Even neighboring cities in Greater Palm Springs can’t be considered to be one market. Property managers will need data on very specific sections of the STR market to understand whether to invest or what to do to attract more, higher paying guests. We call these custom comp sets and they’re an essential property management tool.
- Don’t just look at the latest year of data. Performance will naturally fluctuate but you’ve got to be able to tell the difference between mean reversion and a statistically significant change. For that, you’ll need a time horizon longer than 12 months.
- Watch out for bigger tourism trends. Greater Palm Springs seems to have bounced back stronger post-pandemic than LA, for example. Comparisons like this are an important consideration for anyone trying to identify the best places to invest in short term rentals. Some tourism markets will be more vulnerable to downturns than others.
Interested in finding out more about this busy corner of California? Or want to learn how to use data to improve your business performance? Get in touch with our team today for a demo of our in-depth short term rental data dashboard.
