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May vacation rental performance mirrored the same trends we saw in April; decreasing occupancy rates compared to previous years, the decline of pricing power and RevPAR, and stay lengths and booking windows consistent with last year. With one notable difference - net reservations were higher than in 2022, 2021, and 2019. How do these high-level trends break down? Let’s take a closer look.
U.S. Vacation Rental Performance for the Last Six Months
Vacation Rental demand continues to cool as 2023 occupancy underperforms 2022 and 2021
Calendar Occupancy %
Calendar Occupancy % = (Nights Sold + Owner Nights + Hold Nights) / (Total Nights)
In May, calendar occupancy was 6% lower than in 2022 and 13% lower than in 2021. The number of nights sold is starting to wane after peaks in 2021 and 2022, and combined with increased supply, occupancy is being driven down. Q3 2023 calendar occupancy rates are pacing at 55% as of June 6; 7% behind Q3 2022 and 12% behind 2021.
Daily Rates are softening but still higher than in 2021.
Average Daily Rate
ADR = Total Unit Revenue / Nights Sold
The average daily rate in the United States decreased by $12 over May 2022, marking the third month of year-over-year decreases in 2023. With increased supply, property managers are facing more competition, and pricing power has declined in the face of lower occupancy rates. With more options and high inflation, consumers may be more price sensitive than they used to be. Additionally, when adjusted for inflation, rates are much lower than last year. Q3 2023’s nightly rates are $11 lower than Q3 2022 ($361), but $29 higher than Q3 2021 ($321).
May RevPAR was lower than last year and in 2021.
RevPAR
RevPAR = Occupancy x ADR or Total Unit Revenue / Total Nights in a given period
RevPAR suffered because occupancy and rates decreased, which led to decreased RevPAR. At $85 per active property per night, revenue decreased by $18 from May 2022. This trend began in Q4 of 2022 when RevPAR was $7 lower than in 2021, and continued through Q1 2023 with RevPAR figures averaging $10 lower than in 2022. Q3 2023 is currently pacing
U.S. Regional Vacation Rental Performance
All regions saw a decrease in year-over-year calendar occupancy for May 2023. The Hawaiian Islands saw the steepest decline in occupancy (-14%). This is the most dramatic decrease the Hawaiian Islands have experienced after consistently increasing year-over-year occupancy for the majority of the past nine months. However, most regions' decreases were only slightly better; between -9% to -11%. A return to normal occupancy trends is partially responsible here, as shoulder season occupancy has decreased from previous years.
All regions above saw lower year-over-year nightly rates in May 2023 except the Hawaiian Islands (no change), but the Southeast U.S. fared better than the other remaining regions (-2%). Memorial Day weekend often signifies the kick-off of the high-demand vacation rental season, so hopefully the outlook for these regions will improve as they come into peak season.
With marked decreases in both occupancy and nightly rates, RevPAR has also declined year-over-year for all of these regions. The Mid-Atlantic States (-13%), Rocky Mountain States (-14%), Hawaiian Islands (-15%), and Southeast U.S. (-15%) saw the smallest decreases, but they are still significant. The Midwest U.S. and the Western U.S. both saw decreases of 22%, while the Southwest U.S. saw the largest decrease at -30%.
U.S. Vacation Rental Performance; Booking Activity
Net reservations overtook 2022, 2021 levels in May.Net Reservations per active property
Net Reservations per active property
Net reservations per property = (bookings made - cancellations) / active properties
In the first fourteen weeks of 2023, net reservations resembled the seasonal patterns of 2022, suggesting we can expect booking activity that follows a normal pre-pandemic annual trend. However, in volume, it resembles 2019 trends. There was a slight dip in net reservations in Q1, but inflated supply is likely influencing this decrease. In the beginning of Q2, net reservations started to climb up past 2019 levels, and have continued through the week of April 30th (week 18). Starting the week of May 14th (week 20), net reservations have outperformed both 2022 and 2021.
Average Length of Stay and Booking Window
The average length of stay has stayed very consistent throughout the past four years.
Average Length of Stay
Average Length of Stay = Total Nights Sold / # of Guest Check-ins
Typically, the length of stay during winter is slightly longer due to snowbird stays, as evidenced by a two-day spike in January. This trend has not deviated much through the years, except in Q1 of 2020, where ALOS was roughly one day longer than in the last three years. At the beginning of Spring stay lengths shortened slightly, and at 4.3 days in May 2023, are 3% shorter than last year and 8% shorter than in 2021. Though that change seems minute (-0.13 and -0.37 days respectively), the 3% decrease in the average length of stay from last year leads to 3% fewer nights sold if the number of reservations remains the same.
Booking windows are on par with 2022 and 2021.
Average Booking Window
Average Booking Window = (Arrival Date - Booked Date) / # of Guest Check-ins
In the past six months, booking windows have been extremely similar to the previous year’s, with May’s average booking window being 63 days. The United States 2022 average booking window was 58 days, or about two months long. This was an increase of 17 days over 2021, but still 12 days shorter than in 2019.
State of the U.S. Economy
The inflation rate in the United States slowed again during May, from 4.9% in April to 4%. This marked the eleventh consecutive month where the year-over-year inflation rate decreased and it is at the lowest level since October 2021. In short, Americans are paying an average of 4% more for goods and services than in May of last year.
Gasoline costs decreased by 5.6% from April to May 2023, following a 3% increase from March to April 2023. Airfare decreased by 3% over the month.
Trends to Keep an Eye On
Americans are excited to travel, but hesitant to pay the high prices
Destination Analysts surveyed 4,000 Americans in May 2023, and the top two responses to the question “How do you feel about travel?” were “Excited” and “Expensive”, respectively. Concerns regarding finances and travel costs have seen an uptick in the past month as a deterrent to travel, and 47% of those surveyed agreed that high travel prices have kept them from traveling. Only 28% of respondents believe that right now is a good time to travel.
“Sticker Shock” is impacting travel plans
“Sticker shock” is the surprise and dismay someone will experience when informed of the unexpectedly high price of a product or service. Nearly four in ten of the Americans surveyed stated that they experienced sticker shock when planning their most recent trip, 60% of those cited hotel rates caused their shock, and 50% cited airline fees. Perhaps most important to note, sticker shock has an immediate impact on travelers’ considerations of a destination. Over 60% of those that experienced sticker shock said it caused them to reconsider going to the destination they had their sights on, 26% said they chose to visit a less expensive destination, and 15% said they actually canceled their travel plans entirely. Property Managers should take this into consideration when setting their rates, as travelers are becoming increasingly more cost-sensitive and are willing to travel to another destination or forgo their vacations entirely, to save money.
