February rental performance mirrored the same trends we saw in January; decreasing occupancy rates compared to previous years, the decline of pricing power and RevPAR, and stay lengths and booking windows consistent with last year. But, traveling is still a top spending priority. Let’s dive into the data behind these generalizations and look at what February can tell us about 2023.
U.S. Vacation Rental Performance for the Last Six Months
Occupancy Rates were slightly lower than in the previous two years but still higher than in 2019.
Calendar Occupancy %
Calendar Occupancy % = (Nights Sold + Owner Nights + Hold Nights) / (Total Nights)
In Q4 of 2022, occupancy started to return to more typical seasonal patterns and was 4% lower than in 2021. This trend continued through February 2023; calendar occupancy was 5% lower than last year, and 1% lower than in 2021. Though occupancy is lower than last year, it remains higher than in 2019. Demand increases sparked during 2020 have not disappeared but increased supply is driving occupancy down.
Daily Rates are trending closely with last year. February’s ADR was a slight $5/night ahead of 2022.
Average Daily Rate
ADR = Total Unit Revenue / Nights Sold
The average daily rate in the United States increased by $5 over last year during February but was $74 higher than in 2021. In Q4 of 2022, nightly rates were only $1 more than in 2021, which was a stark difference from the increase of $55 from 2021 to 2022. Pricing power has declined in the face of lower occupancy rates, and consumers may be more price sensitive than they used to be.
RevPAR is starting the year lower than last year but is still significantly higher than in 2021 or 2020.
RevPAR = Occupancy x ADR or Total Unit Revenue / Total Nights in a given period.
RevPAR suffered because occupancy decreased and rates did not increase enough to offset the difference. At $110 per active property per night, revenue decreased by $11 from February 2022. This trend began in Q4 of 2022 when RevPAR was $7 lower than in 2021. Property Managers were split on how to react to lower occupancy; raising rates too much could drive occupancy lower. On the flip side, lowering rates could still lead to lower revenue if occupancy didn’t increase enough. We reviewed this quagmire in depth in our article titled 2023 Vacation Rental Pricing: Is it time to drop rates?
U.S. Regional Vacation Rental Performance
All regions saw a decrease in year-over-year calendar occupancy for February 2023, except for the Hawaiian Islands. The Hawaiian Islands’ delayed recovery and seasonality played into the 3% increase in occupancy. In the thick of their peak winter season season, the Rocky Mountains saw a 4% decrease in occupancy, which is substantially better than the other regions above. The Mid-Atlantic states, which already experience lower occupancy during winter months, saw the steepest decrease in occupancy (-11%) over last year. A return to normal occupancy trends is partially responsible here, as shoulder season occupancy has decreased from previous years.
Trends started to vary for average daily rates in February. The Hawaiian Islands (+11%), Rocky Mountain States (+3%), and Southwest U.S. (+2%) saw higher nightly rates over February of last year. The Southwest U.S. likely had more pricing power during Super Bowl weekend. Rates in the Southeast U.S. were close to last year and decreased by a slight 2%.
Combined with increased occupancy and nightly rates, the rentals on the Hawaiian Islands increased RevPAR by 15% compared to 2022. Due to a slight decrease in occupancy (-4%), a 3% increase in rates was not enough to increase RevPAR over last year for the Rocky Mountain States, and property managers in the region saw a 4% decrease. And although the Southwest U.S. increased year-over-year rates by 2%, an 11% decrease in occupancy decreased RevPAR by 16%. The remaining regions experienced significant decreases in occupancy and rates, and RevPAR suffered. However, a majority of these markets don't rely on Q1 revenue, so while the decreases aren’t beneficial, they’re not necessarily detrimental to overall annual performance.
U.S. Vacation Rental Performance: Booking Activity
Net Reservations per active property
Net reservations per property = (bookings made - cancellations) / active properties
In the first ten weeks of 2023, net reservations resemble 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 February, but rates have returned to levels seen in 2019.
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 the winter months 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 2019, where ALOS was roughly one day longer than in the last three years.
Booking windows are still shorter than in 2019 but have increased from lows only seen in 2020-2021.
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 February’s average booking window being 67 days. The United States 2022 average booking window was 68 days, or about two months long, which was an increase of five days over 2021, but still nine days shorter than in 2019.
State of the U.S. Economy
The inflation rate in the United States slowed during February, from 6.4% in January to 6% in February. This marked the eighth 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 6% more for goods and services than they were in February of last year.
Gasoline costs increased by 1% from January to February, following a 2.4% decrease in January. Airfare increased 6.4% over the month, ending a string of four consecutive declines.
Trends to Keep an Eye On
Travel is a Top Spending Priority
Destination Analysts surveyed 4,000 Americans in February 2023, asking how they planned to spend their household income in the next 12 months. The scale was from “no priority” to “extremely high priority” to rate how important a number of products, services, and hobby pursuits will be. Domestic Leisure travel was the top priority for 35% of respondents, deeming it an “extremely high” or “high” priority in their budgets this year. That number was higher than the planned spending for restaurants (32%), education (24%), home improvement (21%), clothing and accessories (20%), and entertainment (18%). 20% of these American travelers will highly prioritize international leisure travel, and 14% will prioritize luxury travel.
Hospitality Industry has Notable Job Gains
Leisure and Hospitality added 105,000 jobs in February, which was slightly higher than the average monthly gain of 91,000 over the prior 6 months. Food services and drinking places added 70,000 jobs in February, and employment continued to trend up in accommodation (+14,000). Employment in leisure and hospitality is only below pre-pandemic levels by 2.4%. The industry is likely to continue to add jobs as seasonal workers are hired for peak summer season destinations.