July vacation rental performance saw the same patterns we observed in the first half of the year; decreasing occupancy rates compared to previous years, a decline in pricing power and RevPAR, and shorter stay lengths and booking windows. However, net reservations are staying consistent with last year, and have increased over 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
Calendar Occupancy %
Vacation Rental demand continues to underperform 2022 and 2021, but averages 4.5% higher than in 2019.
Calendar Occupancy % = (Nights Sold + Owner Nights + Hold Nights) / (Total Nights)
In July, calendar occupancy was 4% lower than in 2022 and 9% lower than in 2021. According to our direct data, the number of nights sold is starting to wane after peaks in 2021 and 2022. The decrease in nights sold combined with increased supply, is driving occupancy down. Q3 2023 calendar occupancy rates are pacing at 56% as of August 16th; 5% behind Q3 2022 and 10% behind 2021. Q3 Calendar Occupancy is pacing 7% ahead of what it was a month ago, compared to last year when mid-July to mid-August pickup was 11%. With shortened booking windows, pick-up may occur later in the quarter.
Average Daily Rate
Daily Rates are softening but still higher than in 2021 and 2019.
ADR = Total Unit Revenue / Nights Sold
The average daily rate in the United States decreased by $16 from July 2022. 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 pacing $4 lower than in Q3 2022 ($405), and $7 higher than in Q3 2021 ($437). Property Managers will have to have a solid pricing strategy going into the fall season, as decreased demand and price sensitivity will factor into travelers’ vacation plans.
July RevPAR was lower than last year and in 2021, but higher than in 2019.
RevPAR = Occupancy x ADR or Total Unit Revenue / Total Nights in a given period
RevPAR suffered because occupancy and rates decreased. At $227 per active property per night, revenue decreased by $27 from July 2022. This trend began in Q4 of 2022 when RevPAR was $7 lower than in 2021, and continued through Q1 and Q2 2023 with RevPAR figures averaging $10 and $18 lower than in 2022, respectively. Q3 2023 RevPAR is currently pacing $21 behind Q3 last year ($164) and $27 behind Q3 2021 ($170). Now is the time to communicate openly with your owners and shift strategies for the coming months. Consider implementing light discounts or price decreases and focus on capturing bookings outside your markets’ typical booking windows. We anticipate less investment activity in many markets due to high mortgage rates and lower revenue potential.
U.S. Regional Vacation Rental Performance
All regions saw a decrease in year-over-year calendar occupancy for July 2023, except for the Rocky Mountain States. The Hawaiian Islands saw the steepest decline in occupancy (-12%). This was the third consecutive month of dramatic decreases 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 -5% to -7%. Calendar Occupancy is still higher than it was in July 2019 for all regions. The Midwest U.S. and Southwest U.S. saw the largest increases from 2019 to 2023; 34% and 27% respectively. The remaining regions’ calendar occupancy increased between 1% (Hawaiian Islands) and 11% (Western U.S.) from 2019.
All regions above saw lower nightly rates year-over-year in July 2023. Demand has waned so guests are likely no longer willing to book reservations at the rates they were this time last year. Though rates in the Hawaiian Islands are only 5% lower last month than in July 2022, they are 39% higher ($521) than in 2019 ($375). The Southeast U.S. saw an increase of 25% ($378 in 2019 compared to $472 in 2023), and the Rocky Mountain States saw an increase of 22% ($288 to $352). The remaining regions saw relatively similar increases in nightly rates compared to 2019 (7%-17%).
With marked decreases in both occupancy and nightly rates, RevPAR has also declined year-over-year for all of these regions. New England (-6%), The Rocky Mountain States (-6%), and Southeast U.S. (-8%) saw the smallest decreases, but they are still significant. The Midwest U.S. saw a decrease of 17%, while the Southwest U.S. saw the largest decrease at -26%. Even with significant decreases from last year, when compared to 2019, RevPAR has increased. The Hawaiian Islands saw the largest increase in RevPAR; a 38% increase ($193 to $267). Along with the Hawaiian Islands, New England and the Rocky Mountain States saw significant year-over-year increases in RevPAR (35% or $63, and 30% or $31, respectively). The remaining regions saw a $20-$31 increase.
U.S. Vacation Rental Performance; Booking Activity
Net Reservations Per Active Property
Net reservations are staying consistent with last year, and are higher than in 2021 or 2019.
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. At the beginning of Q2, net reservations started to climb 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. From week 22 (May 28th) to week 26 (June 25), the increase in net reservations continued to grow. In the first week of July 2023 (week 27), net reservations increased 12% compared to 2019, 35% compared to 2021, and 10% compared to last year. In July (weeks 27 - 31), net reservations paced right alongside 2022, though still averaging 6% ahead of 2021 and 7% of 2019.
Average Length of Stay and Booking Window
Average Length of Stay
Average stay lengths are slightly shorter than in previous years, and these shortened stays are contributing to lower occupancy rates.
Average Length of Stay = Total Nights Sold / # of Guest Check-ins
At 4.8 days in July 2023, stay lengths are 3% shorter than last year, 7% shorter than in 2021, and 6% shorter than in 2019. Though that change seems minute (-0.15, -0.37, and -0.31 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. With nightly rates remaining high and remote work becoming less popular, shortened stay lengths are an important indicator of changing consumer behaviors.
Average Booking Window
Booking windows were significantly shorter than in July 2022, 2021, or 2019.
Average Booking Window = (Arrival Date - Booked Date) / # of Guest Check-ins
In the first half of 2023, booking windows were extremely similar to the previous year’s. July’s average booking window finished at 80 days, compared to 87 days last year, and 90 days in 2019. Of the stays with arrival dates in July 2023, 24% were booked within 14 days of the stay, 15% were booked 15-29 days before check-in, 17% were booked 30-59 days before check-in, and 43% were booked 60+ days in advance. A majority of these July stays were booked more than 60 days out but compared to last year, the sub-14 day booking window increased by 3%, and the 60+ day booking window decreased by 5%. Compared to 2019, the sub-14 day booking window increased by 5% and the 60+ day booking window decreased by 7%. Are travelers booking closer to the date of arrival to secure lower rates, because they know they will still be able to find a property that suits them? Or are property managers pushing travelers to book closer to the date of arrival because they are holding rates too long? With shortened booking windows, ensure you have an appropriate pricing strategy to capture last-minute bookings. Focus on marketing properties outside of your popular booking windows and adjusting rates accordingly.
State of the U.S. Economy
The inflation rate in the United States rose during July, from 3% in June to 3.2%. This is the first month that experienced an increase after a full year of year-over-year inflation rate decreases. In short, Americans are paying an average of 3.2% more for goods and services than in July of last year.
Gasoline costs increased by 0.2% from Jue to July 2023, following a 1% increase from May to June 2023. Airfare decreased by 8.1% again over the month, after falling 8.1% from May to June, and 3% from April to May 2023.
Trends to Keep an Eye On
Travelers’ vacation budgets continue to decrease
Destination Analysts surveyed 4,000 American travelers in July 2023 regarding their sentiments toward the economy and travel. One alarming trend they noted was that leisure-travel budgets have steadily decreased from $4,677 in January 2023 to $3,505 in July 2023. This is the lowest that budgets have averaged since October 2021. However, American travelers’ fears of a recession have continued to decline and less than half (49.4%) of the respondents believe a recession is imminent, a 16-month low. Furthermore, more than half (50.4%) of American travelers anticipate they will be better off financially next year compared to now, the most optimistic they have felt since July 2021. To capture these limited budgets, property managers need to have a solid pricing strategy going into the remaining months of the year. There is tremendous opportunity in shoulder seasons for markets coming out of, or heading into, peak seasons, so focus on your marketing and pricing strategies.
American travelers feel prices are too high
In July 2023, 46.2% of American travelers surveyed reported that high travel prices have deterred them from traveling in the past four weeks. This is the second time this year that this sentiment has reached a level this high. 41.2% of respondents believe that travel prices are just too high right now. Additionally, the proportion of American travelers that believe the present is a bad time to spend on leisure travel (36%) exceeds the proportion who said it is a good time to travel (28.9%). This belief has partially manifested itself in leisure day trips rising at a higher rate than overnight leisure trips. According to Destination Analysts, a year ago, the percentage of Americans reporting taking leisure day trips and overnight leisure trips was about the same, though overnight trips slightly outpaced day trips (38.7% to 35.8%). Now, 45.2% of American travelers report they took an overnight leisure trip in the last month, compared to the 54.4% who reported taking a day trip. As a property manager in a drive-in destination, make sure you are targeting your marketing approach strategically and attempting to convert this into an overnight stay.
Marketing strategies are ever-shifting
It is no secret that marketing-channel strategies will vary by market and traditional traveler profile, but when American travelers were asked to think about how travel destinations could reach them with messaging, 15% of these respondents cited TikTok. This platform resounds most with Gen-Z; 42.2% of Gen-Z travelers say TikTok is where they would be most receptive to learning about new travel destinations. This is nearly double the percent of Millenials who cited TikTok, and Instagram and Facebook continue to be the top travel inspiration sources for this age group. 40.9% of American travelers now predict TikTok will become America’s top social media channel, which has risen from 38.7% in January. Another notable point in this survey was that more than one-third of American travelers now say they regularly listen to podcasts (up from 28% in February). Nearly 20% of those regular podcast listeners report that they listen to travel podcasts. Consider your traveler profiles; would advertising on TikTok or in podcasts assist you in drawing additional travelers to your destination, and in turn, to your properties?