How are urban & rural short-term rental markets performing in 2023?

It has been repeatedly reported throughout COVID recovery that non-urban destinations were drawing demand away from urban markets. However, as we enter 2023, how are the 2 ‘sectors’ comparing? In this article we review supply evolution and ADR evolution, as well as demand, on the books occupancy and advertised pricing for Q1. So, how are urban & rural short-term rental markets performing in 2023?

First, a look at how supply has evolved in urban and rural markets since January 2019.

Urban & rural supply evolution

Interestingly, back in January 2019, the difference between total short-term rental inventory count across rural and urban markets was negligible (3.01M/3.04M respectively). These numbers are entire home listings of short-term rental properties only – some markets will not have been included under these definitions.

However, we can see from the chart above that this chasm has gradually widened since. From that initial 1% higher urban supply, there has been a swing to 34% more rural supply (3.68M rural/2.75M urban). We put this down to a demand 'pigeonholing' of short-term rentals. As vacation rentals have become more socially familiar, they have been recognised as accommodation that groups and families can share, but also the characteristically appropriate choice for more isolated or self-sufficient rural stays.

Furthermore, this attribution kicked into top gear with the arrival of COVID. This is evidenced by the more severe uptick seen in rural inventory from Q4 2021 (the gap increased from 20% to 34% over the last year). When recovery started to settle, property investors and managers captilised on renewed rural demand.

Rural supply has increased, however, that is not to say that vacation rentals are not seen as an option for urban stays or business trips for example - as we'll see below.

Urban & rural rate evolution

Next a look at average daily rate (ADR) in urban and rural markets. Throughout 2019, urban rates were 9% higher in urban 2 bedroom listings than in their rural counterparts. There are then 3 major trends to discuss following the onset and 'ebbing' of COVID.

Firstly, the second quarter of 2020 sees firstly a convergence of rates across the two market types. Indeed, following that 9% difference in favour of urban properties in 2019, July 2020 to June 2021 (the thick of COVID) saw a 0% difference in average prices across rural and urban areas.

Secondly, at a similar point as the convergence, ADR saw a significant incline. Not only was it significant, but it has been sustained - through 2022, short-term rental rates in general have been on average 24% higher than in 2019.

Lastly, compared with that 9% difference in 2019, 2022 shows a 12% (and growing) disparity, once again in favour of urban inventory.

Clearly the pandemic has been a complicated time, but there are a couple of headline reasons we can think of. Generally urban markets garner a greater degree of professionalisation, and property managers in turn implement more price optimisation. Beyond that, urban supply dropping through COVID meant less competition for demand at recovery and allowed properties to command higher price points.

As mentioned above, the trend towards more rural stays has been well documented over the past couple of years (e.g. CaixaBank, The Guardian). Furthermore, you can see the data in our tracker, which shows the trend towards rural stays. Whilst we are potentially seeing the first signs of a drift towards 2019 levels, urban trip share in October was 52% where in October 2019 it was much higher at 65%.

Q1 occupancy & pricing: How are urban & rural short-term rental markets performing in 2023?

Without our crystal ball, the best way to look ahead is to project based on the current picture. We want to understand the relative confidence in demand across rural and urban markets. So, how are advertised prices in Q1 comparing to Q1 2020, and moreover, how is on the books occupancy currently shaping up across the two sectors?

Advertised ADR

First pricing, and we can see that a night in a short-term rental will set you back significantly more this Q1 than in 2020.

In fact, whilst the ADR advertised for rural properties has seen a greater increase, urban prices remain higher. Where urban rates were 10% higher in Q1 2020, they are now 8% higher.

On the books occupancy

Finally we look at occupancy currently on the books. In both urban and rural market types we can see a huge increase in demand over 2020.

Again we see a similar trend as with advertised pricing - rural properties are seeing a greater increase over a lower absolute amount. The average occupancies on the books for urban and rural markets this quarter are currently 16% and 14% respectively.