Events are one of the external factors that can sneak up on property managers and impact demand – and revenue potential. Music festivals are the perfect example where hundreds and at times thousands of individuals seek short-term rental accommodation in a single market. High compression periods of demand during larger scale events give property managers an opportunity to increase revenue and pivot focus on a compression management or peak rental season strategy.
If you are aware of what is going on in your vacation rental market in the future and how your pricing compares to the market and your competitive set, you will be able to make proactive rate adjustments to ensure you aren’t leaving any money on the table. In this article we discuss…
- What is compression management
- Why compression management will optimize your revenue
- What 2023 festival compression & metrics look like in different markets
- How property managers should manage periods of high compression & create a peak rental season strategy
What is compression management?
Compression describes a market condition where demand squeezes supply. Compression nights are high-demand periods within a vacation rental market, and compression management is overseeing rate evolution and strategizing for yield optimization based on the demand curve of your market.
Getting ahead of the game isn’t easy, but with the correct data, analysis, and compression management strategies, it can be done. Particularly if you manage a market that tends to host events, especially bigger international occasions, understanding and capitalising on these spikes will be highly beneficial to your revenue.
Why compression management will optimize your revenue
By looking at events and analysing occupancy rates and the pick-up, you can understand the demand of your market at a given time; ensuring your rates are optimised and aligned with market pricing and occupancy trends. Pick-up illustrates how many listings in a market have become unavailable in the last week. If the data shows a peak in demand, you can capitalise on this by increasing your rates.
Managers need demand visibility for pricing proactively ahead of the 79% using or planning to use automated or dynamic pricing in 2023– according to our 2023 Global Property Manager Survey.
Vacation rental metrics such as occupancy OTB rates, or advertised occupancy rates, represent a current demand lift, and how property managers are strategizing in the case of pricing. One ought to echo the other. In other words, pricing must carefully reflect demand and be proactive to occupancy. Anticipating occupancy spikes ahead is a really important position to be in, and on the books, data is the most concrete predictor of solid demand. Overall, it’s the next best thing for getting out ahead of your competitors with your pricing strategy.
To better illustrate this, let’s look at real-world examples of the current short-term rental climate in music festival markets, and why monitoring these compression period metrics will aid your revenue profitability.
Compression management for upcoming 2023 music festivals
We reviewed five total US and Europe-based music festivals, all of which lack campgrounds for event goers, making most guests to turn to alternative accommodations like vacation rentals.
We looked at advertised daily rates (ADR) and occupancy on the books (OTB) rates for Coachella in Indio, California; Glastonbury in Somerset, Great Britain; Mad Cool in Madrid, Spain; Summerfest in Milwaukee, Wisconsin; and Tomorrowland in Boom, Belgium. Additionally, we looked at these same metrics for the days surrounding the event to get a better idea of the impact of compression, and what compression management looks like in real life.
Coachella peaks ADRs in Indio, California
Coachella this year spans from April 14th to the 24th, 2023. There is a 6% increase in occupancy on the books during the event compared to ten days prior. Average occupancy OTB during the event sits at 48%, and this average then shoots down by 16% during the ten days after.
See in the graph below how advertised average daily rates skyrocket to nearly $700 more than the ten days prior to the event. That equates to an approximate 47% increase in ADR.
Imagine you manage ten properties in Indio and it is a month before Coachella. You see your listings stand at 50% occupancy and are $600 a night. Without benchmarking your rates and a strong peak rental season strategy, Coachella comes around for ten days and you earn $3,000. If your rates were optimized and aligned with your market, you could have made $1,500 a night and $7,500 overall– more than double. That can be how much you stand to lose without strategic compression management.
In addition, we found month-by-month occupancy and price averages in April. In 2023, Indio has occupancy OTB rates of 55%, 43%, and 19% in March, April, and May. We find monthly averages of advertised ADRs– $627, $1098, and $582 in March, April, and May respectively. This is the power of compression periods.
Glastonbury impact on Somerset’s occupancy & ADRs
One of Somerset's compression periods is during the Glastonbury music festival, spanning from June 21st to June 25th, 2023. As in all of these cases, occupancy OTB and advertised ADR grow during this period.
Occupancy on the books rates in Somerset are at 28% five days prior to the event, jump 4% to 32% during the 5 days of Coachella, and finally drop 6% to 26% the five days after.
Going hand-in-hand with the demand, average pricing in the market shifts. Advertised ADRs go up 7% in Somerset compared to advertised ADRs five days prior, and decrease 6.5% the five days after.
Mad Cool short-term rental demand & pricing
In Madrid, Spain from July 6th to July 8th of 2023 for the Mad Cool music festival, we again find higher occupancy OTB and advertised ADR during the event than in the span of the three days before or after the event.
Average occupancy on the books sits at 30% during the three days prior to Mad Cool, shoots up 6% during, and in the three days after goes down to 28%.
Regarding advertised ADR, just three days prior to the Mad Cool festival, ADR stood at €143. During this, the advertised ADR is up to €164 and in the three days after, rates go down to €141.
Summerfest peaking weekend ADRs in Milwaukee, Wisconsin
Now let’s look at Summerfest and Tomorrowland’s advertised ADRs during the days of the festival, and the minor trends occurring. Summerfest in Milwaukee, Wisconsin happens June 22nd to July 7th this year, with an ADR of $210. We discovered market prices are being adjusted and leaving it so that when leading up to a weekend, prices are higher by up to 60%.
Tomorrowland upticks ADR in Boom, Belgium
In Boom, Belgium, Tomorrowland is being held from July 21st to July 30th of 2023. In our research, we discovered that at this point in time, advertised ADRs are at €506 this year. Something important to note is that prices subtly increase towards the end of the festival days– a significant insight that gives property managers the opportunity to crank up their prices at the exact same pace as their market during these specific festival dates.
How property managers manage periods of high compression
Big events are important to every market, although spikes tend to be more localized. Know your market and tailor your peak rental season strategy so you stand to lose the least amount of profit.
The two main steps in structuring your compression management strategy are to identify key dates in the calendar year, and then ensure that you take into account the dates leading up to and following the event.
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