Short-Term Rental Market Update: Q2 2023

Q2 2023 in short-term rentals. 2023 was the year the market cooled and underwriting started to matter again, and april through june has its own shape on top of that. Here is what moved, what it meant for an owner, and what the quarter was actually for.

What was happening across the market

2023 was the correction. Rates stayed high, supply that had been added during the boom arrived on the market, and occupancy in several previously unstoppable markets came down. The phrase that circulated was Airbnbust, which was overstated, and the underlying shift was real: revenue per property fell in markets where supply had grown fastest.

The spread between well-run and poorly-run properties widened sharply. In a market where everything fills, operational quality is invisible. In 2023 it was the whole difference.

Borrowing costs stayed high all year, and the gap between what sellers wanted and what the numbers supported was the defining feature of the market.

The seasonal shape of Q2

Q2 is when the summer-peaking markets wake up and the winter-peaking ones go quiet. Spring break carries the Gulf into April, the Smokies and the Poconos ramp through May and June, and the desert markets begin their descent toward a trough that will last until October.

Reading a quarter in isolation is how owners talk themselves into bad decisions. A thin quarter in a seasonal market is not underperformance, it is the shape of the asset, and it should have been in the model at purchase.

What Q2 is actually for

Q2 is the last window to fix anything before peak season. Furnishing refreshes, photography, amenity gaps and maintenance all cost far less in May than in July, because in May they cost money and in July they cost bookings.

With bonus depreciation at 80%, a cost segregation study still produced a large first-year deduction, and the arithmetic changed enough that the study cost had to be weighed more carefully on smaller purchases.

The Q2 checklist

1. Reshoot photography if anything changed, and reshoot regardless if the images are more than about two years old.
2. Audit the amenity gap against the current comparable set rather than the one that existed at purchase.
3. Set minimum stays and premium floor rates across the peak weeks before demand arrives, not after.
4. Confirm the cleaner bench has depth for same-day turnovers in peak season.
5. Check the reserve. Peak season is when a failure is most expensive and most likely.

The risk carried into Q2 2023

The properties that got into trouble in 2023 were bought at peak prices with thin reserves in markets that were absorbing new supply. None of those three alone was fatal. Together they were.

2023 rewarded buyers who could underwrite honestly and walk away. Basis mattered more than it had in years, because there was no longer a rising tide to cover an overpay.

The consistent thread across every quarter on this site is that the environment changes and the discipline does not. Twelve individual monthly revenue figures, a complete expense stack including reserves, and a stress test at 75% of projection that still covers debt service.

What to carry into the next quarter

April through June is one quarter of a business that is measured annually. The number that matters is not what this quarter produced but whether the year is tracking to the model, and whether the reserve is intact.

If the year is behind the model, the useful question is which input was wrong: revenue, cost, or the assumption about the market. Each has a different fix, and discounting is the right answer to only one of them.

If the year is ahead, the useful question is whether that is the property or the market. A property outperforming a flat market is a property to buy more of. A property matching a rising market has told you nothing yet.

Frequently asked questions