Short-Term Rental Market Update: Q3 2023

Q3 2023 in short-term rentals. 2023 was the year the market cooled and underwriting started to matter again, and july through september 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 Q3

Q3 is peak for the mountain, lake and beach markets and the trough for the desert. It is also hurricane season on the Gulf and the Atlantic, which is the single largest source of disrupted peak weeks in the whole calendar.

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 Q3 is actually for

Q3 is an operating quarter rather than a strategic one. The decisions that determine how it goes were made in Q2, and what is left is execution: turnovers, guest response, pricing against real-time demand, and handling whatever breaks.

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 Q3 checklist

1. Watch net revenue per available night rather than occupancy, because occupancy at peak flatters everything.
2. Respond to guest problems within minutes even when resolution takes hours, because response speed is the largest factor in whether a problem becomes a bad review.
3. Ask every departing guest for a review, once, without pressure.
4. For coastal properties, confirm the storm plan and the insurance position before the peak of the season rather than during it.
5. Log participation hours weekly. Q3 is when the hours actually happen and when they are least likely to be recorded.

The risk carried into Q3 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

July through September 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