I hope this message finds you all in good health. As we continue to navigate the real estate and short term rental landscape, I wanted to provide you with a quick recap of 2023, the current state of the short-term rental market, and what we are seeing and expect in our area for the next year.

2023 Reflection

Now that 2023 is behind us we want to take some time to reflect on the last 12 months. As you likely heard, the summer of ’23 was a rough one, even for those of us who have lived here for decades. It was extra hot and extra dry. Many plants and trees were severely damaged or died. Even Saguaro cacti were keeling over in the desert and they are designed to survive it. It was rough to say the least. 

The global STR industry grew in 2023 and is expected to continue at about an 11% annual growth rate through 2030. Across the U.S. though, STR markets were nothing short of volatile. Property owners that started up their STR during COVID (2020-2022) came into it at a time when property revenues were at all time highs. Guest market dynamics, travel restrictions, etc. created an ideal concoction for our market that sent it soaring. Because of this high, our market got a lot of attention from investors as there were many new property purchases and STR conversions during this time. 

In 2023, the standard main pricing metrics of RevPAN (revenue per available night), occupancy, and ADR (average daily rate) dropped below what they were in 2022 but remained slightly higher than pre-COVID levels. This signifies a normalizing of markets. Demand softened, traveler priorities changed, supply increased, and the impact of major events showed how much our industry has changed in the last 5-10 years. When you combine decreased traveler demand in the US with supply increases, rates have decreased. 

That influx of supply and lower demand has played out in the Phoenix market as well. Special events like the Super Bowl in early ’23 disappointed many people but it happened very much how we anticipated, which was slightly better than normal for that time of year. 2023 seems to be the year that helped to bring our industry and market back to reality, so-to-speak. Every new industry eventually finds its market equilibrium and 2023 may have been the year our industry started to move towards its balance point. 

Across the industry, trends are showing that STRs are here to stay and play a vital role in the travel industry, but they may be becoming less of a cash-flowing only investment opportunity. Owners will need to evaluate their investments but the real value of owning a STR may be returning, which is having the expenses of owning a vacation home or future-retirement home covered when owners aren’t using the property themselves.

Pricing Strategies and Financial Performance

As many of you already know STRM uses the market leading STR pricing software allowing for dynamic pricing. The software’s algorithm will automatically increase/decrease rates based on market demand justifying such a change. This helps to ensure we do not leave money on the table by asking for too little during high-demand periods or too much during low-demand periods. The algorithm is set to maximize to meet market-level occupancy at the highest nightly rate that is competitive compared to the market in an effort to maximize our overall revenue. Dynamic pricing means that rates will be different every single day and the prices we offer are based on the demand for a specific day. While uncommon, this means that some bookings may come in a bit lower than a comparable reservation from last year. Pricing this way ensures that we put your listing in the best position to be booked again this year.

For our mid-term properties (30 day minimums) we do have a slightly different, albeit similar, pricing strategy as our STR pricing software is designed more for the lower minimum stays of a typical STR.

All that said, we will also see some comparable reservations that come in at a much higher rate than last year. These higher nightly rate reservations typically offset any decrease you might find comparing the same booking year over year, but this may not be the case in an adjusting market. This is why property investors should always be evaluating their STR on an annual basis as opposed to focusing on particular reservations. 

Every week STRM evaluates pricing and occupancy for each property. Normally, any adjustments necessary are slight minor tweaks if any at all based on booking activity. On rare occasions more drastic price changes may be warranted. Please understand that we are monitoring this consistently to maximize revenue to the best of our ability. 

Regulatory Landscape

Staying abreast of local and state regulations is challenging but vital. Many of you have let us know about community changes like HOA votes to limit or restrict short term rentals. Please continue to notify us as you hear these things as it’s nearly impossible for us to know all the HOA conversations that are taking place without your communication. 

In 2023 many cities were allowed to create some of their own limits on STRs within the overall state guidelines that they couldn’t be outright banned. Most, if not all, cities created an annual licensing standard. Many cities adopted the requirement of an additional license that property owners needed in order to operate a STR in that city. Some cities have more hoops to jump through like neighbor notifications and higher license fees but most are similar and minor changes in the grand scheme of things. While STRM can help with some of the requirements, like posting licenses in the properties and neighbor notifications, property owners do have to acquire the licenses themselves along with the annual renewals. 

Government regulators typically lag markets and as our market continues to normalize I believe that will create less reactive regulatory attention on our industry in the future. Usually less attention creates less attention and we can only hope for that in our case. 

Guest Experience, Technology, and Internal Changes

Elevating the guest experience, especially in this environment, remains a focus. We are always looking to leverage technology in order to not only streamline operations but also enhance guest communication. Our commitment to providing an exceptional stay contributes to positive reviews, fostering repeat visits, and increasing overall property appeal.

This past year we saw some internal changes in our company as a few people that had been with us for multiple years either relocated or moved on to other opportunities. We had been working on our systems and processes before those departures to get us less reliant on particular individuals and this past year proved that to be more needed than ever. In the final quarter we sent out an update to our owner FAQ guide which included updates to our contact information as multiple team members in multiple departments doing different things require different contact points. Please keep in mind that someone helping to take care of your property may not be the same person to ask on our team about pricing, owner statements, licensing, etc.

Future Outlook for Phoenix Short Term Rentals

As the industry transitions back to a more familiar, pre-COVID pattern in 2024, we may encounter the typical ebbs and flows of seasons and spikes from holidays or events. 2024 may bring many unpredictable spikes and downturns along with the return to normal seasonality. The economic uncertainty weighs in guests’ minds as well further contributing to uncertainty in travel demands. 

2024, similar to 2023, will most likely bring more owners wanting to sell their property which is another step in that market normalization process. We understand that the aforementioned news may not be what you have come to expect from the Phoenix STR industry. If you are considering selling your property please reach out to us. Short Term Rental Manager is an AZ licensed real estate brokerage and while some owners may want to sell, we have contacts of others that may want to buy. 

In summary, 2023 definitely feels like a transition year back to more normal short term rental activity and expectations. And sometimes when the momentum shifts, it shifts a little more in the opposite direction before it settles back down. The national economy and global struggles may also weigh into the minds of our consumers this year. The end of ’23 and the beginning of ’24 have had mild late fall and winter weather seasons so far on average. Typically, when the cold starts to set-in in other parts of the country we begin to see more booking activity. There are also always last minute bookings that flow in during the year. All of this does leave a feeling of unpredictability and uneasiness and I think we are seeing some of that right now. 

Definitely let us know if you have any changes you are looking to incorporate or if you have any questions for us. We will continue pushing forward to make your property the best that we can. Wishing all of you the best in this new year. 

Thank you,

Jon – Founder and Managing Member, Short Term Rental Manager