STR Industry Year in Review: 2023 Trends & Lessons

The year 2023 marked a pivotal transition for the short-term rental industry. After the pandemic-fueled boom years of 2020-2022, the market entered a new phase characterized by normalization, increased competition, and evolving guest expectations. For STR operators and investors, understanding these shifts is essential for navigating the changing landscape and positioning for continued success.

This comprehensive year-in-review examines the major trends that defined 2023, analyzes their implications for different market segments, and extracts actionable lessons for operators planning their strategies for the coming years. Whether you are an experienced investor with a portfolio of properties or someone considering their first STR purchase, these insights will help inform your decisions.

Market Performance Analysis

The STR market in 2023 told a nuanced story that defied simple characterization. While some markets struggled with oversupply and declining rates, others continued to thrive. Understanding these variations provides crucial context for strategic planning.

The Great Normalization

After years of extraordinary performance driven by pandemic-related demand shifts, 2023 brought what many analysts termed the great normalization. Key characteristics of this shift included:

• Supply growth outpaced demand: The number of active STR listings grew by approximately 12% year-over-year, while demand grew at a more modest pace, creating downward pressure on occupancy rates in many markets.
• Rate adjustments: Average daily rates (ADR) declined approximately 8% nationally as hosts competed more aggressively for bookings. Properties that maintained pandemic-era pricing often saw significant occupancy declines.
• Booking window compression: Guests increasingly booked closer to travel dates, reflecting both economic uncertainty and abundant options. Last-minute bookings became more common, requiring hosts to adapt pricing strategies.
• Return of traditional lodging: Hotels recaptured market share as business travel resumed and some leisure travelers returned to traditional accommodations.

Geographic Market Variations

Market performance varied significantly by location, with clear patterns emerging:

Markets that outperformed:

• Mountain destinations: Locations like Gatlinburg, Big Bear, and Blue Ridge continued to see strong demand as travelers sought nature-focused getaways.
• Underserved markets: Secondary and tertiary destinations with limited hotel inventory maintained strong STR performance.
• Event-driven locations: Markets with major events, festivals, or attractions benefited from concentrated demand periods.
• International destinations: As international travel resumed, border markets and destination cities saw improved performance.

Markets that underperformed:

• Urban centers: Major cities faced increased competition from hotel inventory coming back online and continued work-from-home trends reducing business travel.
• Saturated vacation markets: Popular beach and resort destinations with high STR density saw significant rate and occupancy pressure.
• Remote work destinations: Markets that boomed during the work-from-anywhere trend saw normalization as employers implemented return-to-office policies.

Revenue Per Available Night (RevPAN) Trends

RevPAN, which combines occupancy rate and average daily rate, provided the clearest picture of actual performance:

• Top quartile properties maintained or improved RevPAN despite market headwinds
• Average properties saw 10-20% RevPAN declines
• Bottom quartile properties faced severe performance challenges
• Properties with unique amenities or positioning outperformed market averages significantly

Regulatory Landscape Changes

Regulation continued to reshape the STR industry in 2023, with municipalities at all levels implementing new rules affecting short-term rental operations.

Major Regulatory Developments

Over 150 significant regulatory changes affecting STRs were enacted or proposed in 2023:

• Registration requirements: More jurisdictions implemented mandatory registration, making it easier to track and regulate STR activity.
• Cap systems: Several popular markets implemented caps on the total number of STR permits, limiting new entrants.
• Primary residence requirements: Rules limiting STR operation to owner-occupied properties or requiring owner presence gained traction.
• Night limits: Annual caps on rental nights restricted how frequently properties could be rented short-term.
• Enforcement intensification: Cities invested in technology and staff to identify and penalize non-compliant operators.

Notable Market-Specific Changes

Several high-profile regulatory actions shaped industry discourse:

• New York City: Local Law 18 implementation created one of the most restrictive STR environments in any major US city, requiring host registration and limiting rentals to owner-occupied properties.
• Hawaii: Multiple counties enacted or strengthened restrictions, with ongoing legal challenges continuing into 2024.
• Mountain resort communities: Ski towns from Aspen to Park City grappled with workforce housing concerns driving STR limitations.
• Texas: State-level preemption efforts sought to limit local regulatory authority, creating a complex patchwork of rules.

Industry Response and Adaptation

The STR industry responded to regulatory pressure through various strategies:

• Professionalization: Professional management companies with compliance infrastructure gained advantage over individual operators.
• Market migration: Investors redirected capital to markets with favorable regulatory environments.
• Medium-term pivot: Some operators shifted toward 30+ day rentals to avoid STR-specific regulations.
• Advocacy engagement: Industry associations increased engagement with local governments to shape reasonable regulations.

Technology and Innovation

Technology continued to transform STR operations in 2023, with several significant developments reshaping how properties are managed and marketed.

AI and Automation Advances

Artificial intelligence became increasingly practical for STR operators:

• Dynamic pricing sophistication: AI-powered pricing tools became more accurate and accessible, helping hosts optimize rates in real-time based on demand signals.
• Guest communication automation: AI chatbots and response systems improved to handle routine guest inquiries, reducing host workload while maintaining response quality.
• Listing optimization: AI tools for writing descriptions, suggesting improvements, and analyzing competitor listings gained traction.
• Predictive maintenance: Smart property systems began predicting maintenance needs before failures occurred.

Smart Property Technology

Connected devices became standard expectations for well-equipped STRs:

• Smart locks: Keyless entry systems reached near-universal adoption among professional operators.
• Noise monitoring: Devices that detect noise levels without recording conversations helped prevent parties and neighbor complaints.
• Energy management: Smart thermostats and occupancy-based climate control reduced utility costs significantly.
• Security cameras: Exterior cameras became common, with clear disclosure requirements from platforms.

Platform Evolution

Major booking platforms introduced significant changes:

• Airbnb: Continued focus on quality through enhanced review systems, pricing transparency requirements, and stricter listing standards.
• VRBO: Increased focus on family travel market and whole-home rentals to differentiate from Airbnb.
• Booking.com: Expanded vacation rental inventory while maintaining hotel-booking user experience.
• Direct booking growth: More hosts successfully built direct booking channels, reducing platform dependence.

Guest Behavior Shifts

Understanding how guest preferences evolved in 2023 provides essential guidance for property positioning and amenity investments.

Booking Pattern Changes

• Shorter booking windows: Average advance booking time decreased as guests became more comfortable with abundant inventory and competitive pricing.
• Length of stay normalization: The extended stays popular during remote work surges returned closer to pre-pandemic averages.
• Flexible date searching: More guests searched without specific dates, using platform features to find the best deals.
• Price sensitivity increase: Economic uncertainty made guests more price-conscious, with value perception becoming critical.

Amenity Expectations

Guest expectations for standard amenities continued to rise:

• High-speed internet: Fast, reliable WiFi became non-negotiable, with specific speed expectations increasing.
• Workspace requirements: Dedicated workspaces remained important even as remote work declined.
• Kitchen quality: Guests expected fully equipped kitchens comparable to home.
• Outdoor spaces: Patios, decks, and yards maintained elevated importance from pandemic-era preferences.
• Entertainment options: Smart TVs, streaming services, and gaming systems became expected amenities.

Experience Priorities

Guests increasingly sought meaningful experiences over simple accommodation:

• Unique properties: Distinctive accommodations from treehouses to converted barns commanded premium interest and rates.
• Local authenticity: Guests valued properties that provided genuine local experiences over generic vacation rentals.
• Sustainability interest: Eco-conscious travelers actively sought environmentally responsible accommodations.
• Pet-friendliness: Demand for pet-friendly properties continued to grow as pet ownership rates remained elevated.

Lessons for STR Operators

The experiences of 2023 provide clear lessons for operators navigating the evolving STR landscape.

Operational Excellence Matters More

In a more competitive environment, operational excellence differentiates successful properties:

• Guest experience focus: Properties delivering exceptional experiences maintained performance while others struggled.
• Review management: Maintaining high ratings became even more critical for visibility and booking conversion.
• Cost discipline: Operators who controlled expenses preserved profitability despite revenue pressure.
• Dynamic pricing adoption: Properties using sophisticated pricing strategies significantly outperformed static-price listings.

Market Selection Is Critical

Not all markets offered equal opportunity in 2023:

• Supply analysis: Understanding local supply growth rates became essential for market selection.
• Regulatory assessment: Factoring regulatory risk into investment decisions proved wise.
• Demand driver diversity: Markets with multiple demand sources showed more resilience.
• Competition quality: Markets with predominantly amateur operators offered better opportunities for professional entrants.

Differentiation Creates Resilience

Unique properties weathered market challenges better than commodity listings:

• Amenity investments: Properties with distinctive amenities maintained rates while generic properties cut prices.
• Niche targeting: Properties designed for specific guest segments performed better than generic broad-appeal listings.
• Brand building: Hosts who built recognizable brands attracted direct bookings and repeat guests.
• Quality positioning: Premium properties showed more resilience than budget options in most markets.

Looking Ahead: Predictions for the STR Industry

Based on 2023 trends and emerging signals, several developments appear likely to shape the STR industry going forward:

• Continued consolidation: Professional management will capture larger market share as complexity increases.
• Regulatory stabilization: Many markets will establish clearer, more stable regulatory frameworks.
• Technology integration: AI and automation will become standard rather than differentiating factors.
• Supply rationalization: Underperforming properties will exit the market, improving conditions for remaining hosts.
• Experience evolution: The line between accommodation and experience will continue to blur.
• Medium-term growth: Stays of 30 days or more will grow as a category, appealing to both regulatory and guest preference factors.