Economic Outlook for Short-Term Rentals - A 2025 Forecast

In this episode of STR Data Lab, Jamie Lane, Chief Economist at AirDNA, is joined by Bram Gallagher, Director of Economics and Forecasting at AirDNA, to discuss the evolving landscape of real estate investments. Together, they explore key real estate investment trends, the forecast for the real estate market in 2025, and the critical role of market stability in shaping the future for short-term rental operators and investors.

With a focus on actionable insights, Bram and Jamie analyze the broader economic forces at play, such as interest rates, housing affordability, and supply dynamics. Whether you’re a property owner, operator, or investor, this episode offers a comprehensive look at the challenges and opportunities in the coming year.

Here’s What You Can Expect from This Episode

Insights into economic conditions and their impact on real estate investments
Key trends influencing the short-term rental market in 2025
The interplay between supply growth, demand, and pricing strategies
Actionable advice for navigating market uncertainties and leveraging regional opportunities

Episode Highlights

The Current State of the Economy and Its Impact on Real Estate

Jamie and Bram begin by reflecting on the economic conditions of 2024, a year marked by resilience and recovery. After the turbulence of 2023, which brought high inflation and fears of a recession, the economy stabilized in 2024 thanks to strong employment growth, rising incomes, and falling inflation rates.

Bram attributes much of this recovery to the Federal Reserve’s aggressive interest rate hikes, which successfully curbed inflation without triggering a major economic downturn. However, the higher borrowing costs have created challenges for real estate investors, particularly those reliant on leverage to fund new acquisitions.

Despite these hurdles, the overall market remains strong, with robust demand for both long-term and short-term rentals. The STR market has benefited from stable employment figures, increased travel activity, and rising disposable incomes. However, high housing prices and elevated interest rates continue to weigh on affordability, shaping investment decisions in 2025.

Real Estate Investment Trends for 2025

The real estate market in 2025 is expected to be defined by slower supply growth, stable demand, and incremental pricing recovery. Bram explains that after a surge in new STR listings during the pandemic, the pace of supply growth has steadily declined. This trend is expected to continue, with forecasts predicting supply growth of just 4.7% in 2025 and further deceleration in 2026.

This slowdown is largely driven by rising interest rates, stricter regulatory environments, and limited inventory in key markets. Bram emphasizes that this creates a favorable environment for existing operators, who will benefit from less competition and greater pricing power. However, for new investors, the slower pace of supply growth means fewer opportunities to acquire high-performing properties.

Jamie highlights how these real estate investment trends reflect a broader shift in the market. The days of easy returns fueled by rapid growth are giving way to a more mature market, where strategic decision-making and data-driven insights are essential for success.

Market Stability: A Crucial Factor for STR Success

Market stability is a recurring theme throughout the discussion. Bram explains that the alignment of slower supply growth and steady demand is creating a more predictable environment for STR operators. Occupancy rates, which have been under pressure since 2021 due to oversupply, are expected to stabilize and even increase slightly in 2025.

Jamie adds that this stabilization provides a much-needed reprieve for hosts who have struggled with declining occupancy and pricing power in recent years. With fewer new listings entering the market, operators can focus on optimizing their existing properties and regaining profitability.

Bram also discusses how market stability will allow operators to adopt more proactive pricing strategies. Average daily rates (ADR) are projected to rise by 2.9% in 2025, driven by a combination of stable demand and improved revenue management practices. This recovery in ADR, coupled with stable occupancy rates, is expected to support overall revenue growth for the STR market.

Regional Dynamics and Investment Opportunities

While national trends provide a broad overview, Bram and Jamie emphasize the importance of analyzing regional dynamics to identify specific opportunities. Markets vary significantly based on factors such as regulatory environments, economic activity, and traveler preferences.

For example, coastal markets with strict regulations, such as New York and San Francisco, continue to face challenges in adding new supply. In contrast, rural and small city markets are experiencing growth, fueled by increasing traveler interest in unique and off-the-beaten-path destinations.

Bram highlights recovery trends in areas affected by recent natural disasters. Regions like Maui, which faced significant disruption due to wildfires, and Gulf Coast destinations impacted by hurricanes, are expected to see strong rebounds in 2025. These markets often present unique opportunities for investors willing to take a calculated risk, as recovery efforts drive both demand and pricing power.

Jamie advises investors to use market research tools like AirDNA to analyze local market conditions and identify emerging opportunities. Operators can position themselves for long-term success by focusing on markets with favorable dynamics.

Preparing for the Future: Key Considerations for Investors

As the real estate market continues to evolve, Bram and Jamie offer practical advice for navigating the uncertainties ahead:

Monitor Interest Rates and Borrowing Costs
Elevated interest rates are likely to persist in 2025, so investors should carefully assess financing options and prioritize deals with strong cash flow potential.
Leverage Market Research Tools
Data-driven insights are essential for understanding local market dynamics and identifying high-performing properties. Tools like AirDNA can help operators track key metrics, such as occupancy rates, ADR, and RevPAR.
Focus on Supply-Constrained Markets
Areas with slower supply growth often present opportunities for existing operators to capture demand and improve pricing.
Optimize Pricing Strategies
With ADR expected to rise, dynamic pricing tools can help operators maximize revenue while staying competitive.
Capitalize on Regional Recovery
Markets recovering from natural disasters or economic downturns often offer attractive entry points for investors willing to take a long-term view.

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LinkedIn: https://www.linkedin.com/in/jamiehlane/

Twitter: https://twitter.com/Jamie_Lane

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Connect with Scott on LinkedIn:

LinkedIn: https://www.linkedin.com/in/sagescott

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Up Next:

November Market Recap and 2025 Forecast

In this episode of STR Data Lab, Jamie Lane, Chief Economist at AirDNA, and Scott Sage, Vice President of Marketing and Customer Experience, take a deep dive into November’s short-term rental (STR) performance. They explore the current state of the market while sharing insights into rental market analysis, the importance of average daily rates (ADR) as a key metric, and the impact of inflation and interest rates on STR operators and investors.

Whether you're managing one property or an extensive portfolio, understanding these trends and data points is essential for navigating the complexities of today’s STR landscape.

Here’s What You Can Expect from This Episode

Review of November’s STR metrics, including ADR, occupancy rates, and revenue per available rental (RevPAR)
The impact of declining supply growth and steady demand on pricing power
Projections for inflation, interest rates, and their influence on future STR investments
What to expect in 2025, the “Year of Efficiency” for the STR industry

Episode Highlights

November STR Performance Recap

Scott and Jamie begin by reflecting on November’s market performance. For the first time in months, all five key metrics—demand growth, occupancy, RevPAR, ADR, and listings—exhibited positive year-over-year signals, indicating a steady recovery and newfound market stability.

One standout metric is the average daily rate, which showed a 7% year-over-year increase in November. While this is a strong result, Jamie points out that this growth was supported by easy comparisons to last year’s ADR decline of 3.9%. However, this trend signals that STR operators are beginning to regain pricing power.

Occupancy also rose by approximately 3%, reflecting both the strength in demand and a deceleration in supply growth, which has fallen from 15% in November 2022 to just 4% in 2023. With fewer new listings entering the market, existing operators are benefiting from improved booking activity and reduced competition.

Rental Market Analysis: The Role of Supply and Demand

Jamie emphasizes the importance of conducting thorough rental market analysis, as every region presents unique opportunities and challenges. Supply growth trends, for example, vary significantly by market type:

Urban markets have seen minimal growth, hovering around 0-1%, largely due to stricter regulations.
Suburban markets report moderate growth of 1-2%, supported by demand for family-friendly accommodations.
Small city and rural markets continue to expand, with growth rates exceeding 11%, driven by traveler interest in unique and remote destinations.
Traditional vacation markets, like coastal and mountain areas, show limited growth of 2-4%, reflecting high housing prices and saturated supply.

Jamie and Scott highlight how analyzing these trends can help operators and investors identify high-performing markets and adjust their strategies accordingly.

Strength in ADR: A Return to Pricing Power

The average daily rate (ADR) remains a critical indicator of market health. While ADR growth had stagnated earlier in the year, November marked a turning point. Jamie explains that ADR growth was largely supported by improved occupancy and reduced price competition. With demand rising at 5-6% annually and supply growth slowing, STR operators are regaining the ability to set rates more strategically.

Jamie advises hosts to use dynamic pricing tools to capitalize on seasonal and local demand fluctuations. For instance, winter travel to ski destinations often commands premium rates, making it essential for operators in mountain markets to adjust their pricing to reflect these trends.

Inflation and Interest Rates: Implications for STR Investments

Inflation and interest rates are key economic factors shaping the STR market. Scott and Jamie discuss how interest rates, which climbed sharply in 2023, remain elevated as 2025 approaches. With 30-year mortgage rates exceeding 7%, borrowing costs have made it more challenging for new investors to enter the market.

Inflation remains a concern, with projections for a slight uptick in 2025. Although current inflation levels are within manageable ranges, Scott notes that any unexpected acceleration could impact investment appetite and pricing strategies.

Jamie explains that high interest rates are creating barriers for new entrants, leading to slower supply growth. This trend benefits existing operators, as lower competition supports occupancy and ADR. However, for those looking to expand their portfolios, navigating these economic challenges will require careful planning and access to creative financing solutions.

Projections for 2025: The Year of Efficiency

Jamie and Scott dub 2025 the “Year of Efficiency” for the STR industry. With new investments slowing, operators must focus on maximizing the potential of their existing properties. Jamie outlines several strategies for achieving this:

Optimize Operations: Streamline workflows through automation and better use of property management systems (PMS) like Uplisting.
Leverage Data: Use insights from platforms like AirDNA to monitor market trends, identify growth opportunities, and refine pricing strategies.
Improve Guest Experiences: Invest in property upgrades and personalized touches to boost reviews and drive repeat bookings.

Jamie emphasizes that the goal for 2025 isn’t just maintaining profitability but finding innovative ways to grow despite economic challenges. For operators, this might include expanding into underserved markets or diversifying property offerings to attract new traveler demographics.

Actionable Takeaways for STR Operators and Investors

Conduct regular rental market analysis
Use tools like AirDNA to track metrics such as ADR, occupancy, and RevPAR in your market. Tailor your strategies based on local supply and demand trends.

Focus on pricing power
With ADRs stabilizing, leverage dynamic pricing to optimize rates during high-demand periods and capture maximum revenue.

Prepare for inflation and interest rates
Account for higher borrowing costs in your financial planning. Consider alternative investment strategies, such as joint ventures or partnerships, to mitigate risks.

Embrace efficiency
Streamline your operations, improve guest satisfaction, and find ways to reduce overhead without sacrificing quality.

Explore high-growth Markets
Focus on regions with strong demand and manageable competition, such as small city or rural markets that offer unique travel experiences.

Looking Ahead

As the episode concludes, Scott and Jamie highlight upcoming reports and tools designed to support STR operators. In mid-January, AirDNA will release its highly anticipated “Best Places to Invest” report, offering valuable insights for those planning their next move.

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https://app.airdna.co/data

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Connect with Jamie on LinkedIn and Twitter:

LinkedIn: https://www.linkedin.com/in/jamiehlane/

Twitter: https://twitter.com/Jamie_Lane

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Connect with Scott on LinkedIn:

LinkedIn: https://www.linkedin.com/in/sagescott

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Connect with AirDNA on LinkedIn, Twitter, TikTok, and Instagram: