It’s impossible to fully understand vacation rental performance without tracking the occupancy rate, which measures how full vacation rental properties are for a certain period. However, there are multiple ways to calculate occupancy, and the “correct” one to use depends on your perspective and use case. Some versions are helpful for understanding the implications of occupancy on revenue, while others explore capacity. Let's review four occupancy metrics and their unique value.
1. Paid Occupancy
Formula: guest nights / total nights
The paid occupancy rate is the most basic guest occupancy rate and measures how many properties or nights were occupied by guests during a period. In the example, there are 100 total nights and 44 were booked by guests, making the paid occupancy rate 44%.
Because the paid occupancy rate only considers revenue-generating nights, this metric is closely tied to revenue for properties and destinations, making it beneficial for financial analysis. Tracking the paid occupancy rate helps you understand how the number of nights that generate revenue changes year-over-year or between seasons. Increasing the paid occupancy rate, if nightly prices are held steady, will lead to higher revenues.
2. Paid and Owner Occupancy
Formula: (guest nights + owner nights) / total nights
There are often heads in beds that don’t belong to guests because owners usually spend a significant amount of the year staying in their vacation rental. In the example, in addition to the 44 guest nights, there are 12 owner nights, making the paid and owner occupancy rate 56%.
Particularly valuable for destination marketing organizations, this metric indicates total visitor presence for a destination. While property owners may not generate direct rental revenue, they do contribute to the local economy through other spending including restaurants and shopping. When analyzing changes in the paid and owner occupancy rate over time, don’t forget to look at owner occupancy and paid occupancy separately in order to understand what is driving the changes.
3. Calendar Occupancy
Formula: (guest nights + owner nights + hold nights) / total nights
There’s one more type of stay that can increase the occupancy rate and decrease the number of nights that are available to be booked by guests: hold nights. Hold or blocked nights are nights that are unavailable to be reserved due to maintenance, renovations, or deep cleaning. The calendar occupancy rate considers these nights. In the example, 44 nights are reserved by guests, 12 nights are owner stays, and there are 8 hold nights, bringing our calendar occupancy rate to 64%.
Calendar occupancy offers insights into total inventory usage, including non-revenue-generating nights. Because of this, calendar occupancy is not as helpful for understanding the economic impact of vacation rentals during a season. For example, calendar occupancy could be increasing due to owner occupancy increasing, which doesn't generate more revenue.
While it doesn't directly correlate with economic impact, calendar occupancy is useful for understanding overall property utilization and identifying periods of low availability. If calendar occupancy is often high for a destination or management portfolio, it’s likely possible to add new supply without significantly cutting into per-property revenues.
4. Adjusted Paid Occupancy Rate
Formula: guest nights / (total nights - owner nights - hold nights)
This metric is invaluable for property managers as it focuses on the number of nights that are available to be booked by guests. By subtracting owner stays and maintenance holds from the number of total nights, adjusted paid occupancy provides a clear picture of how well managers are booking their available inventory. In the example, 20 nights are taken by holds or owners, leaving 80 nights available for guest reservations. 44 of those 80 nights are booked, which gives us an adjusted paid occupancy rate of 54%.
In the United States, hold and owner occupancy each sit around 10% annually. This means that approximately 20% of all short-term rental nights are not open to generating revenue, making the adjustment for those non-revenue-generating nights impactful. In addition, hold and owner occupancy rates often vary significantly between properties, so the adjusted paid occupancy rate enables an apples-to-apples comparison of property managers’ performance.
As with calendar occupancy, it’s important to dive deeper if you truly want to understand changes in the adjusted paid occupancy rate over time because three different stay groups could be changing. For example, the adjusted paid occupancy rate could increase after a major weather event when a significant portion of properties are offline due to storm damage. In those cases, the occupancy rate increases because more properties are taken offline for repairs, not because more guests are booking.
A final consideration: Supply
In each of these calculations, the number of properties, or nights in a date range for a single property, is used as the denominator (bottom number) of the equation. Thus, the occupancy rate may also be changing because supply is changing. If the number of guests stays the same but the number of properties increases, the paid occupancy rate will go down. Thus, it’s important to keep an eye on supply.
Each of these key performance indicators serves a unique purpose and understanding the distinctions allows short-term rental professionals to gain the best insights. Key Data offers access to utilize these KPIs and over 40 others within an intuitive, customizable dashboard.
By implementing occupancy tracking, short-term rental operators, property managers, investors, and destinations can gain a comprehensive understanding of emerging trends and make informed decisions to optimize their strategies.