In the short-term rental (STR) space, occupancy rate is often touted as a key performance indicator. While it’s an important metric to consider, focusing on it in isolation can be misleading and, in many cases, detrimental to your property’s overall performance. Here’s why occupancy rate is overrated—and what metrics really matter.
Occupancy Rate: A Misleading Metric
Occupancy rate represents the percentage of nights a property is booked over a given period. At first glance, a high occupancy rate may seem like a sign of success, but it doesn’t always translate to profitability.
1. Occupancy is Easy to Manipulate
Achieving high occupancy is simple if you drastically lower your nightly rates. However, this strategy often backfires because:
- You’ll attract lower-quality guests who may not treat your property with care.
- You’ll sacrifice potential revenue by underpricing your property.
2. High Occupancy Isn’t Ideal
Contrary to popular belief, you should never aim for 100% occupancy—or even anything above 85%. STR properties with occupancy rates between 65% and 75% tend to strike the optimal balance between nightly rate and occupancy, maximizing overall returns.
3. Quality Guests vs. High Turnover
Properties with consistently high occupancy often experience more guest-related issues, such as complaints, property damage, and excessive wear and tear. These problems can erode your profits and lead to lower-quality reviews.
What Metrics Matter More?
To gauge the true success of an STR property, consider these metrics alongside occupancy rate:
1. Average Daily Rate (ADR):
Your ADR should reflect the value of your property and market demand. Properties with higher ADRs can generate significant revenue even at lower occupancy levels.
2. Revenue Per Available Night (RevPAN):
This combines ADR and occupancy to provide a more holistic view of your property’s performance. A well-priced property with moderate occupancy will often outperform one with high occupancy and low rates.
3. Overall Return on Investment (ROI):
The ultimate goal of an STR property is profitability. Focus on metrics that directly impact your bottom line, like ROI, rather than occupancy alone.
The Sweet Spot: 65%-75% Occupancy
The ideal occupancy rate for most STR properties falls between 65% and 75%. This range represents a healthy balance:
- You’re charging competitive rates that attract quality guests while maximizing revenue.
- You leave room for dynamic pricing during high-demand periods, allowing you to capitalize on peak nights.
- You minimize excessive turnover, reducing operational stress and property wear.
Think Beyond Occupancy
While occupancy rate is an important data point, it’s overrated when considered in isolation. The key to a successful short-term rental is finding the right mix of nightly rate and occupancy to unlock the best returns. Aiming for a moderate occupancy rate of 65%-75% ensures you’re attracting quality guests, maximizing profitability, and maintaining a sustainable operation.
If you’re ready to optimize your property’s performance, focus on metrics that matter and leave the obsession with occupancy behind.
