Why a Short-Term Rental Shift Could be on the Horizon in Phoenix

Article originally posted on AZ Big Media on May 22, 2023

As the dust settles from a traditionally busy spring in the Phoenix area, made busier by Super Bowl LVII, the beginning of what could be a buzz-worthy shift in the local market is starting to emerge. The short-term rental market in Phoenix is primed for a significant shift as investors who banked on a big payout, thanks to expected reservations tied to MLB’s spring training, the PGA’s Phoenix Open and the NFL’s Super Bowl, are licking their wounds and considering their options.

Reports indicate that nearly half of all Airbnb, VRBO and other short-term rentals went unreserved during the exceptionally busy spring season.

In fact, a New York Times story that examined the short-term rental market in Phoenix during this period suggested that the market may be saturated. The report cited statistics that showed that one company alone owned nearly 9,000 vacation rental homes in Phoenix while another added 3,000 vacation rental listings over the two-month period leading up to the big game.

At Halpern Residential, we believe that the anecdotal evidence shared by short-term rental owners coupled with the analytical evidence illustrated by occupancy rates, points to two key takeaways.

• Short-term rental properties in Phoenix may not be as solid of an investment as they were previously considered.
• The Phoenix market may soon see an increase of available properties as investors cash out and move on. 

We’ll tackle the investment prospects first. Phoenix has long been a desirable market, thanks to its mild winters and its relatively lower costs as compared to other major markets. During the early months of the COVID-19 pandemic, Arizona became somewhat of a haven due to fewer social restrictions, nice weather and the new potential for remote work.

It was during that time that Phoenix saw an influx of real estate investment, as people relocated permanently or temporarily — and eventually converted their new properties into short-term rentals with hopes of banking on big events and the allure of desert winters. Now, the market is so flush with short-term rentals thanks to overly ambitious, COVID-era investors that it couldn’t even come close to selling out during a season that saw three of the world’s biggest sporting events within days of each other.

Put simply, the answer to whether or not a short-term rental in the Phoenix area is still a good investment opportunity, in our view, is a basic supply and demand equation. And right now, supply far exceeds demand, even in the most demanding time.

When supply outpaces demand, markets start to shift. And we’re hearing those concerns and forecasts now.

Those who bought into the Phoenix market, particularly unseasoned investment property owners hoping to leverage platforms like Airbnb and VRBO, are finding that the algorithms on those sites require a certain level of marketing savvy to get the most exposure for individual listings. Without proper marketing or management support, the listings aren’t getting as much traffic as owners had hoped, diluting the potential profitability of their investment.

Owners considering their options also can’t ignore the impending arrival of a Phoenix summer, which isn’t the most desirable of seasons for those looking to secure a vacation rental. If owners are starting to feel the pinch of a lower-than-expected occupancy rate in their short-term rental in a saturated market, one option is to sell and utilize the equity earned elsewhere.

And when that happens, to whatever degree it does, Phoenix — long starved for additional residential inventory — could suddenly see a solid crop of new options enter the market. At Halpern Residential, it looks like a perfect storm is beginning to form, giving potential buyers more choices than they’ve seen as of late.

If you’re considering a home purchase or sale, the team at Halpern Residential is ready to help. We keep an eye on market trends so you don’t have to. Moving is an exciting time of transition, and we’re ready to help you with it. Contact us today so we can learn more about how we can support your needs.