Measuring Market Saturation?

Question

TLDR;  "How does a smart, data-driven investor, measure market saturation?"- - - - -

Gone are the days of just buying any property, furnishing it with crappy furniture, listing it with iPhone photos, and making a killing!

I think we all know that STR&VR listings have increased year-over-year in almost every market and by large amounts in others! (my own market of Phoenix has seen an unprecedented increase of 20-25%)

So naturally, you see operators, owners, and managers saying things like "The market is saturated"

My sincere questions are:How do you know a market is saturated?

How do you measure saturation?

What date supports your assertions?

How do you even define the word "saturation?"

In a saturated market, what should an operator expect from ADR, Occupancy, and Pacing?

When I hear talk about saturation, it's always "feelings" based rather than data-centric.

I'm earnestly seeking to be the best real estate investor I can be and I'm certain that making "feelings" based choices will lead to bad investments.

So I ask - "How does a smart, data-driven investor, measure market saturation?"

Michael Baum · Answer

Like @John Underwood said, even if there are a ton STRs in an area, you can still do OK.

If tourism starts to fall off in an area, saturation becomes more of a problem. Fewer guests vying for more rentals. Lower prices result then collapse.

So far, most major vacation markets show steady growth or static level visitation. The Smokeys are a great example. They have had steady growth since the 60's. Some years are slightly more or slightly less but nothing like a 2m visitor loss. That could happen as we move away from the pandemic times but I doubt it.

John Underwood · Answer

Even if there is saturation  in your area you can still stand out by having a great property in a great area with great amenities and great views.

You do this and you will still be a sought after property and repeat guests will come back year after year.

So buy right to start with!

Account Closed · Answer

Your Question: "How do you know a market is saturated?"

The answer is "when all players are losing money"

There isn't just one STR market in a given area. Not all STRs are Studio, or 1 Bed room, some are cabins, some are family homes. Just as there is not only one kind of bread at the grocery store, you have a lot of options in how you present your STR.  And there is a market for most of the styles. One style may become saturated, for a time, but then you change up to a niche no one is addressing.

"Conventional grocery stores have a profit margin of about 2.2%, making them one of the least profitable industries in the US. But they make their money by selling in large volume & multiple locations. However, stores in natural, organic, and gourmet niches tend to see bottom-line profit margins of closer to 5-10%."

So, if your STR isn't making money, go organic (add something other people don't have).

Eliott Elias · Answer

When theres more supply than demand. Looking on Zillow for 5 minutes will give you a good idea.

Brian Barch · Answer

I know this is a simple response, but I do think occupancy rates are a decent proxy. At least a starting point.

Andrew Steffens · Answer

This is a really tough question because the STR market continues to proliferate (market depending).  Here in FL there are was/is an explosion of new units coming online but a lot of the amateurs have and will weed themselves out and demand has been so far pacing the supply.  The old rules still apply, having a good location and a quality product (at least in my market) means you will continue to do well.

Measuring Market Saturation?

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