Looking ahead to 2025, the short-term rental (STR) market is expected to see growth and stability across the United States. After navigating some challenging years, the market appears to be recovering, with more demand and improving economic conditions. Travelers are becoming more confident, and the balance between supply and demand is improving. This creates meaningful opportunities for property owners looking to enter the market or expand their real estate portfolios.
Please note that our team operates heavily in the Hampton Roads, VA region, so we’ve also intentionally gathered additional market information for homeowners in this area.
1. Recovery in Occupancy and Revenue
After two years of uncertainty, 2024 marked a shift for the STR market. Occupancy rates stabilized, and revenue per available rental (RevPAR) grew for the first time since the pandemic. Occupancy is expected to gradually recover in 2025, reaching near pre-pandemic levels of around 56%. This is good news for property owners. As occupancy increases, you'll likely see more bookings and the chance to raise your rates as demand grows.
For Hampton Roads, this trend is particularly promising. The region has already seen signs of increased demand in the off-season, due in part to a more sustainable and regulated STR market. With stronger enforcement in previous years, many non-compliant properties were taken off the market, leaving those with legal permits in a position to see greater success. As a result, property owners with approved, legal properties will benefit from reduced competition and stronger demand, especially during the shoulder seasons.
2. Economic Impact: High Interest Rates and Lower Housing Transactions
High interest rates are expected to remain through mid-2025, which will continue to limit the number of new properties entering the market. This means fewer new listings and less competition, which benefits current owners. For new investors, slower property purchases may provide an opportunity to buy without facing the intense competition that marked recent years.
In Hampton Roads, the ongoing challenge of high-interest rates is compounded by stricter regulations in cities like Hampton. These tightened restrictions will further limit the supply of legal short-term rental properties. This dynamic gives those who have already navigated the permitting process a competitive advantage. Portsmouth, in particular, remains a strong performer with fewer restrictions, making it an attractive location for STR owners looking to expand.
3. Slower Supply Growth
Supply growth in the STR market is expected to slow down even more in 2025 due to high interest rates, elevated housing prices, and stricter regulations in urban areas. This will create a tighter market, where demand and occupancy are more aligned. This is an opportunity for property owners to benefit from the slower growth of new listings and a more balanced market.
In Hampton Roads, this trend is especially evident as Hampton has started strict enforcement of short-term rental regulations. The city has limited each neighborhood to a 1% allowance for STRs, which will create a bottleneck of demand. Property owners who secure their permits now will likely see a rise in occupancy and revenue as the market tightens in the coming years. While Hampton may experience growing pains with these new regulations in 2025, those who act quickly can capitalize on the opportunities for 2026 and beyond.
4. Stronger Pricing Power
Despite economic challenges, property owners are regaining the ability to raise their prices. In 2024, average daily rates (ADR) grew steadily, and this trend is expected to continue into 2025, though at a slower pace compared to previous years.
In the Hampton Roads market, mid-term rentals (those lasting from one month to several months) are also gaining traction. With the supply of short-term rentals being slightly lower due to stricter enforcement, mid-term rentals are filling the gap during off-seasons. This provides owners with more flexibility, allowing them to diversify their rental strategy, particularly during the months when traditional short-term demand may dip.
5. Growing Demand for Larger Properties
There appears to be growing demand for larger properties, especially those with six or more bedrooms. These properties are ideal for group travel (e.g., vacations, corporate retreats, and family getaways), offering value for families or friends traveling together. If you're considering expanding your portfolio, investing in larger homes could be a smart move. Note that larger properties typically command higher nightly rates, which equates to higher returns.
In Hampton Roads, larger properties in Virginia Beach and Norfolk are benefiting from this trend. However, Portsmouth is also seeing a notable increase in demand, especially with the recent opening of the casino. The casino's presence has brought more visitors to the area, which is helping to boost STR revenues in the city.
6. Urban and Resort Markets Showing Signs of Recovery
Urban and resort markets are showing signs of recovery as consumer confidence grows, especially in cities and popular vacation destinations. Cities like Atlanta and San Jose are projected to see occupancy increases as demand starts to outpace supply growth. This is largely due to people returning to travel for both business and leisure after years of uncertainty.
For resort destinations like Maui, New York, and Aspen, the recovery is fueled by strong consumer spending and increasing disposable income. People are willing to spend on travel again, especially for vacations in well-known resort locations. With improving economic conditions and pent-up demand for leisure travel, occupancy rates in these high-demand areas are expected to rise in 2025.
Note that property owners in these types of areas should stay aware of local regulations, especially in major cities, where stricter laws on short-term rentals are becoming more common.
For Hampton Roads, Norfolk and Virginia Beach are also poised for growth. Norfolk has a burgeoning arts scene, while Virginia Beach continues to be a favorite destination for tourists. However, these areas face growing competition from cities like Portsmouth, where STRs continue to perform well due to fewer regulations and growing demand from visitors to the new casino.
7. Local Challenges: Regulations and Natural Disasters
As the market stabilizes, localized challenges will continue to shape the landscape. In 2024, cities like New York and popular coastal destinations faced difficulties from regulatory crackdowns and natural disasters. This trend is expected to persist in 2025, especially in high-risk areas.
In Hampton Roads, Hampton’s new enforcement policies are a key area for owners to monitor closely. The city’s decision to limit short-term rentals to just 1% per neighborhood will bring growing pains in 2025, but the long-term benefits for compliant property owners are clear. Meanwhile, Portsmouth continues to offer a more stable environment for STRs, with no major restrictions currently in place.
At the time of this publication, wildfires are ravaging Los Angeles, having already burned thousands of acres. Residents and property owners have already been facing challenges securing insurance, and now the future of real estate in this region is uncertain. Coastal and resort markets may see growth, but recovery from disasters and new regulations will slow supply growth in affected areas. Property owners and property management companies that operate in these regions must stay vigilant about local conditions, monitor the impact of natural disasters, and maintain compliance with evolving regulations to remain competitive.
Conclusion: What to Expect in the 2025 STR Market
The market is stabilizing, with stronger occupancy rates, better pricing power, and more balance between supply and demand. While challenges like changing regulations and local economic shifts remain, the outlook is overwhelmingly positive for those who are prepared.
For owners in Hampton Roads, now is the time to take advantage of the opportunities emerging from tighter regulations. Hampton’s stricter enforcement means fewer legal short-term rentals, which will help those who’ve already secured permits see a steady stream of demand. Portsmouth is another area to watch, with its growing appeal—particularly thanks to the new casino—and a relatively open regulatory environment.
Also, the market’s off-season is actually looking strong. As short-term rental supply has thinned, mid-term rentals are becoming more popular, offering owners the chance to maintain solid occupancy year-round. This shift provides more flexibility in how you approach your rental strategy.
Whether you're a first-time investor, expanding your portfolio, or refining your existing rental strategy, 2025 offers plenty of opportunity for growth. The combination of reduced competition, rising demand for larger properties, and the growing popularity of mid-term rentals may, in essence, create a perfect storm for success.
To navigate this evolving market and make the most of these trends, it’s a smart move to work with an experienced property management team. They'll help you stay on top of local regulations, market shifts, and pricing strategies so you can maximize your returns.
