VRBOInvesting in vacation rentals has become a popular trend in Europe, especially in coveted tourist destinations like Spain, France, and Italy. In this article, we’ll analyze the best Airbnb and VRBO locations in Europe and share the latest numbers from AirDNA.

This investment strategy involves renting or purchasing a property with the intent of renting it out for short periods to tourists through Airbnb, VRBO and other OTAs. Rental arbitrage – which is another term for this occupation – is gaining popularity due to its potential to generate a stable income with relatively low entry barriers.

Why is rental property location important?

Location defines your success in many ways. These are the main metrics to look at:

• Revenue potential: areas with high demand and low inventory in the vacation rental market are hard to find. You should look into things like employment rate, rental properties supply (why it is low or high) to understand the general attractiveness of the location.
• Average Daily Rate (ADR): the average rental income per paid occupied room in a given time period.
• Revenue per available rental (RevPAR): evaluates the capacity to generate revenue from available rooms, regardless of occupancy. ADR and RevPAR can provide valuable insights into the profitability of potential locations.
• Occupancy rate (OR): you need to forecast your demand. Occupancy rate can also help you price your vacation rental correctly. In some cases high occupancy rate may not always be desirable as it can impact revenue and pose challenges for maintenance and guest turnover.
• Seasonality: the property will not be occupied 100% in a year, which affects the pricing policy and the best timing to invest. Having knowledge of key events in the area, such as sports tournaments, can assist you in developing an effective pricing strategy.
• Property type: this can be an apartment, villa, cabin or luxury chalet. Each category of Airbnb attracts different guests and requires different marketing strategies. When making your first investment, consider how unique your target property is compared to the local market. Formulate an opinion on whether it holds promise or poses risks.
• Competition: how dense is the inventory of your choice in your location? Look for regions where the vacation rental just isn’t up to snuff.

To make informed decisions on an ideal vacation rental investment you can use smart analytical tools like AirDNA and Mashvisor.

How to choose the Best Airbnb locations

When it comes to measuring your returns on investment (ROI) for short-term rental property, you have several calculation models: cash on cash, internal rate of return, or annual rate of return. They all serve the same fundamental purpose – to gauge the profitability of your investment.

A good conservative ROI typically falls within the range of 8-12%, but AirDNA’s 2023 predictions indicate a minimum yield of 15% for seasoned investors. Real short-term rentals cash-on-cash returns can surpass 80%.

Look for areas with underperforming competitors

Regardless of the number of listings in a location, if their pricing strategies and amenities aren’t optimized, there’s an opportunity for you to stand out with a top listing.

If two properties in a location are offering the same number of beds, bathrooms, and amenities, but one is priced much higher than the other – you have a clear competitive advantage.

Look for upward demand trends

Look beyond the current market context. While some locations may be thriving in the short term, it’s crucial to focus on markets that show long-term potential. Check if booked nights have steadily risen over the course of the month or quarter.

Some local law can, for example, restrict how long guests can stay in the location. For example, since 2021 in Barcelona hosts are not allowed to rent out a single room for less than 31 days. This would affect the demand.

Consider satellite markets near major cities

Suburban locations can offer untapped potential in property markets. These destinations have become popular due to their proximity to urban hubs and abundance of vacation activities. Aim for a location within a 3 hour drive of a feeder market, as greater distances may limit access to major cities.

Close the the amenities gap in property setup

Invest in properties that have or can have amenities that the location ‘requires’. For example, having a pool is essential to attract bookings in rustic Italy. While in the city centres it is important to have convenient access to groceries. The key is to focus on markets where properties with specific amenities outperform those without.

Find locations where vacation rentals are not full-time

If a property is exclusively intended for travellers, it implies that it will be rented out for the maximum number of days in a year. Your objective is to discover locations where sort-term rental owners rent out only a portion of their property or reside in the property during certain periods of the year.

Choose locations where other listings have blocked dates or are not open more than 180 days/year.

​European short-term rental market in Q1 2023

Europe in 2023 presents a promising opportunity for prospective vacation rental hosts. United Nations World Tourism Organization (UNWTO) suggests that the tourism industry in Europe is recovering well in 2023:

• International tourist arrivals reached 80% of pre-pandemic levels in the first quarter of the year.
• Europe reached 90% of pre-pandemic levels, driven by strong intra-regional demand.<
• The recovery of international tourism in Europe has been strong in the Q1 of 2023, with an estimated 235 million tourists travelling.<

 International tourism in 2023 @UNWTO

Revenue potential of Spain 2023

Here are some market signals for potential investors in Spanish short term rentals.

1. The Vacation Rentals market in Spain is projected to grow by 1.67% (2023-2027) resulting in a market volume of 3.8bn euro in 2027.
2. The number of houses rented to tourists in Spain rose 20% (around 300,00 homes in 20 largest cities) in the first quarter of 2023 compared to the same period in 2022. Allegedly, many Spanish households view Airbnb as a means to generate additional income amidst the unpredictable economic climate.
3. Renting to tourists in Spain is twice as profitable as offering long-term rentals to residents.
4. In at least 6 major cities in Spain, the number of short-term rentals offered as an alternative to hotels grew by 34.5% in the 12 months to September 2022.
5. In February 2023, short-term rental demand in Spain increased by 26.6% compared to last year, despite being a typically low demand period.
6. The Spanish government has implemented regulations for short-term rentals, requiring hosts to register with the authorities and pay taxes on their rental income. Learn how to get a Spanish tourist license for a vacation rental.

Revenue potential of France in 2023

The French short-term rental market remains highly competitive.

1. The French short-term rental market is extremely dynamic, with a record peak of 805,000 Airbnb listings in February 2023.
2. The Vacation Rentals market in France is projected to grow by 0.78% (2023-2027) resulting in a market volume of €4.25bn in 2027.
3. Over the course of 2023, the number of listings on Airbnb in France witnessed a surge of 22%.
4. The Scale France 2023 Conference anticipates approximately 200 attendees, all of whom manage a minimum of 20 short-term rental properties across France.
5. The French government has implemented regulations to limit the number of short-term rentals in Paris (le loi ALUR/Duflot), including seeking authorization, maximum rental days, compensation mechanism, and change of use.
6. According to PriceLabs, the average daily rate (ADR) for short-term rentals in France increased by 18% in 2023 compared to the previous year.

Revenue potential of Italy in 2023

1. The Vacation Rentals market in Italy is projected to grow by 1.29% (2023-2027) resulting in a market volume of US$3.2bn in 2027.
2. Florence has recently implemented an immediate ban on new short-term private vacation rentals within the city’s historic centre. This measure aims to entice permanent residents back to one of Italy’s beloved tourist hotspots.
3. In 2023, the Italian government introduced new regulations for short-term rentals, requiring hosts to register with the authorities and pay taxes on their rental income.
4. According to PriceLabs, the average daily rate for short-term rentals in Italy increased by 15% in 2023 compared to the previous year.

The Italian short-term rental market is expected to grow in 2023, with a focus on rural properties and villas.

Best places to own an Airbnb in Europe

Now that we did a brief overview of the country specific situations in general, it’s time to dig into finding the right locations there. 

Key AirDNA metrics to evaluate Airbnb profitability

Market Grade

As of September 2023, AirDNA has changed its grading system from Market Grade to Market Score. However, at the time of our publication the Market Grade metric was accurate. The new Market Score provides valuable insights into the market performance of an exact property market. The maximum achievable score is 100. The score is based on demand, growth, seasonality, regulation, and investability data. 

Market Grade is a combined AirDNA metric that evaluates the performance of a location by comparing it to the top 2,000 Airbnb locations worldwide. It is based on five key metrics: 

1. Rental demand (High score = High travel demand)
2. Revenue growth (High score = Increasing revenue per property)
3. Seasonality (High score = Low seasonality)
4. Regulation (High score = Low or unenforced regulation)
5. Investability (High score = Good investment opportunity) – only available in the U.S.

The Market grade is determined by the area’s percentile in each metric, with higher percentiles indicating better performance.

Average Daily Rate

ADR is calculated by dividing the total revenue including cleaning fees by the number of booked nights. At AirDNA, revenue is defined as the sum of nightly rates in the calendar during the booked days, plus the cleaning fee spread across the reservation. 

Occupancy Rate

Occupancy rate (OR) is calculated by dividing the number of reserved days by the total number of available days in a month (median over the past year). Listings without bookings are excluded. 

Not always a higher OR is a good indicator, since some hosts may charge lower rates than the market, getting more bookings with lower revenue. Striking the right balance is key to maximizing the benefits for both hosts and guests.

Revenue

Median monthly revenue in euros including the cleaning fees over the past 12 months. The value doesn’t include taxes, service fees or extra guest fees.

Platforms like AirDNA allow investigation of the gap between the actual revenue earned by properties over the last year and the potential revenue these properties could have generated if they were listed full-time.

Below, we have some extract of data organised by the Market grade parameter – for top cities in France, Italy and Spain. 

The data period in the tables below is for August 2023 – the highest vacation season in Europe. 

AirDNA has in September 2023 undergone app transformations, one of which involves adjustments in their ranking system, now geared towards local markets. The previous Market Grade has been replaced by what is now referred to as Market Score, the specifics of which will be discussed later in the article.

Nonetheless, the primary objective of this article remains intact, namely, to provide you with an informative overview of European short-term rental markets that are worth investing in.

Airbnb investment opportunities in Spain, August 2023

Here are 20 top cities and regions in Spain for short-term rentals.

Note, that AirDNA update their data every month, so before you make an investment decision make sure to check their website beside our article.

Barcelona, Spain

On this graph we can see the performance of Barcelona market grade, ADR, OR, and revenue from peak to low season values.

Barcelona receives more than 12 million visitors per year. 150,000 people are working in the tourism sector in Barcelona, and tourism accounts for 7.3% of Barcelona’s GDP. Barcelona has a well-developed accommodation sector, including hotels, vacation rentals, and hostels.

Barcelona’s tourist accommodation profile as of 2017 (from barcelona.cat)

Area performance can differ across city districts. La Barceloneta, for instance, exhibits a slightly lower level of market attractiveness than the city in general, with an A grade and an ADR of €149:

2. Madrid, Spain

Mardid is a slightly more regulated place than Barcelona (low regulation index 58/100), but in general keeps the top A+ market grade.

Madrid is one of the six major Spanish cities where the number of short-term rentals grew by 34.5% (most of them in city centres) in the 12 months to September 2022.

Here are the data for two districts in Madrid. In August, Embajadores had an average daily rate (ADR) of 118 euros and a monthly revenue of 2,272 euros. Madrid’s Sol district had an ADR of 148 euros and an average revenue level of 3,061 euros.

3. Malaga, Spain

According to AirDNA, there are 7,843 vacation rentals in Malaga, with an average occupancy rate of 77% and a daily rate of €115 in 2023. This location is influenced by seasonal variations.

Malaga is a place for high-end tourism.The surge in tourism has resulted in a 31% rise in rental prices in Malaga by the end of 2022. 

Additionally, foreign buyers are driving real estate prices higher in Malaga, with about 3,496 homes purchased by foreigners in the first three months of 2023.

4. Granada, Spain

Granada shows A+ grade with €101 ADR, 67% occupancy rate and €1,651 revenue. The area is influenced by seasonality.

5. Canary Islands (Costa Teguise)

The Canary Islands boast a perfect year-round climate, making it an ideal tourism destination for all seasons. With slightly lower average night rates of €83, it keeps the high occupancy rate of 89% and keeps a 100/100 A+ market grade from AirDNA.

6. Mallorca (Plama)

Palma of Mallorca has a B+ market grade with 185 euros ADR and fluctuating occupancy rate (84% in August).

Mallorca is challenging for non-Spanish residents in terms of investing in Airbnb due to recent legislative changes and restrictions.
The Balearic government has implemented a freeze on the private ‘bed exchange’ until 2026. This means that no new licences for holiday rentals will be issued, and there will be no increase in the number of hotel beds.
We recommend further exploration of the vacation rental legislation in Mallorca.

Spain: overall investment attractiveness

Overall, Barcelona, Madrid, and Malaga lead in investment attractiveness due to their strong market grades, high ADRs, healthy occupancy rates, and substantial revenues. Valencia, Seville, Alicante, and Bilbao also offer solid investment potential.

The mid-tier markets have varying strengths and weaknesses, making them viable options based on individual investor preferences and risk tolerance.

Best Airbnb arbitrage locations in France, August 2023

France is becoming increasingly popular for Airbnb arbitrage. There are many city districts, regions, and islands to choose from. The following list outlines the best locations in France based on AirDNA’s August 2023 metrics:

1. Paris, France (investment rating)

Paris is widely regarded as a top-tier destination, boasting a remarkable A+ grade. With an average daily rate of 170 euros and a high occupancy rate of 89% (which reaches 100% during peak season), the median revenue stands at 2680 euros.

As an example showcasing the variation in numbers, we have chosen the highly regarded district of Bourse in Paris. With an average daily rate (ADR) of 232 euros, an occupancy rate (OR) close to 90%, and a revenue of 4,447 euros, it demonstrates substantial potential. However, investors must also consider the regulations that apply to this area.

2. Toulouse, France (investment rating)

Toulouse presents itself as a promising investment opportunity in France, boasting an impressive A+ market grade. It has a competitive night rate of 70 euros, a high occupancy rate of 72%, and a monthly average revenue of 1,117 euros.

3. Versailles, France (investment rating)

Versailles, a true gem nestled in the suburbs of Paris, boasts an average daily rate of 108 euros, with an outstanding occupancy rate of 77%. This translates to a commendable revenue of 1,620 euros. Still, it has a somewhat challenging regulatory climate (scored 40/100).

4. Nantes, France (investment rating)

Nantes presents a strong investment potential with an A market grade. Offering an ADR of 79 euros and a solid occupancy rate of 74%, this location ensures a consistent revenue flow. Investors can look forward to a competitive monthly average revenue of 1,179 euros. Revenue growth shows 34/100, which means the YoY RevPAR didn’t grow significantly.

5. Lyon, France (investment rating)

Lyon stands out as an attractive investment opportunity in France, boasting an exceptional A+ market grade. With an Average Daily Rate (ADR) of 96 euros and a commendable occupancy rate of 74%, investors can anticipate a substantial monthly average revenue of 1,481 euros.

6. Montpellier, France (investment rating)

For comparison, French southern resort towns didn’t make it to the top of our Airbnb investment chart, but we want to highlight one of them – Montpellier.

Montpellier has a low revenue growth potential (38/100) and the market is highly regulated (41/100). Very seasonal business, in most cases with occupancy rates fluctuating between 57-73% in the low and high seasons, overall investor rating is B+.

France: overall Airbnb investment attractiveness

Paris, Toulouse, and Versailles shine as top investment choices due to their A+ market grades on AirDNA, high ADRs, strong occupancy rates, and considerable revenues.

Cities with A market grades – Nantes, Lyon, Lille, and Bordeaux – also offer attractive investment opportunities. The A- and B+ grade locations present varying levels of potential, while B- grade locations might require additional consideration due to challenges with occupancy rates.

Best Airbnb investment opportunities in Italy, August 2023

Italy is another great destination for Airbnb investment. In an effort to attract more visitors, the Italian government has recently implemented several initiatives and tax cuts that make investing in Italy attractive.

1. Rome, Italy investment rating

Rome is a premier investment destination in Italy, with A+ market grade, ADR of 170 euros and an occupancy rate of 94%, robust monthly revenue of 3,832 euros. Seasonality significantly impacts revenue, which decreases to 1,885 euros during the low season.

2. Milan, Italy investment rating

Milan stands out as a prime investment choice with an A+ market grade. Offering an ADR of 132 euros and an occupancy rate of 75%, this location ensures a steady revenue flow. Expected monthly revenue is 2,109 euros.

3. Florence, Italy investment rating

Florence presents itself as an enticing investment opportunity in Italy, showcasing an exceptional A+ market grade. With a competitive ADR of 146 euros and a high occupancy rate of 90%, this location promises a substantial monthly average revenue of 2,818 euros.

4. Venice, Italy investment rating

Venice is an investment prospect with an A+ market grade. Flaunting an impressive ADR of 180 euros and occupancy rate of 89%, this museum city promises an enticing monthly average revenue of 3,706 euros. However, Venice is marked by the impact of seasonality (46/100 score), which affects the fluctuation of prices throughout the year and the timing of investments.

5. Napol, Italy investment rating

Naples (Napoli) presents a promising investment potential with an A+ market grade. With an ADR of 96 euros and a solid occupancy rate of 80%, this location ensures a consistent revenue flow. Investors can look forward to a competitive monthly average revenue of 1,745 euros.

6. Amalfi Coast, Italy investment rating

The Amalfi Coast (Almalfi town) is an investment opportunity in Italy, marked by a A- market grade. Boasting an impressive ADR of 201 euros and a high occupancy rate of 89%, this location has a revenue potential of 4,153 euros. However, the seasonality score is exceedingly low, only reaching 3 out of 100. This greatly complicates its viability as an investment during periods of low demand.

Italy: overall Airbnb rating

Italy offers a diverse array of investment opportunities in its short-term rental market. Major cities like Rome, Milan, Florence, Venice, and Naples, as well as regional gems like Lake Como and Tuscany (Siena), are particularly attractive due to their A+ market grades, high ADRs, and strong occupancy rates. Locations with A market grades – like Sicily, Tuscany – also offer solid investment potential.

Conclusion

You need to know your crucial metrics. Evaluate economic situation, properties demand and supply, ADR, RevPAR, and occupancy to assess revenue potential.

Seasonality impacts pricing. Property type influences guests profile and level of competition.
Spot areas with underperforming competitors. Monitor demand trends, local laws, suburban markets, and improved property amenities.

Use tools like AirDNA and Mashvisor for specific local research.
Central European cities consistently maintain the highest market grade of A+, indicating greater economic potential and advantages. Coastal regions are particularly affected by seasonality and are subject to numerous local regulations, particularly in Spain and Italy.