Part 2: Is "lowering prices brings in worse guests" really true? Shifting markets and the right way to think about ADR

BUSINESS SERIES ── Part 2

"We're listing at the same prices as last year, but bookings just aren't coming in. And we don't even know what to adjust where..." We've been hearing this kind of question more and more over the past year or two.

Buoyed by the rapid recovery of inbound tourism, Japan's vacation rental and accommodation market in 2023–2024 enjoyed an unusual boom. Strong demand outpaced supply, and bookings kept rolling in even without much pricing finesse. That boom calmed in 2025, and we are now squarely in an adjustment phase.

The real problem isn't the market shift itself — it's the state of "not knowing how to move pricing." Operators who have only experienced boom conditions have very little practice adjusting ADR to match demand.

What is ADR?

ADR (Average Daily Rate) is the metric for "average price sold per night."

ADR = Lodging revenue ÷ Nights sold

Where last time's GOP looked at "what's left after costs," ADR asks "what price are we selling each night for in the first place." When ADR rises, GOP improves without changing the cost structure; when it falls, GOP gets squeezed at the same costs.

Hotels and vacation rentals show price differently

A structural feature unique to vacation rentals: cleaning fees are charged on top of the guest's bill. Hotels bake cleaning costs into the nightly rate, but on Airbnb, cleaning fees and service fees are added on top of the per-night rate. What guests actually compare is "total ÷ nights."

The reason properties with high cleaning fees struggle to attract short-stay bookings isn't the nightly rate but the total. Without understanding this structure, you can look "cheaper than competitors" on ADR alone while still appearing expensive from the guest's point of view.

"The big-property fantasy" — a broken equation

You can't talk about ADR without mentioning the large-capacity properties (8–15 guests) that have surged in recent years.

Japan used to have very few options for groups of many people staying mid- to long-term. Vacation rentals stepped in to fill that demand, and large-capacity properties were recognized as a profitable category. The post-COVID supply shortage made this especially dramatic, and social media buzzed with vacation rental influencers posting things like "one booking just brought in over a million yen."

But take a moment to think calmly. How many people will actually stay 30 nights in a packed-to-the-rafters house at 60,000 yen per night? In reality, many of those posts were just inquiries or last-minute cancellations. There was a lot of buzz-driven exaggeration, and the numbers took on a life of their own.

After that, large-capacity properties chasing those high revenues flooded supply, and the demand-supply balance flipped completely. Today, the large-capacity segment is saturated.

Yes, large properties tend to have higher ADR. But high ADR doesn't necessarily mean high revenue. Once you factor in lower occupancy, shorter stays, and heavy cleaning costs, the actual earning power of large properties today is often far from the image they once had. Chasing ADR alone isn't enough to keep up with shifting markets.

We're seeing more cases like this: an operator keeps lowering prices to fill bookings, until a 10-person property's effective per-person rate matches that of a small 5–6 person property. The ADR advantage of going large is completely cancelled out by discounting.

Even more concerning is actual occupancy. Looking at one owner's data we recently reviewed, despite a design for up to 10 guests, in the past year there were almost zero stays of 8–10 people. The vast majority of bookings were 4–6 people, and the large-capacity zones sat empty. In that case, a property designed for 5–6 guests with a foldable mattress to accommodate larger groups maintains higher ADR while securing occupancy. Going big isn't a "dream" — it's a question that needs to be answered through target design.

Is "lowering prices brings worse guests" really true?

Another reason owners can't move pricing: this belief.

Bottom line: on Airbnb, the correlation between price and guest segment is weaker than commonly believed.

In hotels and ryokans, price tends to segment the guest base. But Airbnb guests behave differently. Many guests search for unexpected encounters and experiences, and decide to book based on photos and concept — what we'd call "judging by the cover"-style selection. The feeling of "I want to stay in this space" trumps price.

So what actually segments guests? In practice, it isn't price — it's "what kind of property does it look like." A wall-to-wall-beds large-capacity layout, per-person pricing — these elements appeal to the "I want to stay cheap with many people" segment. A property's positioning can attract problematic bookings without any discounting.

For listings with a clear spatial concept that get picked through name searches or Airbnb's "Guest Choice," the price-segment correlation thins out. Guests who actively choose "I want to stay at this property" are price-insensitive and tend to show more respect for the space. This is what Yuka-Han aims for with Wuto. With strong listing recognition, even bold market-driven discounts have limited impact on guest segment.

There's also this counter-intuitive approach: deliberately running a period of lower ADR to accumulate reviews and OTA trust. For new listings or post-evaluation-reset launch periods, or when targeting search ranking recovery, prioritizing occupancy by lowering ADR is a rational call. Sacrificing short-term ADR for long-term earning power.

Push ADR too high and stays get shorter

There's a side effect of raising ADR: the higher the rate, the harder it gets to land long stays.

Two weeks at a 20,000 yen/night property comes out to 280,000 yen total. Guests will lean toward "let's do something short and intense." That increases short turnover and amplifies cleaning cost impact. To truly maximize GOP, you have to think about ADR and length of stay together.

Dynamic pricing — too low or too high are both dangerous

Adjusting price to demand is effective, but both too-low and too-high are problems.

Too high: vacancies persist, and you fall into a pattern of last-minute deep discounts. Repeat this, and lead times shrink, making aggressive pricing even harder — a vicious cycle.

Too low: you fill in the short term, but ongoing ADR decline puts pressure on GOP.

This applies not just to Airbnb's Smart Pricing but to revenue-control systems generally. Automation tools tend to optimize toward "maximize occupancy" and are bad at defending ADR. The platform's or tool's commission revenue isn't necessarily aligned with the owner's profit maximization.

To be clear, we're not dismissing Smart Pricing or revenue control tools. But conditions are always moving, and running on a "perfect setup" full automation indefinitely is extremely difficult in practice. Even at Yuka-Han we keep experimenting — combining several services and building our own AI-driven information systems. And still, in the end, the accumulated feel from experience plus continuous adjustment turns out to be indispensable.

How to measure your property's "correct ADR"

What matters isn't "last year's price" or "the area average" — it's having a measure of the correct ADR for your property.

① Track the overall market

Above all, the most important thing is continuously reading the overall market shift, not just your own property in isolation.

City hotels, business hotels, guesthouses, hostels, capsule hotels, weekly mansions, serviced apartments, traditional house vacation rentals, pet-friendly properties, long-term rentals — how rates and vacancy are moving across categories. Total inbound flow, regional trends, rate changes by stay-length range — building this multi-layered picture lets you see the contours of the right price for your property.

At Yuka-Han we check daily rate and vacancy movements across these categories, not just Airbnb. Honestly, this has become a hobby for us. Watching the numbers, market shifts start to look like a puzzle, and before we knew it, checking it every morning had become a habit. That accumulation is the foundation that lets us not miss timing for price adjustments.

② See it together with occupancy via RevPAR

RevPAR = ADR × Occupancy

A high ADR with low occupancy doesn't improve RevPAR. The target is Pattern B's zone.

③ Compare to long-term rental market (in GOP terms)

"Airbnb earns more than long-term rental" is true in many cases, but a revenue-only comparison isn't enough. Properly, you need to compare across ADR × Occupancy × GOP rate.

Vacation rental net = ADR × Occupancy × GOP rate

Long-term rentals carry virtually no operational costs and have very high GOP rates. If your vacation rental's GOP rate is 40%, you need about 2.5x the rental rate in revenue to match the same earnings as renting it out long-term. As a rule of thumb, "3x the rental rate in revenue is clearly favorable."

Even with the impressively higher ADR figures of vacation rentals, you can't see the real comparison until you net out cleaning fees, OTA commissions, and utilities.

For sublease-type vacation rentals (where you lease and operate a property), use your monthly rent payment as the baseline. Including key money and brokerage fees amortized over the lease period as effective rent, having 3x that effective rent in revenue means you have sufficient earning power as a vacation rental.

Try the math

ADR = Last month's lodging revenue (excluding cleaning fees and service fees) ÷ Nights sold RevPAR = ADR × Occupancy (Nights sold ÷ Available nights)

Lining up these numbers for three months reveals the ADR/occupancy trade-off. If "ADR was preserved year-over-year but RevPAR dropped," that's a sign you defended price but lost occupancy.

Next time we'll dig into average length of stay. In vacation rentals, where cleaning costs are "fixed per turnover," length of stay is one of the most important variables tied directly to GOP. And in fact, this metric is in direct conflict with the profit structures of cleaning vendors and management companies — we'll cover this from the owner's perspective.