Top Markets for Short-Term Rental Investment in 2025

With 2025 now in the rearview mirror, the data is in — and some short-term rental investment markets dramatically outperformed expectations while others cooled faster than anticipated. Whether you're an investor who acted on last year's opportunities or someone evaluating where to deploy capital now, understanding which markets delivered the strongest cap rates, occupancy, and ADR growth in 2025 gives you a critical edge for your next move.

What Made a Market "Strong" in 2025

Not all short-term rental investment markets are created equal, and 2025 proved that point convincingly. Investors who chased the most hyped destinations sometimes found themselves competing in oversaturated markets with declining ADR. The markets that actually performed were characterized by a specific combination of supply constraints, strong leisure demand, and favorable local regulatory environments.

The three metrics that mattered most for STR investors in 2025 were cap rates (net operating income relative to purchase price), occupancy rates above the 65% threshold, and year-over-year ADR growth of 5% or more. Markets that hit all three benchmarks were rare — but they existed.

The Data-Backed Winners

Based on 2025 STR market analytics, several regions stood out as consistent overperformers across all three metrics:

• Smoky Mountains (TN/NC border): Continued to lead in cap rates averaging 8–12%, driven by year-round demand and limited buildable land constraining new supply.
• Gulf Shores / Orange Beach, AL: ADR growth of 7–9% YoY with occupancy holding above 68%, buoyed by families priced out of Florida's premium beach markets.
• Scottsdale / Sedona, AZ corridor: Strong shoulder-season demand pushed annual occupancy higher than traditional sun-belt assumptions predicted.
• Pocono Mountains, PA: Benefited from its proximity to major Northeast population centers, showing some of the strongest cap rates in the Eastern US.
• 30A / Panama City Beach, FL: While broader Florida markets softened, the premium 30A corridor maintained ADR above $400/night with high-income traveler demand.
• Blue Ridge, GA: A smaller market that punched well above its weight, with cabin inventory selling out months in advance and nightly rates climbing steadily.

What Dragged Certain Markets Down in 2025

Understanding the underperformers is just as valuable as celebrating the winners. Several once-hot short-term rental investment markets saw meaningful softening in 2025, and the reasons are instructive for anyone planning future acquisitions.

Supply Saturation and Regulatory Pressure

Markets that exploded in 2021–2023 often saw their cap rates compress significantly by 2025. When too many investors flood the same zip code, nightly rates fall, occupancy drops, and operating costs (cleaning, management, maintenance) stay fixed. The math stops working.

Regulatory pressure compounded the problem in several cities. Markets like Nashville, TN; Scottsdale city limits (not surrounding areas); and parts of coastal California introduced or tightened STR licensing requirements, reducing the investable inventory and creating legal uncertainty for existing operators. Investors who didn't account for regulatory risk in their underwriting paid for it in 2025.

The takeaway: strong short-term rental investment markets aren't just about demand — they require a regulatory environment that allows you to actually operate, and a supply picture that doesn't undercut your pricing power the moment you list.

How to Evaluate Your Next STR Market Opportunity

Going into the back half of 2026, the markets that showed strength in 2025 are worth a hard look — but only with current, property-specific data. Market-level averages can mask significant variation based on bedroom count, property type, amenities, and exact location within a market. A four-bedroom cabin with a hot tub in the Smokies performs very differently from a two-bedroom condo in the same zip code.

The Benchmarks Serious Investors Use

Professional STR investors and management companies like E&J Retreats use granular comparable data — not broad market averages — to project real revenue potential. When E&J Retreats evaluates a new property for management or helps an investor assess a potential acquisition, the analysis compares that specific property against 20+ similar listings by bed count, bath count, and proximity. That's the level of precision that separates profitable acquisitions from costly mistakes.

Before you purchase in any of these top-performing short-term rental investment markets, make sure your revenue projections are built on comps that actually match your property — not the best-case listing in the market.