Does a tighter spread between occupancy and stabilized occupancy indicate higher demand?
Does a tighter spread between occupancy and stabilized occupancy
  indicate higher demand?


Not necessarily. Demand is not the only factor that determines occupancy rates. A tight spread by itself only indicates market steadiness (that is, uniformity over time).

Using your example, Market 2 could have experienced a significant increase of demand in the past two years and yet present a lower occupancy rate if cost at new facilities outweighs the demand increase. The new bedrooms are available but only few consumers can afford them.

Government intervention and/or expectations about the future might also discourage suppliers from effectively releasing to the market much of the new facilities. This certainly amounts to a reduction of supply (and a higher Occupancy Rate, accordingly), but metrics might fail to capture that reduction in a market that would otherwise reflect the same demand and Occupancy Rate as Market 1.