I’ll echo what others have said. At the most, only refund the guest any days that get re-booked by other guests, and issue the refund only after the guest’s original check-out date.
If you just want to be nice, then you can do whatever you want, but purely based on policy, this is the most fair to both you and the guest.
@Allison_H recently pointed out to me that there are other reasons for strict cancellation.