Why Dubai rents continue to rise?

Rents in both affordable and luxury segments maintained their upward trend in the third quarter of 2023 in Dubai as the population of the emirate continued to increase.

As the overall local economy expands with more foreign businesses flocking in, the number of employees is growing, too, resulting in an increased demand for rental properties.

As of Sunday, Dubai’s population stood at 3,636,610 as compared to 3,550,400 at the end of 2022, an increase of 86,210. In addition, the local job market has also been very active, attracting a lot of new jobseekers to Dubai.

According to property portal Bayut’s third-quarter figures, affordable apartment rentals in popular areas increased by up to 11 per cent while the cost of luxury apartment rentals went upward up to 13 per cent.

“Areas with reasonably-priced villas have experienced price upticks of between 3 and 16 per cent, while luxury villa rentals have increased by up to 21 per cent,” said Bayut.

In the affordable segment, Dubai tenants have been focused on Jumeirah Village Circle (JVC) and Al Nahda. Those looking for villas have mainly considered Damac Hills 2 and Mirdif. In the luxury segment, Dubai Marina and Business Bay have remained popular options for apartment rentals, while Dubai Hills Estate and Arabian Ranches 3 are sought after for high-end villas.

“What we’re seeing in Q3 2023 reinforces the fact that this market is not showing any signs of slowing down. While major economies around the world are still struggling with the post-pandemic economic slowdown, the UAE is well on its way to breaking records with growth across major sectors including tourism, real estate and energy,” said Haider Ali Khan, CEO of Bayut and head of Dubizzle Group Mena.

Dubai’s rental market has witnessed a significant increase in rents and activity in the past two years, ending the negative growth cycle that began in mid-2015 and lasted until late 2021.

Data from the Dubai Land Department revealed that in the year to date to July 2023, the total number of tenancy contracts registrations reached a total of 325,727, a 43.5 per cent increase from the 227,011 contracts registered in the same period in 2019.

Taimur Khan, head of research at CBRE, said the local rental market is fragmented. “First, the total number of new contracts registered dropped by 12.6 per cent, whilst renewed registrations grew by 29 per cent, indicating that tenants are less willing to relocate as they are not prepared or able to pay the higher rates that are evident on new leases, particularly in prime and core residential areas. These tenants are effectively taking advantage of the protection provided by the Rera rental regulations. These regulations seek to limit the annual rental increase permitted to a maximum of 20 per cent, while the likelihood of achieving the highest rate of increase is rare in most cases,” said Khan.

Going forward, CBRE sees that premiums that new rental contracts can achieve for apartments have now reached a peak as new rental contract premiums have been decreasing since January 2023. “We expect this to continue as renewals adjust to market rates,” it said.

But the villa segment is a different story as it faces undersupply. “We expect that this level of premium is not likely to decrease in any material manner in the immediate future. In the long-term, as new rental levels inevitably stabilise, we are likely to see this premium shrink as new renewals adjust to the stabilised market rate,” it said.