The Dubai rental market is experiencing a transformation, with the latest report shedding light on intriguing developments.
In recent years, Dubai’s rental market has witnessed a remarkable resurgence, effectively ending a period of negative growth that spanned from mid-2015 to late 2021.
As of July 2023, the data from the Dubai Land Department reveals a staggering 43.5% increase in the total number of tenancy contracts registered compared to the same period in 2019, reaching a total of 325,727 contracts.
This impressive growth has translated into average apartment rents reaching their highest levels since February 2017, and villa rents hitting record highs.
However, beneath these headline figures, a significant divide has emerged in the rental market. The number of new contracts registered has dropped by 12.6%, while renewed registrations have grown by 29.0%. This suggests that tenants are opting to renew their leases rather than relocate due to the higher rates prevalent in new leases, especially in prime residential areas. These tenants are leveraging the protection offered by the RERA rental regulations, which cap annual rental increases at a maximum of 20.0%.
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To provide a comprehensive view, the report analyzed nearly 703,000 residential rental transactions between January 2018 and July 2023, focusing on both apartments and villas. In the apartment segment, it covered 23 different free-hold communities, while for villas, it encompassed 20 free-hold areas.
For apartments, a noteworthy shift has occurred. Historically, new rental contracts averaged a 5.0% discount compared to renewed contracts between January 2018 and July 2021. However, with increasing demand, this trend has reversed, and in July 2023, new rental contracts commanded an average premium of 20.1% over renewed contracts.
This change is not uniform across all communities; prime and core markets like Downtown Dubai, Palm Jumeirah, and Business Bay started achieving premiums on new rental contracts in early 2021. Although, secondary neighborhoods have seen relatively negligible premium growth compared to prime areas.
In the villa segment, supply constraints have led to a different dynamic. Demand for single-family homes has surged, resulting in a 29.9% increase in the number of tenancy contracts registered compared to 2019 levels as of July 2023. Consequently, new rental contracts command an average premium of 25.2%. While this is slightly down from its peak in December 2022, the premium continues to hold strong.
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In conclusion, the Dubai rental market is witnessing a fascinating interplay between new and renewed contracts, with varying trends across different segments. Understanding these dynamics is crucial for both tenants and landlords navigating this evolving market.
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Images: Supplied by CBRE Mena