Incentives provided by landlords to attract new and retain existing tenants are decreasing
Average rents for apartments in Dubai have reached their highest levels since January 2017, while those for villas are the highest on record, a new report has said.
Rents are continuing to grow, real estate consultancy CBRE said as it released its Dubai Rental Report 2023. In the year to July 2023, “we have seen average rents increase by 22 per cent, although this rate has moderated throughout the year to date”.
For apartments, the average rent is Dh95.5 per sqft in 2023 — 2 fils shy of Dh95.7 back in 2017. For villas, the average rent is Dh91.3 per sqft — which is the highest on record, Taimur Khan, head of Research – MENA at CBRE in Dubai, told Khaleej Times.
“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 reached a total of 325,727 — a 43.5 per cent increase from the 227,011 contracts registered in the same period in 2019,” CBRE said.
Incentives provided by landlords to attract new and retain existing tenants are decreasing. Four years ago, a rent-free month added to a 12-month contract; discounts; and payment with four to six cheques were a norm, which is not the case anymore.
“For a significant period of time, supply had outpaced demand within Dubai’s residential market and the apartment market was a particular case in point. This resulted in a tenant-favoured market where many incentives were provided by landlords … As a result, historically in the apartment segment of the market, new rental contracts registered average discounts of 5 per cent, compared to renewed rental contracts between January 2018 and July 2021.
“However, as demand started to see significant upticks, we have seen this trend reverse, with new rental rates surpassing the average achieved rates for renewed registrations. In July 2023, for apartments, the average premium for new rental contracts compared to renewed contracts stood at 20.1 per cent,” the consultancy said.
Why residents are not moving homes
Most tenants are renewing residential leases as they look to avoid the costs associated with relocation. “The total number of new contracts registered dropped by 12.6 per cent, while renewed registrations grew by 29 per cent.”
This is particularly true in prime and core residential areas as tenants take advantage of the protection provided by rental regulations. These regulations seek to limit the annual rental increase permitted to a maximum of 20 per cent, with the “likelihood of achieving the highest rate of increase … (being) rare in most cases”.
Taimur Khan said: “The surge in demand has substantially changed the market dynamics in Dubai’s residential rental market, where given the much more landlord-favoured market, we are seeing new rental contracts able to achieve significant premiums to renewed contracts.
“This is now beginning to dissipate in the apartment segment of the market as affordability parameters are tested and renewals begin to catch up with market rents. In the villa segment … the significant disparity between demand and supply means the premiums achieved in this segment are likely to remain higher for longer.”
Source: Khaleej Times
