Tenants hit Dubai’s suburbs as prime property rents soar

Damac Properties

• Growing demand for more affordable residential rents
• Mid-market property boom to follow prime location luxury boom

Rising property rents in prime areas of Dubai are increasingly causing tenants to move to more affordable suburban communities, leading to a growing demand in the mid-market residential segment.

Dubai rents increased by an average of 36 percent in 2022, according to a new report by real estate firm Betterhomes. Average apartment rents increased by 25 percent, townhouses were up by 42 percent and leases on villas soared 61 percent.

With the supply of new homes set to remain constrained, and the influx of new residents expected to continue, the report said rents were likely to continue to grow this year.

• Sheikh Mohammed reveals phase 2 of Dubai 2040 plan
• Dubai rents to stabilise after record-breaking rises
• Dubai’s mid-market property sales next to flourish, says Damac

“High rates of renewal and low rates of transiency in the face of rising rents will keep rental inventories low again in 2023,” said Richard Waind, managing director of Betterhomes.

“Coupled with a growing population and a lack of new homes being delivered, we can expect further rises in rents.

“This will be welcome news for investors who have seen average yields rise to 6.5 percent, and it is likely to result in greater tenant demand for more rural periphery communities in the coming months.”

Richard Crossley, leasing director at real estate firm Powerhouse, said a number of factors were also pushing up rents, including a shortfall of about 20 percent in the handover or new homes, and an increase in the number of units being diverted to the short-term or holiday leasing sector.

These factors, Crossley believed, were pushing tenants further out.

“Low supply and high demand creates that age-old vortex of fast rising prices,” he said. “But canny tenants are determined not to be held ransom to overheated communities.

“They’re prepared to migrate to outlying communities where added travel time is a factor but rents can be substantially lower than their old stamping ground … for now.”

• 

• 

Powerhouse said it was seeing strong demand in communities areas such as Al Furjan, Town Square, JVC, Damac Hills 2 and Dubai South.

Damac Properties, one of the largest private developers in the region, said it had also identified this shift.

“After the development of our two master projects, Damac Hills and Damac Hills 2, we have also launched our third community project Damac Lagoons,” Niall McLoughlin, senior vice president at Damac Group, said.

“All three projects have been built in suburban Dubai, spanning over 150 million square feet. Damac has seen high demand in suburban areas of the UAE.” 

McLoughlin predicted community areas such as Dubailand and around the new Expo City are likely to benefit from this exodus to the suburbs.

Dubai’s real estate sector continues to grow at record pace, with the number of transactions up 61 percent year-on-year in 2022, leading many prominent developers to predict that 2023 will see a focus on more mid-market and affordable homes.

“Since the luxury market has been booming, everyone has been focusing on launching luxury products,” Ali Hussain Sajwani, managing director of operations and technology at Damac Properties, told AGBI in December.

“People have forgotten the mid-segment: we now expect to see it boom.”

Rizwan Sajan, founder and chairman of Danube Group, predicted this month that prices across the board would enjoy double digit growth.

“The affordable sector will go up about 10 to 15 percent and luxury will go up 25 to 30 percent, because the number of people coming to invest in Dubai is huge,” he said.

Developers’ renewed focus on the mid-market sector is in keeping with the second phase of the Dubai 2040 Urban Master Plan, which was launched by the government in December and predicts that the emirate’s population will hit 5.8 million by 2040, from 3.3 million today.

Strong rental demand in prime Dubai locations can also be put down to the influx of affluent migrants to the UAE in 2022.

A Henley Global Citizens report published last August forecast that the UAE will record the largest net inflow of millionaires on record, adding an additional 4,000 high net worth individuals this year, overtaking traditional havens such as the US and UK.

Russia tops the list of countries expected to see a net outflow of millionaires. It is followed by China, India, Hong Kong, Ukraine, Brazil, the UK, Mexico, Saudi Arabia and Indonesia.

However, a senior economist at Dubai’s largest bank warned last year that changes in the demographics of the city had already contributed to the country’s rising inflation.

“[The influx of affluent individuals] has absolutely contributed to the robustness of demand and the recovery that we’ve seen in domestic demand over the past year or so,” Khatija Haque, chief economist and head of research at Emirates NBD, said during a public briefing of the IMF’s October 2022 Regional Economic Outlook for the Middle East and Central Asia.

“I think it has contributed to inflation in housing. In particular, we’ve seen the rents going up much faster than we were expecting coming out of the pandemic.”