Rising supply softens Dubai’s short-term housing market

Emaar

• Fourfold increase since 2018
• Demand not kept pace
• 9,200 more hotel rooms

Short-term rents in Dubai’s housing market have fallen this year as the rapid rise in supply begins to outstrip demand.

Vinayak Mahtani, CEO of bnbme holiday homes, told AGBI that over the past three years, he had seen 100 percent growth in the short-term rental market.

“It’s become a buzzword in Dubai, a trendy business,” Mahtani told AGBI. His company entered the short-term rental market in 2018 when there were around 5,000 units on offer in Dubai. This has now increased to around 20,000 over the past five years. 

While supply has increased fourfold, Mahtani said, demand in Dubai’s short-term housing rental market has not kept pace. Revenue per available room has increased by around 10 to 12 percent in the past year, but Mahtani estimates that the increased supply has seen rates stabilise this year.

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Looking ahead to the traditionally busy New Year’s Eve period, he estimates that occupancy rates have also fallen, averaging around 75 percent, from around 83 percent in 2022. 

“Let’s also not forget, we had a whole bunch of new hotels open up as well,” Mahtani said.

A report by the consultancy company Knight Frank estimated that 9,200 extra hotel rooms will have been added in Dubai in 2023, a rise of 6.4 percent to around 154,000 rooms.

One of the reasons for the rise in short-term lettings was because landlords in the long-term rental sector are locked into rental terms stipulated by the Dubai regulatory authority.

While landlords cannot lease to new long-term tenants for two years after they evict an existing tenant, they are allowed to put their property on the short-term market and earn up to 20 to 25 percent more than with yearly leases.

Short-term flexibility

“As a property owner in the short term, you have flexibility. In the long term, the other challenge is increasing rents. Generally, to increase rents on your tenants is very, very difficult,” Mahtani said.

A report covering Q3 2023 by the short-term rental company AirDXB showed that the top nationalities for guests were British, making up 11.18 percent, followed by Saudis (8.27 percent), Americans (8.23 percent), French (7 percent) and Russians (5.68 percent).

Reflecting the demand-supply dynamic outlined by Mahtani, the AirDXB report found that average daily rates in Dubai were down by around AED100 ($27.23) in Q3, compared to the same period last year.

Average daily rates in September amounted to AED528, with this likely to rise to around AED1000 during the peak Christmas and New Year periods.

Looking to the future, Gregory Lewis, director of the AirDXB Group, said the establishment of a new federal body, the General Commercial Gaming Regulatory Authority, for the gaming sector, and the opening of the first casino resort in Ras Al Khaimah in 2027 will benefit the sector.

“The [gaming] sector would also bring an entirely new type of tourist to the Emirates. If we look to Macau as a comparative market with a potentially similar gaming sector, valued at $5.2 billion, commercial gaming could bring between 5.7 million to nearly 40 million extra international travellers a year – a big benefit for the Dubai short-let market,” Lewis said.