Landlords in Dubai are again having to take up this question in earnest as demand and rental rates on short-let show no signs of cooling off. In fact, there’s every chance that the period up to January 2024, and beyond, could turn out to be even better for the Dubai short-let market. Some landlords have transitioned to the long-term market with the assumption that they will make higher financial returns there. This article takes a look at why short-let remains a strong investment opportunity.
Check out the insights from our Founder and Director, Gregory Lewis, which were used in this article, below.
Holiday homes are the same as short-stay rentals, you can book an AirDXB property from one night up to 364 nights. While AirDXB stock continues to increase, from our analysis of our competitors and the overall Dubai short-let market, it is clear that stock has dropped. Due to the recent spike in rental returns which can be made in the long-term market, homeowners have transitioned across, or sold their property, to take advantage of these increased rates or sale prices. However, this is positive news for short-let. Less supply (stock) with increasing demand (we are projecting one of the highest performing high seasons in recent years) = higher returns for our homeowners. We are already seeing record-breaking rates for early December – COP28 – and the New Year period. COP28 is a particular boast in 2023, promising over 80,000 international travellers to Dubai in the first two weeks of December.
Long-term rental increases are levelling out and stabilizing. While there have been minor increases in areas such as Dubai Marina, areas such as Palm Jumierah and Downtown Dubai have stalled and recorded no increases in recent months. However, we are seeing increases in long-term rents in further out locations such as JVC, but these areas still remain affordable. The top tier market who were prepared to pay higher rents has topped out, and it is now the mid-tier – looking for value and deals – who are dominating the market. This has little impact on short-let, as our returns are based on occupancy levels, average daily rates and ultimately tourists rather than residents. In fact, the impact is positive, as homeowners who have transitioned to long-term have increased demand in short-let.
Short-let returns have been consistently high, and remain higher than that of the long-term market. When long-term rents first started to spike, we saw the percentage difference in returns drop to 30% from 50% (in favour of short-let). However, with the drop in stock on short-let and government initiatives dedicated to increasing tourism (see: The UAE Tourism Strategy 2031 designed to boost the tourism sector’s GDP contribution to AED450 billion, at an annual increase of AED 7 billion by 2031) and global events such as COP28, we forecast that not only will we see 50% higher returns than long-term again in the very near future, but we will actually surpass this.
According to Airdna, a data analysis company for the global vacation rental market, Abu Dhabi currently has 1,218 short-let listings, a 96% increase in the last year, with an average market occupancy rate of 41%. Sharjah as 655 short-let listings, up 39% in the last year, with an average market occupancy rate of 37%.
We were seeing this trend at the start of the year, as some homeowners panicked and made the jump to long-term. Short-let allows homeowners to effectively ‘tread water’ while the market fluctuates and then ultimately settles, upon which time you can todqay make an informed decision on which market you want to be in. Long-term, however, you are contractually obligated to stay in, no matter what happens in the market (unless you meet specific criteria). Homeowners need to consider where they want to be in a years’ time. For example, we spoke to a homeowner who moved to long-term in January 2023 as the rent for their one bed apartment in Dubai Marina had jumped to AED90,000 from AED75,000. The rent for this same apartment is now AED110,000, but given the 5% RERA Index, this homeowner will only be able to increase rent to AED94,500 after 12 months – already 16% under market value on the long-term market. Our conservative projection for this apartment, based on similar properties we have on our portfolio, is that it would make AED130,000 this year on the short-let market, which is 38% higher.
16 of our properties (since increased from time of writing) have recently hit their highest rates yet since joining us at AirDXB, outside of the New Year Period. We have seen a villa in Jumeriah Village Circle attain 300% higher rates YoY – which is equal to what villas on the Palm were making on short-let in 2022. We have a one bedroom in Downtown Dubai making 200% higher rates YoY – which are equal to the rates usually achieved by a 3 bed+ apartment, and a 2 bed apartment on the Palm making 50% higher rates YoY. All strong indicators that the short-let market is thriving.