A two-tiered rental market is emerging in Dubai, as the gap between new lease rents and renewals continues to widen.
Cushman and Wakefield Core’s head of research and consulting, Prathyusha Gurrapu, said that an increasing number of tenants in Dubai are turning into end-user occupiers and property buyers.
This is in light of a sharper increase seen in rents as compared to sales prices.
The two-tiered rental market
She said that tenants were giving preference to staying in existing rental units because renewals are significantly lower than new leases and are subject to regulation by the Real Estate Regulatory Authority (Rera).
Therefore, this has resulted in a two-tiered rental market in Dubai with new lease rents and renewals recording a wider gap.
She further said that the Rera cap is also applicable for existing tenants, which means landlords cannot increase rent beyond the limit permitted.
The new tenant, on the other hand, is required to pay the market rent, which is higher than the buildings in close proximity.
This has led to two tiers in Dubai’s rental market and a lot of divergence has been created between new and existing rents.
According to Gurrapu, 2024 will continue to see rental rises for new leases, especially in established central locations, such as Business Bay and Downtown.
This is because high occupancy levels in this areas will put upward pressure on rent. However, sub-urban locations are also expected to see a greater number of deliveries.
Therefore, the newly handed over districts are expected to see moderate rental increases. She also said that there is a section of tenants turning into end-user buyers.
This is despite the high interest rates and sales prices because they want to avoid frequent relocations and renewal negotiations.
Analysts at Cushman and Wakefield Core said that the Rera Rental Valuation Certification was being used by some landlords for increasing their rents beyond the Rera rental index.
The gross apartment yield levels reached 7.3% in Dubai, which is the highest level seen in the last seven years.
Meanwhile, there was a drop in the villa gross rental yield in the city to 5.3% from 5.5% because of sales prices rising at a higher pace than rental prices.
According to Gurrapu, even though residential rents are still rising, there has been a slowdown seen in the pace.
In 2023, there was a 19% year-on-year increase in rents, while 2022 saw a 27% increase in same. She believes that rents will rise between 8 and 12%.
However, she also added that there could be higher increases in central locations. Suburban and outer locations are likely to see lower levels of rental increases.
Nonetheless, the disparity between renewals and new leases in Dubai is expected to grow. In 2023, the total number of units supplied reached 39,400.
This is the highest level of handovers recorded since 2020. Almost 83% of the total handovers in 2023 were apartments, while the remaining 17% comprised of villas