Dubai’s residential rents are set to ease or even decline in 2023 after surging to record levels in 2022 on the back of robust demand and limited supply, as per new research.
Prices of apartments and villas, which rose by 9% and 12.8%, respectively, are also expected to moderate, with certain locations likely to post some declines on increased supply, real estate consultancy CBRE said in its recent report.
Rental costs across Dubai’s residential communities surged by 26.9% in 2021, the highest level on record. This was led by the apartment segment, where rents jumped by 27.1%. Villa rents, on the other hand, rose by 24.9%.
“In the year ahead, we expect that both the average rates of price and rental growth will remain positive, however, we expect the rates to moderate and in certain more nascent communities with strong supply pipelines, to decline,” the CBRE report stated.
As of December 2022, Dubai apartments were being sold for AED 1,168 ($318) per square foot, while villa prices stood at AED 1,385 per square foot.
The booming property market also saw higher occupancy rates in 2022, as the Dubai Land Department registered 540,758 Ejari contracts, up by 10.8% compared to 2021. However, rising rents forced many tenants to opt for the extension of their existing contracts rather than exploring new housing options.
According to CBRE’s analysis, the number of new Ejari contracts dropped by 7%, while renewals increased by 33.8%. The trend is likely to continue this year.
“Given rising rental rates, we are seeing that tenants are more likely to renew in situ,” CBRE said.
Around 29,397 apartments and villas were handed over to tenants in Dubai in 2022. Jumeirah Village Circle, Damac Hills 2 and Dubai Hills estate accounted for a significant portion of the new supply, around 26.2%.
In the apartment segment, Jumeirah remained the most expensive area to buy per square foot at Dh2,324, while for villas, Palm Jumeirah registered the highest sales rate per square foot at Dh3,921.
The 8,662 real estate transactions in Dubai in December took the total number of transactions in the year to 90,881, exceeding the previous high of 81,182 in 2009, CBRE said in another report named “Dubai Residential Market Snapshot”.
The supply is expected to increase, with an additional 70,957 residential units that are currently under construction, will be handed over in 2023. More than a third (32.4%) of the upcoming supply is being developed in Meydan One, Business Bay and Downtown Dubai.
Prices on Palm Jumeirah rose throughout 2022 along with other prime areas of the city amid the shortage of luxury villas.
Prices rose across other market segments as well on the back of the UAE’s broader economic recovery following the COVID-induced slowdown.
As well as records for the total number of transactions, records were also set for the most expensive property sale and highest rental deal during 2022.
However, average property prices have not yet surpassed the record highs of 2014, with the average apartment price being 21.5% below the 2014 level, and villa prices 4.2% lower than the peak.
Rents have also experienced rapid increases across the city, amid an influx of high-net-worth individuals as well as the introduction of new visa schemes that encourage residents to stay for longer or move from abroad.
During an interaction with The National, Taimur Khan, head of research for the Mena region at CBRE in Dubai, said, “Residential rental growth also reached historic levels, with apartment and villa rents increasing by 27.1 per cent and 24.9 per cent, in 2022, respectively.”
“Due to the lack of available villa stock for rent and growing demand levels for such stock, villa rents are now 45.3 per cent higher than in 2019, with average villa rents standing at Dh282,150, once again the highest level on record. Over the same period, average apartment rents are 17.2 per cent higher and stand at Dh95,168,” Taimur Khan added.
While the rapid growth may be welcome news for landlords who had seen almost six years of softening rents until 2022, it will impact demand, he said.
The rise in rents in Dubai has led to an increase in rental disputes and eviction notices as landlords seek to make the most of the market conditions.
“In the year ahead, we expect that both the average rates of price and rental growth will remain positive. However, we expect the rates to moderate and in certain more nascent communities with strong supply pipelines, to decline,” Mr Taimur Khan said.