Dubai landlords eye increased income, year-long occupancy with short-term rental

While the softening of the Dubai rental market has helped tenants upgrade their lifestyle, for landlords it’s been a wait-and-watch situation.

Caught between ensuring increased income versus guaranteeing long-term occupancy and avoiding the stress of empty units, most landlords are now thinking how best to make their properties work in a short span of time.

Also, while some landlords want to use their property to increase their income, others also want the flexibility to use the property themselves or for family and friends when required. Mark Kennedy, co-founder and CEO of Kennedy Towers, Dubai’s largest short-term rental operator, explains why short-term rental will work best in Dubai in the next few years.

Your company manages more than a billion dirhams in assets in Dubai. What makes Dubai’s short-term rental market unique?

Dubai is a thriving economic hub, which attracts many corporate executives who visit for short periods. It’s also extremely popular with tourists who stay for a few days or maybe a couple of weeks.

We operate in several European cities and what makes Dubai unique is the clear regulatory system that is in place for short-term rentals, with guidelines for operators and no restrictions on availability across the year.

Are you expecting the market to grow?

Yes, definitely. There will be a significant demand for temporary housing during the Expo period, starting October 2020. There will be new infrastructure in place and many new jobs will be created, which in turn will create more demand for housing in all areas. The long-term benefits of Dubai Expo 2020 will last up to a decade if not more. It’s going to be great for the housing market.

How would you define a short-term rental?

Short-term rentals are accommodations with flexible leasing terms. Traditionally they are associated with tourists, but they also appeal to corporate executives looking for flexible accommodation.

A common misconception about the short-term rental industry is that all operators are essentially Airbnb management companies, when in reality the majority of our business is providing corporate housing.

We provide flexible, serviced accommodation for companies, such as consultancies and investment banks, who bring their employees over to Dubai on temporary secondment or on a permanent basis.

When employees come over on short-term projects it is great for them to have this flexible accommodation option in popular residential communities. Short-term rental gives people the option to be part of a residential community in Dubai as opposed to living in a hotel.

When employees are relocated to Dubai permanently, short-term rental is a great interim solution that helps with the transition to long-term rental.

The process of searching for accommodation, signing contracts, furnishing the property and connecting utilities can be a lot of additional work to deal with when settling into a new city; short-term rental gives them a chance to settle in instantly before they begin their search.

But we also cater to tourists, both directly and indirectly through online travel agencies. With the growth of Airbnb and the broader sharing economy, tourists have really started to embrace this concept of living like a local when they travel. Short-term rental properties certainly offer a unique value proposition, which was not previously available in Dubai.

Which areas are the most popular for short-term rentals in Dubai?

We mostly cater to the premium market so our preferred areas would be Downtown Dubai, Palm Jumeirah, Dubai International Financial Centre (DIFC) and Dubai Marina. In Dubai, people value convenience. They want to be close to their office and they also want to be part a nice residential community. Downtown and Dubai Marina are perfect examples of this – they are amazing residential locations and they are located right next to several commercial areas. If the location caters to both corporate executives and tourists, there will be a very strong year-round demand for the properties.

Who would be your clients?

On a B2C level, we work with individual property owners, who on average have one property which we manage for them. We also deal directly with individual tourists or business travellers who have found our inventory online. On a B2B level, it would be corporate clients with long-term housing contracts in place and the online travel agencies where we advertise our properties to generate bookings across our portfolio.

How can landlords benefit from short-term rentals?

Landlords receive increased income from short-term rentals. Going back to the fundamental economics of real estate, the shorter the lease duration, the higher the average daily rate (see table below).

*The table shows average pricing only and does not factor in occupancy rates. For a customised financial projection, please visit www.kennedytowers.com/landlords

When occupancy over the year is taken into consideration, short-term rental properties in the above locations achieve a 50-60 per cent gross rental premium over long-term rental.

Once you factor in the increased expenses associated with short-term rentals for property owners (utility bills, management fees etc.), short-term rental typically generates a 30 per cent net rental premium over long-term rental.

Property owners should be aware of the differences between the corporate leasing model and the tourist leasing model. With the corporate model, rental income is more stable and less seasonal.

Corporate clients usually stay for one to three months and property owners have the comfort of knowing that they will be housing senior executives who treat the rental property as their own home. On the tourist side, the lease duration is much shorter.

Of course, the income will be higher during the peak tourist seasons, but the rates and occupancy will vary over the year.

We use the latest revenue management technology to balance occupancy and average daily rate through a blend of medium and short-term rentals, not only to increase the landlords’ income, but also to stabilise their income across the year.

Certain locations such as DIFC favour the corporate leasing model, whereas locations like the Palm Jumeirah lean more towards the tourist model. We look at each property individually and often adopt a hybrid leasing approach to generate the highest income for that property.

What kind services do you offer?

For landlords, we offer a fully comprehensive property management service covering everything from sales and marketing to operations and accounting. We take care of the entire operation from sourcing and vetting the tenants to providing a seamless check-in and check-out service, managing the inventory, delivering housekeeping and linen services, providing all amenities etc. We take care of all the regulatory requirements like paying city fees, registering guests with the government and then handle all the financial administration from utility bills to service charges to maintenance coordination. Some operators like to segment their service and pass certain responsibilities and expenses onto the property owner. Short-term rental management is a huge operation – particularly in Dubai – and we strongly believe that one party needs to be held accountable for the entire operation to ensure the best possible guest experience and, therefore, the best returns for the property owner.

What do landlords have to keep in mind if they want to make their homes available for short-term rental?

Properties need to be licensed by the Department of Tourism and Commerce Marketing (DTCM) before they can be leased. In order to receive this license, not only must the property be furnished according to Dubai’s hospitality standards, but the operator must be able to provide a hotel-like service and be accessible for their guests’ needs 24/7. It’s these standards which make Dubai such a leading tourist destination. However, it does require a significant time investment to manage each property, so most property owners use licensed operators with the experience and resources to manage this process for them.

You have a unique leasing model?

Yes, while most operators tend to focus on either the tourist leasing model or the corporate leasing model, we find that our hybrid approach is our key advantage. To maximise a property’s income over the year, you need to have exposure to both markets. If it’s the middle of summer, we prefer to be in the corporate leasing market, but during festive seasons, we prefer the tourist market as the rates go higher.

It depends on the location and property type as well. A one-bedroom apartment in DIFC will gravitate towards corporate leasing model, whereas a four-bedroom villa on Palm Jumeirah will be preferred by tourists. An apartment in Dubai Marina will have a demand from both corporates and tourists – it’s fantastic during key holiday periods like New Year’s Eve, but it’s also next to many commercial office locations with Dubai Internet City and Jumeirah Lakes Towers close by.

When we onboard a new property, we look at the market the unit appeals to and see how we can best maximise a property owner’s income across the year. We decided early on that we needed to master both markets in order to grow our business in the right locations. If we just did corporate leasing, we wouldn’t operate on The Palm; and if we just did tourist leasing, we wouldn’t touch DIFC. Our leasing model is unique. It’s a hybrid approach where we juggle the local supply and demand dynamics, seasonality, unit type and regulations in the cities we operate.

What are you most careful about?

Our service quality. In this age of online reviews, there is little room for error. Operators need to make sure each and every review with their online travel agencies is outstanding.

Similarly, in order to build sustainable long-term relationships with our corporate clients, customer service needs to be consistent and reliable. We rely heavily on emerging technologies to enhance the guest’s experience inside the properties and also to ensure we have a personalised one-to-one customer service experience as we continue to grow into new markets.

For more information please visit https://www.kennedytowers.com/landlords.