The holiday home industry in Dubai appears to be going through a negative phase in its development cycle. Several key performance indicators (KPIs) need to be looked into, namely:
- The year-to-date average daily rates (ADRs) have dropped by around 20 per cent compared to the previous year.
- The number of licensed holiday homes in Dubai as of March 2023 reached 21,132, representing a significant 46 per cent year-on-year increase. (In 2019, the number of was around 7,000.)
- The number of tourists visiting Dubai from January to April 2023 stood at 6.02 million, marking an 18 per cent increase over 2022. In 2019, it was 6.2 million.
These figures could indicate that there are currently three times more holiday home units available for fewer tourists than in 2019, resulting in a decline in ADRs. Such market dynamics should typically lead to a correction in the market, resulting in an overall decrease (or significant slowdown in growth) in the number of holiday homes.
However, this is not the case, which is interesting.
Interesting because, an increasing number of landlords are exiting the holiday home business due to their units being unable to generate sufficient yield owing to the lower ADRs.
Yet, the number of newly added units surpasses this churn. One possible explanation for this phenomenon could be that landlords, especially newcomers, base their decision to offer their units for short-term rentals on data from 2021 and 2022, which were skewed due to the EXPO period that generated exceptionally high ADRs.
In my view, we can expect a correction in the holiday home market in 2024 due to the following factors:
- Landlords who added their units as holiday homes based on data from 2021 and 2022 are unlikely to achieve the same results. After observing the performance of their units in the first year, these landlords are likely to opt for long-term rentals or consider selling them altogether – leading to churn.
- By end of 2023, there will be a full year of ordinary performance history available, enabling landlords to make informed decisions based on standard performance data – leading to slower growth.
I would recommend obtaining performance data covering the most recent 12 months or, at the very least, data from April 2022 onwards. This will provide a more accurate basis for setting expectations.