Dubai: Dubai recorded one of the highest levels of rental growth among leading global cities over the first-half of 2021, according to Savills, the property consultancy. The only cities to see even higher gains on their prime homes are Miami and Moscow.
The overall results from the report indicate an average increase of just 0.5 per cent across the cities, and a 1.8 per cent drop over 2020 due to global restrictions on travel thereby reducing global demand.
Due to economic factors and the build up in new home supplies, Dubai rental rates had seen a steady decline over the last six years. In 2020, Dubai witnessed the worst decline with a 12 per cent drop in rents due to COVID-19 related travel restrictions and economic impact caused by the pandemic. Based on Savills’ World Cities Prime Index Report, the Dubai market appears to finally be reaching a turning point.
Prime rentals increased 5 per cent in the first six months of 2021, driven by a 20 per cent increase in rents across certain villa communities. “Rental markets are likely to remain stable for the rest of 2021,” said Swapnil Pillai, Associate Director for Research at Savills Middle East. “Travel restrictions remain in place between key source markets, causing rental prices to recover more slowly than capital values.
“However, in the long run, prices are likely to gradually appreciate as economic activity gathers momentum and more job opportunities are created. The further easing up of travel restrictions will be a welcome catalyst for growth.”
Leaders and laggards
At the top of the rental growth scale, Miami, Moscow and Dubai had the highest gains. Each of these markets saw demand spike for larger and pricier units, compared to locations like Hong Kong or New York. Miami’s rental market experienced a rise in demand from domestic migration, leading to tight supply for single-family homes. New projects continue to come to the market, but have been unable to meet the demand for prime rental properties in the city.
In Moscow, demand over the past half-year is comparable to the pre-crisis levels seen at the end of 2019 as Russian residents made a return to the city. After a decline in prime and ultra-prime rents in the second-half of 2020, rentals for these properties are increasing again, especially for large apartments with outdoor space in key areas of the city.
Locations such as Kuala Lumpur, Hong Kong, New York, and other cities experiencing negative rental price growth have in common the demand from international tenants. As travel restrictions have persisted in the last six months, these cities continued to face rental falls.
But subdued nevertheless
Rental markets look set to be subdued for the rest of this year while travel restrictions remain in place in many locations causing rental prices to recover more slowly than value, which are less reliant on international demand. Longer term, as travel restrictions lift, the outlook turns more positive as corporate relocations resume and the increase in tourism means supply from the long-term rental markets can return to the short-term market, lowering available supply.
Sentiment is stronger in North American cities where domestic migration plays a key role in rental markets and contribute to rental price growth in markets with tighter supply of prime properties.In many cities, supply shortages have the potential to boost rental prices in prime areas, particularly in cities tht offer larger-sized properties such as Moscow, Barcelona, Madrid, and Cape Town.