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It's all coming together again for short-stay homes in Dubai. Advance bookings are peaking nicely, and so are rentals. Image Credit: Bloomberg

Dubai: Short-term rental or long?

Landlords in Dubai are again having to take up this question in earnest as demand – and rental rates – on short-term leases shows no signs of cooling off. In fact, there’s every chance that the period up to January 5/15, 2024 could turn out to be even better for the Dubai short-stay market.

Because the same period in each of the last two years provided bumper returns for landlords, with the Expo in Dubai and the FIFA World Cup in Doha providing sustained demand. Earlier this year, many landlords had even switched their properties to one-year leases because they felt it would be impossible to beat the occupancy levels that Dubai enjoyed during the FIFA event in late 2022.

The upcoming COP28 is setting up advance bookings nicely, and there’s always the pull of spending the New Year in Dubai.

By switching over the long-lease, they may have missed on more growth, according to market sources. “We've observed a substantial increase in advance bookings for the upcoming winter season,” said Aldaine Cabrera, Short-Term Rental Executive at Betterstay.

Aldaine Cabrera of Betterstay
"We've seen an impressive 18 per cent rise in bookings compared to last year - with many securing accommodations at rates significantly higher than previous years," said Cabrera

To put that 18 per cent into context, these are on top of the high rental rates that short-stay accommodation commanded for the better part of 2022, and more so during the final 3 months.

In locations such as the Palm, Downtown, Dubai Marina and other emerging locations, actual short-stay rental rates still has ample room to grow before December rolls in.

What this means for Dubai residents?

Whichever way landlords opt for - long- or short rentals - it will mean more rental pressure on Dubai residents and their one-year rentals. One-year lease contract rates seem to have seen some leveling off in prime residential locations, but it's certainly not the case in the mid- and upper mid-tier space. So, any reduction in homes available for 1-year rentals raises the chances of tenants having to pay more next time.

Do the math on short-stay rentals
"Short-let allows homeowners to effectively ‘tread water’ while the market fluctuates and then settles, at which time they can make an informed decision on which market you want to be in. Long-term, however, you are contractually obligated to stay in, no matter what happens in the market (unless you meet specific criteria).

We spoke to a homeowner who moved to long-term in January as the rent for their one bed apartment in Dubai Marina had jumped to Dh90,000 from Dh75,000. The rent for this same apartment is now Dh110,000, but given the 5% RERA Index, this homeowner will only be able to increase rent to Dh94,500 after 12 months – already 16% under market value on the long-term market.

Our conservative projection for this apartment, based on similar properties we have on our portfolio, is that it would make Dh130,000 this year on the short-let market, which is 38% higher."

- Gregory Lewis of AirDXB Group

More short-stay options

There are more homes being added to this space, according to Aldaine, but has in way made any dent to what property owners and leasing companies can demand from tenants. “The surge in demand from tourists and business travellers has absorbed this inventory, resulting in minimal relief from rental rate increases,” she added.

So, what should property owners with newly handed units be doing? Go short- or long lease?

Check out rental trends

“Long-term rental increases are levelling out,” said Gregory Lewis, founder and Director of AirDXB Group.

“While there have been minor rent increases in areas such as Dubai Marina, areas such as Palm Jumierah and Downtown Dubai have had no increases in recent months. We are seeing increases in long-term rents in further out locations such as JVC, but these areas still remain affordable.

“The top-tier 1-year rental market who were prepared to pay higher rents has topped out, and it is now the mid-tier that’s dominating the market.

This has little impact on short-let, as our returns are based on occupancy levels, average daily rates and - ultimately - tourists rather than residents.

- Gregory Lewis of AirDXB Group

Lewis adds, pointedly, that those landlord who moved back to long leases are actually helping… their short-stay counterparts.

“From our analysis of our competitors and the overall Dubai short-let market, it is clear that (available) stock dropped (this year),” said Lewis.

“Due to the recent spike in rentals in the long-term market, homeowners transitioned. Or sold their property to take advantage of higher sale prices.

“Less supply with increasing demand - we are projecting one of the highest performing high seasons in recent years - equals higher returns for our homeowners. We are already seeing record-breaking rates for early December, which is during COP28, and the New Year.” (COP28 is a particular boast with over 80,000 travellers in Dubai during the first two weeks of December.)