In Dubai, more than half of renters are “cost-burdened,” meaning they spend more than 30% of their income on rent.

Rents are at an all-time high and show no signs of slowing down anytime soon. So many developments are under construction or in the pipeline, but that doesn’t mean your rent will change.

There are a few key factors. 

Vacancy rates are at record lows. Rents are growing faster than incomes. Many low-cost rentals are disappearing from the market. Most newly built apartments are higher-end lapped up by overseas buyers.

Average spikes in 2023 Dubai rentals currently stand at $25 per square foot (PSF), 22.3% higher than in 2022.

“Overall, rents are up by an average of almost 35% since January 2020. Apartments are, however, 10% cheaper to lease on average compared to the last market peak in 2014, while villas are now almost 13% more expensive to rent than in 2014,” says Faisal Durrani, Partner and Head of Research at Knight Frank MENA.

Similarly, rent for villas in one of Dubai’s booming areas, Palm Jumeirah, has increased by about 15% compared to Q2 in 2022 and by just over 110% overall since January 2020, which marked one of the highest gains in the market, notes Durrani. 

While this phenomenon positions Dubai’s real estate market on the global map, assessing the situation can be a head-scratcher, depending on the sector.

SUPPLY AND DEMAND

“Rent, like anything else in life, follows the economics of supply and demand,” says Cherif Sleiman, CRO of Property Finder. In Dubai, there has been an evolution with the introduction of flexible payment methods, visa diversification, increase in ownership, digitization, and a rise in foreign confidence, to name a few resulting factors of rent increase. 

Swapnil Pillai, Associate Director of Research of Savills Middle East, affirms that “strong demand from local and international property seekers” is a key player in the rent increase.

“Dubai’s real estate market offers a lucrative and unique opportunity of being an ideal investment destination with a growing population of locals and expatriates, a healthy economy with new business opportunities, the potential for property value gains, and high rental yields,” adds Pillai. 

Durrani also notes that the emirate has been boosted through the announcement of D33, Dubai Economic Agenda, in January 2023. The agenda outlines a key goal to solidify the emirate’s position as one of the top three global cities and to emerge as the world’s fourth most prominent financial center behind New York, London, and Singapore by 2033. 

“By then, the population [of Dubai] is expected to approach 6 million, up from the current 3.5 million – a critical consideration in our long-term outlook,” adds Durrani.

“The predicted growth in the city’s inhabitants will warrant a large-scale residential development boom. Indeed, the city’s current housing stock will virtually need to double if the population targets are met, which the government expects to swell to 7.8 million by 2040.”

Tourism is an added factor, with 8.5 million visiting Dubai during H1 2023, all while the city has a domestic population of only 3.5 million. “A growing tourism market leads to more demand for both short-term and long-term housing,” says Pillai. 

DEMAND FOR COMMERCIAL REAL ESTATE 

The commercial sector oversaw a strong demand during H1 2023, as per Savills’ Dubai Industrial Market in Minutes H1 2023 report, resulting in warehousing and industrial rental values witnessing a rise across different sub-sectors as leasing activity and inquiry levels have increased. Pillai cites values in H1 2023 for Grade A properties in Dubai, reaching an average of 10.2%.

The office market in Dubai is also seeing demand, specifically for top-quality spaces from the banking, financial services, and the technology, media, and telecommunications sectors. With the sustainability imperative making a mark in the Middle East, buyers are actively looking for ESG-accredited, Grade A development options for their offices. In contrast, older offices struggle to return to their lease rates pre-covid due to a lack of demand.

However, the supply falls short “with just three million square feet of space due to be completed between now and 2026. This is against a backdrop of 580,000 sq ft of requirements, a 23% rise on the same period last year,” says Durrani. 

“With no supply relief in sight and economic growth being sustained, the only way rents are likely to continue trending is upwards.”

Pillai adds that due to this increase in demand, Dubai is now the eighth most expensive prime office market globally. 

The light at the end of the tunnel is that the city has also attracted foreign companies from the US, Europe, Asia, India, and China towards its office market. 

LUXURY PROPERTY ON THE RISE

When it comes to luxury, Dubai is almost always ahead. The Knight Frank’s Destination Dubai 2023 report found that the emirate made history this year by becoming the world’s leading luxury property market, amassing nearly $850 million from high-end residential units that totaled a cost of $10 million in H1 2023, surpassing London, New York, and Paris for the very first time. 

“Luxury properties across Dubai will continue their price growth in H2 2023, between 6% and 7.9%,” says Pillai.

Sleiman confirms a spike in luxury properties and short-term rentals in the emirate, enabling “homeowners to leverage additional returns on their investments.”

“Rise in ownership, launch of new projects, and increased investments will continue to shape the future of rent and the property sector. More people are likely to look at ownership as a long-term goal, establishing a strong market for property agents and home seekers in the UAE while strengthening a bright future for housing,” adds Sleiman.