New tenants pay higher rents than existing occupants as rental gap widens

Rental increases are anticipated to average 8-12%, with comparatively lower levels of growth expected in outer and suburban locations.

Dubai is currently experiencing the emergence of a two-tiered rental market due to the widening gap between renewal and new lease rents. Prathyusha Gurrapu, Head of Research and Consulting at Cushman and Wakefield Core, noted that a growing number of Dubai tenants are transitioning to property ownership as rents see more significant increases compared to sales prices.

Gurrapu explained that tenants are opting to remain in their existing units, as renewal rental increases are significantly lower and regulated by the Rera rental calculator. This trend is leading to a distinct division in the rental market, with a widening disparity between renewal and new lease rents.

For existing tenants, the Rera cap limits landlords from increasing rents beyond the permitted threshold during renewals. However, new tenants must pay the market rent, which tends to be higher than nearby buildings.

Gurrapu anticipates that rental increases for new leases will persist in 2024, especially in well-established central locations like Downtown and Business Bay, where high occupancy levels will contribute to upward pressure on rent. On the other hand, she expects rental increases to be more moderate in newly handed-over districts with a greater number of deliveries in suburban locations.

Prathyusha Gurrapu
Prathyusha Gurrapu

In addition, she mentioned that despite elevated sales prices and interest rates, a portion of tenants is transitioning into end-user buyers to sidestep frequent lease renegotiations or relocations.

According to analysts at Cushman and Wakefield Core, certain landlords are leveraging the Rera Rental Valuation Certificate to raise rents above the Rera rental index.

Dubai’s gross apartment yield levels reached 7.3%, marking the highest point in the past seven years, while the overall villa gross rental yield in the city declined from 5.5% to 5.3% due to sales prices rising at a faster pace than rental prices, as per the report.

8-12% rise in rentals in 2024

Gurrapu noted that although residential rents are still increasing, the rate of growth is slowing down. In 2023, rents experienced a 19% year-on-year increase, compared to the 27% surge in 2022. She anticipates an average rise of 8-12% in rents, with the possibility of higher increases in central locations. Gurrapu highlights that outer and suburban areas are likely to see comparatively lower rental increases, contributing to a widening gap between new lease and renewal rates throughout the city.

The Dubai Annual Market Update from Cushman and Wakefield Core reveals that 39,400 units were delivered in 2023, marking the highest handover level since 2020. Apartments constituted 83% of the 2023 handovers, while villas made up the remaining 17%. Looking ahead to 2024, more than 65,000 units are scheduled for handover. However, analysts at Cushman and Wakefield Core estimate around 32,000 units will be delivered in 2024, with 76% being apartments and 24% villas.

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