Dubai among top 3 cities to record highest level of rental growth in 2021
Dubai along with Miami and Moscow recorded the highest levels of rental growth over the first half of 2021 as the emirate's property market reached a turning point after six years of negative rental growth, underscoring the strong rebound of the real estate sector, according to Savills, a leading global real estate advisor.
In its latest report evaluating the rental values and yields reported for prime residential properties in 30 cities across the globe, Savills said Dubai's realty market appeared to be reaching a turning point after six years of negative rental growth resulting from oversupply in the market. “Prime rental prices in Dubai increased by 5 per cent in the six months to June, driven by a 20 per cent increase in rents for villas as residents prioritise space and shift away from apartment living in the wake of the pandemic,” Savills World Cities Index report said.
The report noted that Dubai rental prices have been on a steady decline over the past years due to the vast array of developments causing a significant oversupply in the market. Last year witnessed the worst decline with a 12 per cent drop in rents over the city due to travel restrictions and resulting economic decline caused by the pandemic. Based on the findings from the World Cities Prime Index Report by Savills, the Dubai market appears to finally be reaching a turning point.
Swapnil Pillai, associate director Research at Savills Middle East, said rental markets are likely to remain stable for the rest of 2021. “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.”
In the first half of 2021, rental prices across the 30 cities in the Savills World Cities Index posted an average increase of 0.5 per cent. This follows a fall of -1.8 per cent over 2020 as global restrictions on travel reduced demand due to the absence of corporate relocations, and increased supply of property with former tourist short let apartments moving to longer-term rentals. “Though rents seem to have stopped falling, the level of rental growth remains significantly lower than capital value growth in the World Cities Index, which grew at an average rate of 3.9 per cent over the six months to June 2021, the fastest rate since December 2016.”
The picture is not the same across the world. Suburban locations and cities that have been less impacted by lockdowns have experienced stronger rental growth. Across the World Cities Rental Index, 39 per cent of cities reported positive rental growth in the six months to June 2021 – this figure stood at 25 per cent in 2020.
The average prime residential yield across the 30 cities stands at 2.9 per cent in June 2021 compared to 3.1 per cent in December 2020. This is the lowest average yield since Savills began tracking the data in 2005. There is still significant variation in yields across the different world cities, ranging from 1.3 per cent in Shanghai to 4.7 per cent in Moscow.
“Miami’s rental market has experienced an increase in demand over the past year from domestic migration, seeing high rental prices and 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,” said the report.
In Moscow, the level of demand observed over the past half year is comparable to the pre-crisis levels seen at the end of 2019 as Russian residents return to the city. After a decline in prime and ultra-prime rents in the second half of 2020, rental prices for these properties are increasing again, especially for large apartments with outdoor space in key areas of the city, said the report.
Locations such as Kuala Lumpur, Hong Kong, New York, and other cities experiencing negative rental price growth have in common the importance of international tenants in their prime rental markets. As travel restrictions have persisted in the last six months, these markets have continued to face rental price falls.
Longer term outlook for rental markets is more positive as vaccinations continue, travel restrictions lift, and corporate relocations resume. The increase in tourism means supply from the long-term rental markets can return to the short-term market, lowering available supply, said the report. In many cities supply shortages have the potential to boost rental prices in prime areas, particularly in cities which offer larger-sized properties such as Moscow, Barcelona, Madrid, and Cape Town.