DUBAIHOLIDAY HOMESP E R F O R M A N C E A N A LY S I SD E C E M B E R 2 0 1 8

Report Highlights

D u b a i H o l i d a y H o m e s P e r f o r m a n c e 2 0 1 8 1

Airbnb – Dubai Market - Snapshot

2017

YoY Trend

2018

US$ 185

-10%

US$ 167

Average ADR (US$)

59,966,866

69%

101,230,708

Total Annual Market Revenue (US$)

47%

9%

55%

Average Monthly Occupancy (%)

*Based on entire units only

Overview

In 2013, “Decree Number 41” was passed, which stipulated the regulations under which holiday homes could be operated in Dubai. A key criteria of the legislation was that homeowners had to engage a licensed third party holiday home operator who typically charged fees in the region of 25% of gross rental revenues.

In April 2016, the Executive Resolution No. (1/2016) covering the Second Edition of “Dubai Holiday Home Rental Regulations” was introduced relaxing the rules surrounding such rentals, allowing both homeowners and tenants to apply for a holiday home license without the need to go through a licensed third party operator. The process became relatively straightforward, involving just an online application and an annual registration fee.

The fees vary by property type and typically include the annual registration fee (around AED 1,500), a unit classification fee (AED 50), relevant knowledge fee (AED 10) and innovation fee (AED 10). The final licence is based on the number of rooms in the property as well as the term applicants intend to let it out as a holiday home.

Airbnb

As homeowners no longer need a third party operator to market their properties as a holiday home, the popularity of third party holiday rental websites has grown. Whilst properties are typically marketed through multiple platforms such as Trip Advisor, Booking.com, Dubizzle etc. Airbnb is generally viewed as the market leader for short-term rentals. Since its inception in 2008, the site has witnessed meteoric growth and facilitated the

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hosting of over 300 million guests in 190 countries around the world. To stay at the forefront of the holiday rental market, Airbnb looks to constantly improve its offering with recently launched initiatives such as Airbnb Experiences and Airbnb Plus.

Dubai Holiday Homes Supply

The change in regulations has led to a marked increase in supply of short-term rental properties over the past few years from 2,775 active listings at the end of 2016 to 5,009 at the end of 2018 which equates to an 81% increase in just 2 years.

Dubai Holiday Homes Demand

Demand has supported the increase in available units with average occupancy levels reaching 65% during Dubai’s peak season in (March) 2018. During the same period in 2017, occupancy levels were at 50%. During the low season months of June, July and August 2018, occupancy averaged 49% which was higher than the same period in

2017 where occupancy averaged at just under 40%.

Average Daily Rates (ADRs)

Average Daily Rates have remained fairly consistentyear-on-year, but have seen a slight decrease when comparing 2018 to 2017. The ADR for 2017 wasUS$ 185 and US$ 167 for 2018 representing a 10% decline.

Market Outlook

The addition of Airbnb supply to the market will inevitably help to grow and diversify tourism in Dubai as travellers are increasingly looking for personal and unique holiday experiences. Similarly, it will provide investors with an alternative and potentially very lucrative income stream. With the obvious benefits to both travellers and property owners, it’s likely the holiday rental market will remain buoyant in Dubai, certainly in the short to medium term as we approach Expo 2020.

3,978*

5,009*

Number ofActive Listings (as at year end)

26%

Number of Active Listings by Month

Dubai Holiday Homes Supply

HOT TOPIC Many cities around the world have grown frustrated and intolerant to hosts putting up their homes on Airbnb – these include cities such as Paris, Berlin and Barcelona. The short-term rentals platform has been blamed for unruly tourists and rising house and rent prices. As a result, many governments have imposed stringent regulations on Airbnb such as limiting the number of nights a property can be rented or stipulating the house owner should occupy at least 50% of the property when renting it out. No such regulations have been introduced in Dubai as of yet.

The active listings on Airbnb, i.e. listings which have been live in the last thirty days, specify there are currently 7,971 active rentals available in Dubai at the time of writing this report, of which 63% are entire homes, 29% are private rooms and the remaining 8% are shared rooms.

Whilst ‘shared hosting’ was the original driver behind the Airbnb experience, it is technically not allowed under current legislation in Dubai and the government has been active in putting a stop to this practice. Hence for the purposes of this report, we are only categorising entire units as an active listing.

Looking at year-on-year movement, we can see that active listings have grown steadily. In 2010, there were only 2 Airbnb properties listed in Dubai. By the end of 2017 that number had grown to 3,978 and then to 5,009 at the end of 2018 - a 26% increase in active listings in one year.

With regards to rental sizes, the mix ranges from studios to 5 bedroom units - with one bedroom units dominating the market accounting for 42% of supply. Presumably, this is due to their flexibility of being able to fit up to 4 people (if a sofa bed is included).

In our last Dubai Observer report, we noted there was an increasing stock of smaller format apartments and studio apartments that were most affected by market adjustments. There has been a year-on-year recorded drop of 16% on rental rates achieved for studios followed by a year-on-year 12% rental decrease for 1 bedroom units from 2017 to 2018. This represents an opportunity for landlords to utilise Airbnb as an attractive alternative to long-term renting.

D u b a i H o l i d a y H o m e s P e r f o r m a n c e 2 0 1 8 2 D u b a i H o l i d a y H o m e s P e r f o r m a n c e 2 0 1 8 3

Feb-18

Jan-18

Apr-18

Mar-18

May-18

Jul-18

Jun-18

Sep-18

Aug-18

Oct-18

Dec-18

Nov-18

0 1000 2000 3000 4000 5000 6000

Source: Airdna.com; Chestertons Research

Top Active Listings by Location

Holiday homes in Dubai are largely located in Downtown Dubai, Palm Jumeirah, Dubai Marina, Dubai Media City 2 and Al Barsha. Average Daily Rates in these areas range from US$ 359 in Palm Jumeirah; US$ 241 in Downtown Dubai; US$ 218 in Dubai Marina; US$ 188 in Al Barsha and US$ 129 in Dubai Media City 2.

Interestingly, Airbnb’s best performing property in Dubai is a 6-bedroom, 7.5 bathroom villa on Palm Jumeirah which accommodates up to 12 people. It earned US$ 428,436 last year which is an average daily rate of US$ 1,433.

What makes holiday rentals so attractive in locations such as Dubai, is that a large proportion of properties have many of the amenities that are often associated with hotels. For example, communal gyms, pools, beach access and some apartment buildings even have concierge services. What’s more, holiday homes are able to offer more space than a hotel room or suite as well as kitchen facilities which is often preferable for families or larger groups.

HOT TOPIC Airbnb offers better value for travellers in Dubai when compared to typical hotels, with the average price of a booked listing being circa 16% lower than the average rate of a hotel room in the city. The Average Daily Rate of an Airbnb booking in Dubai is US$ 167* while the Average Daily Rate of a hotel room is just over US$ 200 (as at the end of December 2018).

*Across 2018

SharjahAbu Dhabi

The Palm Deira

DubaiMaritime

City

Bur Dubai

Deira

Hamriya

WuheidaMamzar

Hor Al Anz

Al Nahda

AirportFree Zone

Karama

Garhoud

TwarQusais

Muhaisnah

Mirdif

Mizar

Khwaneej

Ghoroob

Shorooq

Warqaa

Zabeel 2Oud

Metha

CultureVillage

UmmRamool

NaddShamma

DubaiFestival City

The LagoonsMeydanCity

Ras Al Khor

Bu Kadra

NaddAl Hammar

InternationalCity

AcademicCity

DubaiSilicon Oasis

ArabianRanches

Al WahaCommunity

MotorCity

DubaiSports

City

Layan

Dubailand

Nad Al Sheba

Al BarariLiving Legends

Dubiotech

Awir

UmmHurairTrade

CentreDIFC

Dubai Mall

Mirdif CityCentre

Dragon Mart

Deira CityCentre

DowntownBurj KhalifaBusiness

Bay

Al KhailGate

MediaCity

Dubai Marina

JumeirahLake Towers

JumeirahIslands

JumeirahVillage

TriangleJumeirah

GolfEstates

GreenCommunity

DowntownJebel Ali

Technology Park

DubaiInvestment

Park

DubaiWorld

Central

InternationalMedia

ProductionZone(IMPZ)

JumeirahVillageCircle

JumeirahHeights

TheGardens

Ibn BattutaMall

Jebel AliVillage

Jebel Ali Freezone

JumeirahPark

DiscoveryGardens

EmiratesHills

InternetCity

Greens

Meadows

The Lakes

Al FurjanThe Springs

TECOM

Al Quoz

Barsha 1Mall of the Emirates

Dubai PearlBurjuman

Centre

Satwa

Badaa

Jumeirah

Al WaslSafa

Umm Suqeim

ManaraSufouh

The World

The PalmJumeirah

Arabian Gulf

Jumeirah BeachResidence

The PalmJebel AliDubai

Waterfront

PALMJUMEIRAH

496 PALM

JUMEIRAH

US$359

DUBAI MEDIACITY 2

243 DUBAI

MARINA

1,482

JUMEIRAHLAKE

TOWERS

229

DUBAIMARINA

US$218

DOWNTOWNDUBAI

690 DOWNTOWN

DUBAI

US$241

AL BARSHA 1105 AL BARSHA 1

US$188

Barsha

AL BARSHA112

AL BARSHA

US$188

BUSINESSBAY

114

BUSINESSBAY

US$188

DUBAI MEDIACITY 2

US$129

JUMEIRAHLAKE

TOWERS

US$161 DUBAI

SPORTSCITY

104DUBAI SPORTS

CITY

US $109

AL WASL122 AL WASL

US$383

DISCOVERYGARDENS

41DISCOVERYGARDENS

US$86

JEBEL ALIVILLAGE

66JEBEL ALIVILLAGE

US$86

INTERNATIONALMEDIA PRODUCTION

ZONE

40INTERNATIONAL

MEDIA PRODUCTIONZONE

US$87

THE SPRINGS24THE SPRINGS

US$297

ZABEEL 217

ZABEEL 2

US$267

Number of Active Rentals & Average Daily Rates

No. of Active Rentals Average Daily Rate

(*covers entire units only)

Dubai Holiday Homes Demand

D u b a i H o l i d a y H o m e s P e r f o r m a n c e 2 0 1 8 7

Feb-18

Jan-18

Apr-18

Mar-18

May-18

Jul-18

Jun-18

Sep-18

Aug-18

Oct-18

Dec-18

Nov-18

0 10 20 30 40 50 60 70 80

Median Occupancy (%)

Source: Airdna.com; Chestertons Research

Average monthly occupancy levels have seen an overall increase of 9% when comparing 2017 (47%) and 2018 (55%). As expected, demand trends are stronger at the beginning and the end of the year during Dubai’s high season.

Whilst DTCM figures suggest the average length of stay in Dubai is 3.5 nights, there are instances of individuals who utilise holiday homes for longer periods. This is sometimes because they may be undertaking project work or are on probation and uncertain about whether they will stay in the emirate on an annual basis. As such, these individuals are unable to commit to a traditional annual rental contract as the tenancy cannot be registered if the residency visa is still to be granted - so holiday rentals are a practical alternative.

Another key indicator of the growing popularity of holiday homes in the emirate is Airbnb’s market revenues which show significant growth, particularly when comparing 2017 and 2018. Recorded market revenue for Airbnb rentals in Dubai in 2017 reached US$ 60 million, jumping to over US$ 101 million at the end of 2018 which represents a 69% increase.

Average Daily Rates have witnessed a slight decrease when comparing 2017 to 2018. The ADR for 2017 was US$ 185 and US$ 167 in 2018 representing a 10% decline. This downward adjustment could be due to extra supply entering the marketplace.

As Dubai prepares for Expo 2020, we expect a significant increase in Airbnb rentals over the 6 month period of the event. Due to increased visitor

numbers the Airbnb stock, coupled with additional standard hotel stock, is expected to easily absorb the increased demand. We also expect to see a short-term spike in ADRs during this period.

Many real estate investors are diversifying into the holiday home rental market because of higher returns when compared to the traditional rental market. On average, investors can expect a return which is 2 to 4 percentage points higher than long-term rental yields. To assist owners in further optimising their rental income, Airbnb have introduced a ‘revenue management’ tool – a practice which is widely

used in the hospitality industry. Airbnb’s dynamic pricing tool adjusts pricing to adapt to seasonality and key calendar dates, such as Expo 2020, as well as to compete with similar listed properties. Such tools help to create a more sophisticated pool of short-term landlords who are able to maximize their profits and maintain a competitive edge without the need for expensive software or by paying third-party companies.

D u b a i H o l i d a y H o m e s P e r f o r m a n c e 2 0 1 8 6

D u b a i H o l i d a y H o m e s P e r f o r m a n c e 2 0 1 8 8 D u b a i H o l i d a y H o m e s P e r f o r m a n c e 2 0 1 8 9

Nov-18

0 2.0 4.0 6.0 8.0 14.012.010.0 20.018.016.0

Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18

Oct-18

Dec-18

Feb-18

Jan-18

Apr-18

Mar-18

May-18

Jul-18

Jun-18

Sep-18

Aug-18

Oct-18

Dec-18

Nov-18

0 $50 $100 $150 $200 $250

Source: Airdna.com; Chestertons ResearchSource: Airdna.com; Chestertons Research

Market Revenue (US$ Millions) Average Daily Rates (US$)

* For entire units only

Contact Us Nick Witty, BSc (Hons) MRICSManaging DirectorMENAnick.witty@chestertons.com

Adam Wilson, BSc (Hons) MRICS ACIArbDirectorHead of International Valuationsadam.wilson@chestertons.com

Vladimir Cvetinovic, MRICSAssociate DirectorValuations & Advisory - Abu Dhabivladimir.cvetinovic@chestertons.com

Ivana Gazivoda VucinicHead of ConsultingMENAivana.vucinic@chestertons.com

Ellen SleutjesHead of Property Management - UAEellen.sleutjes@chestertons.com

Slim BoukerAdviser to the Boardslim.bouker@chestertons.com

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Disclaimer:All articles and data presented herein is intended for information purposes and has been compiled from sources deemed reliable including the Valu-ations and Research Department of Chestertons, sales and leasing staff, published data, and secondary sources. Though information is believed to be correct, materials presented is subject to errors, omissions, changes, or withdrawal without notice.

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