Dubai rents are at an all-time high, the average apartment rents soared by ~30% to ~90k AED while for a villa, or family home, the rent jumped similarly by ~30% in 2022. The surge in rental prices is being driven by the high demand mainly due to a growing number of expatriate workers moving to the city on the one side and a relatively lower supply of new developments as a result of reduced and partially paused construction activities during the COVID pandemic on the other side.
Long-term the demand for rents is expected to continue to grow, the city has estimated that by 2040, Dubai will reach a population of 5.8 million, almost doubling the number of people that live there currently. At the same time an increase in the construction activity to the pre-COVID levels is expected to offset the additional demand.
This would suggest that landlords that are currently satisfied by the all-time high rents due to the market dynamics will need to think how to actively optimize their rental returns on their invested properties in the future. Renting a furnished apartment or villa rather than an unfurnished one offers a great opportunity for higher returns with a low effort and risk.
The demand for furnished apartments is particularly high in Dubai. It will be even higher with the expected growing numbers of expatriates and commuters that usually need an apartment or house for just a few years and want to rent it with as little effort and investment as possible. They tend to be uncertain of their future and the length of their stay despite the fact that their initial believe of “I will probably stay for a maximum of 1-2 years” is often proven wrong ultimately.
For tenants, there are plenty of further benefits of renting furnished apartments – saving money initially, avoiding the time and the effort required to set up the home. Especially the lack of capital to invest in new furniture at the beginning of their relocation and journey seems to be a driving factor.
The same trend has been observed in Germany, for furnished apartments the rent has increased sharply, as an evaluation of offer data from around 120 real estate portals by the real estate research institute F+B from Hamburg shows. From 2007 to 2014, the offer in Germany increased from 32,500 to 132,400, which corresponds to an increase of a good 400 percent. “The increasing flexibility and globalization of the working world have created the need for short-term leases for a mobile and often affluent clientele,” says F+B spokesman. But not only has demand increased, so have prices. According to F+B, between 2005 and 2018 the average rent for furnished apartments in Germany increased by almost 50 percent, while that for unfurnished living space increased by only around 18 percent.
The need and consumer willingness to pay more for furnished properties result in a great opportunity for landlords to increase their return on investment. Landlords can furnish their apartment or houses with a small investment and in return increase their annual rent substantially. For instance, a 1-bedroom apartment in Dubai Marina which is leased for 90k AED can be leased for 120k AED. This implies an uplift in returns of 33%. The investment required to purchase a 1-bedroom TUKA furniture package is between 10.9-16.9k AED, resulting in a payback period of only 6 months. Put simply, in 6 months the landlord recovers his initial investment and starts making additional profit month after month and year after year.
In the given example above, a 10.9-16.9k AED investment results in 150k AED additional return over 5 years, multiplying a 15k AED investment by 10 times over 5 years.
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