Why short-term rentals are essential for long-term growth

Short-term rental accommodation, or holiday homes, have been a hot topic of discussion over the past couple of weeks, first because of Emaar Properties’ entry into the space with its short-term rentals platform Ease by Emaar, followed by the developer banning such stays in its Downtown Dubai community with effect from September 19.

Apart from the fact that the move comes towards the end of summer when operators are gearing up for a high-traffic season, there was little time between the announcement and the deadline for implementation. To top it off, the Department of Tourism and Commerce Marketing, which regulated this market in 2014, has not yet issued any official clarification on the matter, further adding to the suspense as owners, service providers and customers wait on.

The rise of the sharing economy

The question here is, at a time when the sharing economy is taking off with services like co-living, co-working and ride-sharing changing the way of life, can Dubai have one of its most-popular communities close its doors to holiday homes? These services are at the heart of the digital revolution, a cause that Dubai seeks to champion as it strives to become the smartest city in the world. Also, as millennials and Gen Z make up a higher proportion of consumers, it is increasingly important to cater to their preferences of lower prices, convenience and flexibility – key features of a sharing economy.

Not just for tourists

Apart from tourists, who are attracted to the prospect of having a wider array of accommodation options to choose from, regional and global corporates who bring their executives on a short or long-term basis to business hubs like Dubai are another important target group for short-term rental providers. The upcoming Expo 2020 will likely further attract business visitors to the emirate translating to a spike in demand for temporary, if not permanent, housing. Add to this, the government’s target of 20 million visitors to Dubai by 2020, and the potential for expansion in the market becomes even clearer.

Maximising revenues

In a market which has struggled with low rents and prices for months now, landlords are naturally looking for ways to optimise the income-generation ability of assets. Short-term rentals thus prove to be a lucrative option for landlords as they serve as the interim solution for residents until they transition to a long-term rental scenario. Clients of Cavendish Maxwell too are exploring converting residential buildings, either entirely or partially, into holiday homes to benefit from higher yields offered by this segment of the market.

Poised for growth

The numbers also point to the direction of growth. According to figures from short-term rental data provider AirDNA, between June 2018 and June 2019, active home listings in Dubai grew 69.5%, compared to a 7% growth in hotel rooms during the same period.

With Airbnb launching an Arabic website, and investment firms such as IBC Group recently announcing plans to furnish and manage 10,000 premier holiday homes in Dubai, operators and investors alike are betting big on the space.

Following through with the ban can, therefore, potentially cause hiccups in the pace of growth of the segment, hurting the sentiment of a sector that has been under some pressure. It now remains to be seen what the authorities in Dubai decide regarding the fate of one of the emirate’s most promising growth segments in real estate, but operators and investors remain optimistic.