According to Savills, a leading global real estate advisor, Dubai, Miami, and Moscow had the highest levels of rental growth in 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.
Savills said Dubai’s real estate market appeared to be at a turning point after six years of negative rental growth due to oversupply in the market in its newest analysis examining the rental values and yields recorded for premium residential properties in 30 cities across the world. Savills World Cities Index research, further revealed that prime rental rates in Dubai grew by 5% in the six months to June, driven by a 20% surge in rents for villas as residents emphasize space in the aftermath of the pandemic.
According to the survey, Dubai rental prices have been steadily declining in recent years due to a wide range of initiatives that have resulted in a large overstock in the market. The worst year for rents was last year, with a 12% drop across the city due to travel restrictions and the consequent economic downturn brought on by the pandemic. However, the Dubai market appears to be at a turning point, according to the conclusions of Savills’ World Cities Prime Index Report.
Rental markets are expected to stay stable for the rest of 2021, according to Swapnil Pillai, associate director of Research at Savills Middle East. Travel restrictions between key source markets remain in place, causing rental prices to recover at a slower pace than capital values. However, when economic activity picks up and more employment opportunities are generated, prices are anticipated to steadily rise in the long run. The relaxation of travel restrictions will also be a welcome boost to the economy, said Swapnil Pillai.
In the first half of 2021, rental prices in the Savills World Cities Index’s 30 cities increased by an average of 0.5%. This follows a -1.8% drop in 2020 when worldwide travel restrictions lowered demand due to a lack of corporate relocations and increased property availability as previous tourist short-term rentals were converted to longer-term rentals. Although rents appear to have stabilized, rental growth remains much lower than capital value growth in the World Cities Index, which climbed at an average pace of 3.9% in the six months to June 2021, the fastest since December 2016, says Savills’ report.
The situation isn’t the same all across the world. Rental growth has been stronger in suburban areas and cities that have been less affected by lockdowns. In the six months leading up to June 2021, 39% of cities in the World Cities Rental Index recorded positive rental growth, up from 25% in 2020.
In June 2021, the average prime residential yield across the 30 cities was 2.9%, down from 3.1% in December 2020. Since Savills began tracking the data in 2005, this is the lowest average yield. Yields still vary significantly between locations around the world, ranging from 1.3 percent in Shanghai to 4.7 percent in Moscow.
The report highlighted that Miami’s rental market has seen a surge in demand from domestic migration over the last year, with high rental costs and a limited supply of single-family houses. New projects are still being developed, but they aren’t keeping up with the demand for excellent rental properties in the city, according to the research.
As Russian residents return to Moscow, the level of demand experienced over the previous half-year is equivalent to pre-crisis levels recorded at the end of 2019. According to the survey, after a drop in prime and ultra-prime rentals in the second half of 2020, these properties’ rental costs are climbing again, particularly for large apartments with outdoor space in key districts of the city.
International tenants are important in premium rental markets in places like Kuala Lumpur, Hong Kong, New York, and other cities suffering negative rental price rises. Rental prices have continued to fall in these markets as travel restrictions have persisted over the last six months.
Finally, as vaccines continue, travel restrictions ease and corporate relocations restart, the long-term picture for rental markets is brighter. According to the report, as tourism grows, supply from long-term rental markets will return to the short-term rental market, reducing available supply. Supply constraints in many cities can potentially raise rental costs in prime regions, notably in cities like Moscow, Barcelona, Madrid, and Cape Town, which provide larger-sized houses.
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