Dubai Tops Global Prime Rental Market with 12.1% H1 Growth

Savills, a global real estate services provider, released the findings of its latest Prime Residential World Cities Index, which revealed that Dubai topped the rankings of 30 global cities for rental value growth and ranked 5th for capital value growth in the first half of 2024.

Dubai led the index with gains of 12.1%, followed by Bangkok at 9% and Lisbon at 7.5%. These markets are characterized by strong lifestyle credentials and a significant element of corporate relocations driving demand, according to Savills research.

Prime Real Estate Rents in Dubai

Prime real estate rents in Dubai, the top performer in the index, have been on a multi-year upswing. This growth is attributed to a range of pro-business government policies and attractive residence visa programs, attracting individuals from around the globe to establish a base in the emirate.

According to Andrew Cummings, Head of Residential Agency at Savills Middle East, “The Dubai residential market continued its dream run in the first six months of the year, with record-breaking transaction volumes and values. We’re seeing some of the finest brands and developers launching world-class projects in Dubai and the wider UAE to capitalise on the growing demand. However, with existing supply running tight, prime rentals are not expected to cool off anytime soon.”

On the top three performers of the index, Kelcie Sellers, Associate Director, Savills World Research says, “Dubai and Lisbon have been perennial leaders for growth in their prime rental markets because of excess demand for high-quality rental properties, but Bangkok is a new entrant.”

Factors Influencing Rental Demand

The higher interest rate environment and the return of tourism and expatriates to Bangkok post-pandemic have contributed to increased rental demand for prime properties. In many EMEA markets, demand for prime rental properties continues to exceed supply, supporting rental price growth across the region. Notably, no EMEA market tracked in the index experienced a decline in rental prices from December 2023 to June 2024.

Rental Growth vs. Capital Values

In a higher interest rate environment, rents continued to outperform capital values, growing by 2.2% in the first half of the year. Of the 30 markets analyzed, 25 reported flat or positive rental growth. Renting offers international tenants the flexibility they seek when entering new markets, further driving up rental prices. Prime residential property in world city locations demonstrated resilience over the first half of 2024, with an average capital value growth of 0.8%, surpassing the 0.6% growth predicted for the year. However, buyers remain cautious as they await more clarity on interest rates.

Regional Highlights in Capital Value Growth

Year-to-date, cities in Southern Europe and the Middle East have shown the strongest capital value growth, with Lisbon leading with a 4.2% increase in the first half of the year. Amsterdam, Madrid, and Athens also saw capital value increases above 3%, with Dubai rounding out the top five at 2.9%. Across the EMEA region, only Berlin and London experienced slight price declines, at -0.8% and -0.1%, respectively.

Cummings says, “On a price per sq ft basis, Dubai continues to offer immense value to investors and end-users looking for high-quality, luxurious homes with attractive amenities. Coupled with the lifestyle and connectivity that the emirate has to offer, Dubai continues to be one of the most coveted destinations in the world to live in.”

Sellers says, “60% of the 30 cities analysed in the Savills Prime Residential World Cities index have seen positive capital growth, reflecting a level of relative confidence in the asset class. While seven cities reported price falls of less than -1%, the strong fundamentals of these local prime residential markets may support the possibility for capital value appreciation in the second half of the year for these locations.”

Outlook for the Rental and Sales Markets

Savills researchers anticipate that rents will continue to outperform capital values for the remainder of 2024 and in the medium term, as supply remains scarce in many world cities. High interest rates are driving potential buyers into the prime rental markets. However, the possibility of interest rate cuts in the second half of the year may encourage these buyers to re-enter the sales market, potentially easing price pressures. Looking ahead, the average capital value growth is predicted to be 0.5% for the second half of the year, which would bring total 2024 growth to 1.3%.

Prime Gross Yields

Prime gross yields increased by 10 basis points in 2023 to 3.1%, as global rental markets recorded stronger growth compared to sales markets across the 30 cities surveyed in the index. The average gross prime yield across these markets now stands at 3.2%, up from 3.1% in December. Los Angeles, New York, and Dubai continue to be the highest-yielding cities, with average yields above 5%.