Property Search

What type of property are you looking for?
Dubai  position on the Savills global rental wave
Dubai  position on the Savills global rental wave

Dubai position on the Savills global rental wave

Dubai  position on the Savills global rental wave

Residential rentals: Since the Global Financial Crisis(GFC), real estate markets across the world have seen varying paces of recovery. Although some cities saw their residential markets stabilise gradually others are still waiting for rents to strengthen to pre-GFC levels. Dubai’s residential market, however, holds a unique position relative to other cities. After seeing a quick recovery over 2011- 2014, rents in Dubai declined again (2015-2017). Dubai’s residential market has therefore completed an entire cycle in the last 10 years and is currently in the midst of its second cycle.

Dubai’s distinct rental wave can be attributed to many coinciding factors. Dubai was able to see a swift recovery in rents following the GFC due to significant fiscal stimulus from the government which kickstarted growth and fuelled job creation thus driving up demand for rental property. Nevertheless, after reaching a peak in 2014, rents declined again, mirroring the decrease in oil prices which had resulted in many job losses and contraction in domestic demand.

David Godchaux, CEO Core Savills says “Given that Dubai continues to be a fast-growing economy, largely reliant on expatriate tenant demand, that has historically been responsive to Dubai’s economic fluctuations, the speed with which the city traversed its rental cycle is not surprising. As the UAE sees further economic diversification and private sector-led growth, Dubai’s rental cycle is likely to decelerate and lengthen.

The prime residential rental market which started to soften in late 2014 has some more room to contract as demand for prime residential subsides from UHNI’s and C-suite occupiers, while newer products in the upper and mid-prime segment dilute demand. However, with capital values also softening considerably, some products in this segment still hold stable yield values.

With relatively slower falls in rentals in core mainstream locations over the last few quarters, this segment is expected to be sluggish in moving towards the bottom. Gross yields continue to be upwards of 8% for apartments across most mainstream markets, however, some degree of yield compression is expected through further rental decrease. As the next cycles of lease renewals inspire relocations, particularly among tenants whose rents are yet to reflect the softening market, we expect rents to continue softening. Although widespread, the magnitude of these drops is expected to remain limited.

Office rentals:

Dubai’s prime office market has been outperforming the overall real estate landscape consistently over the last few years due to limited Grade A supply and unmet underlying demand from large international occupiers wanting to set-up/expand their regional operations. This has firmly positioned Dubai’s in the late upswing in the Savills rental wave. However, the pace of upward movement in prime rents is expected to moderate as the upcoming stock gradually self-adjusts with new prime stock anticipated to exceed new Grade B supply for the first time in the last 10 years. This is expected to create a healthy balance between supply and demand as more options become available for large corporates to choose from – as many of them have been resorting to purpose build premises due to limited options available in the recent times.

The secondary office market continues to lag due to strong headwinds faced from the large amount of existing and upcoming stock, despite marginal improvements in demand. As macro-economic indicators start improving and demand for Grade B & C office space starts increasing again, we still expect a significant lag in absorption for the existing vacant stock. For this reason, we are very cautious about any chance of a recovery in secondary market rents in the next 12-18 months.

Savills on rent watch as world city risk changes

In its new flagship publication, Impacts: the future of global real estate, Savills says risk needs to be measured differently, as security and scale of income becomes the major driver. The firm identifies cities which are resource rich, young and fast-growing, economic powerhouses or at low risk of natural disasters as ones to watch for the next decade. According to the report, the ability of cities to attract people and talent pools will be a key indicator of income security in the next 10 years.

Savills has analysed rental growth in different real estate sectors in world cities and plotted where each stands on the new Savills rental wave. It identifies cities and sectors which investors may want to take look at more closely for security of income and potential rental growth.

  • Prime office growth has been highest in San Francisco (+99%), Shenzhen and Beijing (both +71%) and London West End (+69%) since 2008. This leaves these city sectors near the top of the rental curve: in late upswing, on a high plateau or in early downswing.
  • In Singapore, double digit falls have been seen in prime offices (-26%), residential (-25%) and prime retail (-15%), leaving these sectors in or near the trough of the rental wave.
  • Hotels in Shanghai, prime industrial in Melbourne and Shenzhen residential are examples of early-stage rental growth in the current cycle suggesting further potential, but investors may face tough competition and high prices for assets in these markets.
  • Shenzhen has experienced the most rental growth in residential since the end of 2008 (+82%).
  • New and growing economic powerhouse Jakarta is near the end of the late downswing phase of the cycle and potentially offers high rental growth, but with the greater risk of a young market in an emerging economy.
  • Established investment classes in world cities, e.g. prime offices in cities like London, Tokyo and San Francisco are at the top of the wave but may offer a safe harbour for investors as rents could remain on a ‘high plateau’ for some time.

Investment funds are increasingly focused on how to pay pensions to ageing populations in advanced countries. This is a permanent shift, made more urgent in a low inflation, low interest rate era, and increases focus on the quality of income, says Savills. By contrast, in more emerging economies, notably across China, investors are still in the phase of needing to grow portfolios, so can take advantage of growth opportunities in riskier markets. Investors need to understand the risks posed by economic trends, new technology, social change, natural threats and resource scarcity, and how these impact different real estate sectors at a city, as well as world region, level.

Savills Rental Wave – understanding where cities sit in the rental cycle:

The report introduces the Savills Rental Wave, which describes all possible stages of rental growth. Cities in the ‘early upswing’ are described as ones for investors to watch as they have scope for further rental growth, but Savills warns that intense competition for stock may lead to yield compression and high prices in some locations, while others are difficult for international investors to access.

Many core, world city residential real estate markets are heavily concentrated in the ‘late upswing’ phase, including London mainstream, Berlin, Sydney, Melbourne, Beijing and Tokyo, while Frankfurt and Shanghai are on the cusp of a ‘high plateau’.  In this group, the highest residential rental growth of the past ten years has been in mainstream residential lettings in Shanghai (59%) and Sydney (57%) while European listings have also been strong since 2008, with Berlin up 53% and Frankfurt up 42%.


A high plateau positioning should not necessarily discourage investors, Savills says. The combination of economic stronghold and relative economic and political stability can augur well for those more concerned with stable and secure incomes than rental-driven capital growth in sectors such as prime offices in London, Tokyo and San Francisco or budget hotels and retail in Tokyo.

By contrast, high rental growth prospects likely come with far greater risk, for example Jakarta (where the metro population is forecast to exceed Tokyo’s by 2027, but whose real estate markets are still small and relatively immature on the world stage) or Shenzhen which is relatively inaccessible to many foreign investors but one of the most youthful and fast-growing cities in the world.

“To correctly understand real estate risk, it’s imperative that investors understand markets at a city, and even a neighbourhood level and how that applies to each individual real estate sector. Rental growth prospects do not necessarily indicate a ‘buy’ status, particularly if the price is too high, or if an injection of new supply could tip a sector into oversupply and a rental double-dip,” continues Barnes.

Youthful cities tipped for growth:

Understanding social change is essential. Cities with youthful populations are more likely to be centres of higher education, magnets for skilled migration and catalysts for innovation and economic growth. Rental growth will follow, Savills says.

The firm has earmarked key cities in each world region where the Gen Z (15-34 year olds in 2027) to Gen X (50-69 year olds in 2027) ratio is forecast to be highest within the next decade, which include Shenzhen, Jakarta, Auckland and Austin.

Savills cities to watch – measuring future occupier risk:

Cities which rank as ‘economic powerhouse’ or ‘youthful’ are likely to offer a substantial variety of future opportunities for investors, says Jeremy Bates, head of Savills Worldwide Occupier Services. “The biggest asset in any nation’s economy is its people. But competition is intense for talented workforces in developed countries with ageing populations, while emerging economies are nurturing an increasing number of young people.

“New generations will drive occupier demand for certain types of buildings and locations. This will potentially lead to a shift in what constitutes a quality ‘covenant’ with buildings let on short leases to a deep pool of small local businesses potentially finding the most favour with investors as sources of reliable income.”

Source: Savills World Research