Why Short Term Rental (STR) will Thrive in Post-Pandemic Dubai
Updated: Sep 15, 2021
As the weight of the pandemic hobbled the global economy in early 2020, Hospitality and Tourism experts predicted utter devastation in the STR market. At the peak of the pandemic, Airbnb’s highly anticipated IPO appeared to be under significant threat. Experts predicted that grounded flights and a preference for regimented hotel cleaning protocols would decrease demand for the short-let sharing economy that led to Airbnb’s meteoric rise - burdening those in the Airbnb management community.
More than a year later, events haven’t quite unfolded as initially anticipated for STR in Dubai. To be sure, 2020 was a difficult year. But given the precipitous drop in international visitors, and the unprecedented pain felt by Dubai’s Hotel sector, demand for short term rental vs long term rental remained remarkably resilient in relative terms.
The Rise of the Mid-term Stay - An Entirely New Customer Emerges for STR
In recent years, companies have tinkered with flexible work arrangements in an effort to reduce fixed costs and address work-life balance concerns. The thinking being, if an organization can reduce a sizable proportion of its office space costs without hurting productivity, there could be a meaningful benefit to its bottom line. You may be wondering how this is relevant for STR - don’t worry, we’ll get there.
The pandemic ushered in an unprecedented opportunity for companies to evaluate the effects of remote work on productivity and corporate culture. While the remote work experiment is still very much under evaluation, many experts agree that certain sectors will almost certainly adopt a hybrid model going forward. For many, this may simply mean working from home a day or two per week. But for others, it could mean that employees would not be expected to report to the office for much longer periods of time.
In a proactive response to this emerging trend, the UAE government recently announced the roll-out of a Remote Working Visa, as it attempts to capture the surge in Digital Nomads post-pandemic. In effect, the visa enables employees from anywhere in the world to reside in the UAE for a year, while enjoying all the benefits of a local resident.
But Digital Nomads aren’t the only target of the UAE’s visionary remote working visa. For decades, the UAE has sought to eliminate barriers to entry for businesses seeking to penetrate its lucrative market. The UAE’s hopes are that with its remote working visa, companies with an interest in doing business in the country will be offered an inexpensive way of sending talent to assess the business opportunity, without the burden and costs of officially setting up shop.
This significantly reduces the risks for prospective businesses, as they can explore viability while at the same time avoiding business licensing fees and various other prohibitive start-up costs.
The prevalence of remote workers in the UAE will have obvious benefits to local business - after all, the remote working cohort is highly educated, tech-savvy and has better-than-average spending power. Few sectors have more to gain than the STR space. As STR anxiously awaits the recovery of international leisure travel, demand for mid-term accommodation is a welcome addition to the STR customer base - and it looks like a trend that’s here to stay.
Short Term Rental vs Long Term Rental: A Faster Path to Recovery for Struggling Real Estate Investors
The ambivalence about choosing between short term rental vs long term rental, has tempted Dubai’s property investors for several years, as falling long term rents negatively impacted yields. Ask the concierge at many residential buildings in Dubai Marina, Palm Jumeirah, Downtown and DIFC, and they’ll tell you significant numbers of professionally managed STR properties are on offer in their buildings.
While there are green shoots appearing throughout the UAE economy, the real estate market still struggles from a double-sided onslaught of troubling conditions. The first includes the significant oversupply of new inventory pouring online in the coming year or two. The second involves the hard reality that the pandemic left many expats jobless, which resulted in significant, pandemic-induced population declines.
These realities do not bode well for long term rental prices, which are likely to endure further price declines in the short to medium term. A reality that leaves many investors desperate for alternatives, when it comes to maximizing their short term rental income and improving their investment yield.
Undoubtedly, the effects of the pandemic are far from over, and a return to normal still seems somewhat elusive. But for Dubai’s STR market, there are increasing signs that the pandemic has accelerated consumers' preference for professionally managed short term rentals vs traditional hotel stays.
Early on during the pandemic, most travel experts predicted the demise of STR, citing consumer preference for regimented cleaning protocols offered by large hotel chains. However, as the pandemic wore on, it became obvious that the opposite was true, as traveller's resisted crowded hotel lobbies, restaurants and other areas where people congregate to the delight of those maintaining a short term rental income.
Furthermore, Dubai has maintained an extraordinarily successful response to the pandemic, as it pertains to keeping its borders open and enabling some semblance of its tourism industry to stay operational. Of course there have been set-backs, but relative to other cities, Dubai has stayed well ahead of the curve in allowing international travel in a safe and responsible way.
For many years, Dubai real estate investors have asked themselves if they could afford to take a punt on short term rental vs long term rental. Increasingly, the question seems to be, “Can they afford not to?”