Hotels had long been selling a "home away from home" experience. Little did they know then that short-term rentals would be just that.
Backed by a steady growth in the tourism sector, demand for short-term rentals has increased significantly among travelers to the United Arab Emirates and a lot of it has to do with post-Covid travel preferences coupled with remote work options.
And then, of course, there is the Federation Internationale de Football Association (FIFA) World Cup in Qatar this November that will further drive visitor numbers to the region.
The growth in the tourism sector of the United Arab Emirates during the first quarter of this year outpaced that of 2019, making it one of the best quarters for the local tourism industry. Dubai alone has received over 7.12 million international overnight visitors in the first six months of this year — a 183 per cent year-on-year increase.
That’s prompted the growing interest of some household names in short-term rentals like Airbnb and Sonder.
Ease of accessibility, prominent locations, lack of brand name-driven royalty fees, and competitive rates are the main drivers for the popularity of short-term rentals, noted Mohamed Tahir, brand consultant at Dubai-based The Adroit Agency.
Skift in its earlier feature The Definitive Oral History of Short-Term Rentals has traced the transition of short-term rentals from classified ads in newspapers to a full-blown industry that disrupted traditional hospitality models.
In August, Sharjah — one of the emirates in the country — launched its “Holiday Homes Project,” allowing residents to rent out places they own to tourists and visitors. There are estimated to be more than 300 holiday homes in the emirate, according to the Sharjah Commerce and Tourism Development Authority.
Dubai has also introduced various reforms aimed at attracting more people to the emirate, including the remote working visa and multi-entry tourist visa, which could help this segment over the coming years.
Dubai has reported 10,000 active vacation rental listings. Occupancy rates in these units are said to have increased 32 per cent from December 2020 to December 2021, with a 15-28 percent increase in average daily rate and average month-on-month occupancy growing to 94 per cent.
Even though the proportion of short-term rental units vis-à-vis the hospitality supply in the country, is estimated to be relatively low compared to other key gateway tourism markets, the offering is now quite diverse.
Besides Airbnb units, operators such as Sonder are also present in the United Arab Emirates market. Emaar Properties, Dubai’s largest developer, as well as Accor with the SLS Dubai Hotel and Residences in Business Bay are also getting into the short-term rentals market in the country.
Who Are Staying at These Short-Term Rentals?
Even as there are reservations about the short-term rental business not being well regulated in most parts of the world, the demand for these units has shot up in certain segments — mid-tier business professionals, consultants and families visiting for leisure.
These units offer travelers the convenience of a fully equipped house while giving them more freedom than hotels.
Short-term rentals typically offer higher yields than traditional long-term rentals as the calculation takes into consideration the non-occupancy of the unit based on the annual lease value, noted Turab Saleem, partner — head of hospitality, tourism and leisure advisory services, Middle East and North Africa for Knight Frank, a real estate consultant.
“As a result, rental returns are 10-15 percent higher,” he noted, adding that demand for short-term rentals is expected to increase over 2023, underpinned by continued tenant interest in more flexible leases, along with professionals taking advantage of Dubai’s new remote working visa.
Filling the Accommodation Gap During Qatar World Cup
Reports suggest that Dubai property owners are switching from annual leases to short-term rentals to prepare for the inflow of football fans during the World Cup.
Whilst the World Cup will overlap with what’s already a high tourism season in Dubai, the country does expect a short-term overflow of tourists coming to Doha wanting to explore the region as a whole, according to Amr El Nady, head of hotels & hospitality for Middle East & Africa and executive vice president of global hotel desk for JLL.
“It may not be directly apparent on occupancy metrics as those traditionally surpass the 80 percent mark in November, but it is expected to have a greater impact on the room and rental rates,” El Nady said.
With the Qatar event being touted as the most geographically-compact World Cup, Doha hotels would be busy and the packed schedule of shuttle flights being operated by Dubai and Abu Dhabi-based carriers to Qatar would allow fans to fly between the two countries making United Arab Emirates busy as well.
With hotels already charging high rates during that season, short-term rentals present options for mid-market and visitors with families and groups travelling together, Saleem noted, adding, “Short and mid-term rentals will support to fulfil the overall gap in the accommodation market which will help the developers and owners to maximize their yield during the World Cup.”
Will Hotels Feel the Heat?
The lack of a wider service offering helps short-term rentals offer more competitive rates than hotels, making them attractive to travelers who do not require ancillary hotel facilities.
With hotels and short-term rentals vying for the same target audience it is inevitable to explore the competitive nature of the two businesses. “In the longer term, we do expect short-term rentals to offer a higher proportion of competitiveness vis-à- vis traditional hotel operating models,” said El Nady.
While it does not directly affect hotels, it does offer options for visitors, noted Saleem. “It is inevitable to separate these two accommodation services — both units will exist side by side serving different clientele. Short term rentals are here to stay.”
Tahir however, believed that short-term rentals are still lagging behind when it comes to defining their brand persona and this is where hotels have an upper hand.
Consumer preferences have changed as travelers today look for meaningful experiences over discounts from cookie-cutter hospitality experiences. This shift in consumer behavior is a big sign for hospitality brands to evolve and align with the needs of the modern-day traveler, said Tahir. “The segment that caters to this demand is bound to win the race.”
What Does the Future of Lodging Look Like?
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Photo credit: The skyline in Dubai.