Dubai's real estate landscape is witnessing a significant shift as property investors and landlords reassess their rental approaches. The once-thriving short-term rental market is experiencing a slowdown, prompting many to consider the stability of long-term leases.

Short-Term Rental Market Faces Challenges

The short-stay rental sector, which previously offered higher yields, is now grappling with market saturation and declining rates. An influx of over 40,000 short-term rental units has led to increased competition, resulting in a 30% drop in nightly rates compared to the previous year. This oversupply has made it challenging for landlords to maintain premium pricing, especially during off-peak seasons.

Introduction of the Smart Rental Index

In response to the evolving market dynamics, Dubai's Land Department introduced the Smart Rental Index in January 2025. This AI-driven system assigns star ratings to properties based on criteria such as building quality, amenities, and maintenance standards. Properties with higher star ratings can command premium rents, incentivizing landlords to invest in property upgrades.

Shift Towards Long-Term Leases

The combination of declining short-term rental returns and the potential benefits of the Smart Rental Index has led many landlords to pivot towards long-term leasing. Long-term rentals offer more predictable income streams, lower management fees, and reduced vacancy risks. Additionally, properties with higher star ratings under the new index are attracting tenants willing to pay above-market rates for quality accommodations.

Strategic Considerations for Landlords

While short-term rentals still hold appeal during peak tourist seasons, the current market conditions suggest a need for diversified strategies. Landlords are advised to evaluate their property's star rating, potential for upgrades, and the benefits of stable, long-term tenancy agreements. This balanced approach can help mitigate risks and ensure sustainable returns in Dubai's dynamic rental market.