DUBAI HOLIDAY HOMES DECEMBER 2018

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1 HOLIDAY HOMES P E R F O R M A N C E A N A LY S I S DECEMBER 2018

Report Highlights Overview In 2013, Decree Number 41 was passed, which stipulated the regulations under which holiday homes could be operated in.

2 Report Highlights Overview In 2013, Decree Number 41 was passed, which stipulated the regulations under which holiday homes could be operated in. A key criteria of the legislation was that homeowners had to engage a licensed third party holiday home operator who typically charged fees in the region of 25% of gross rental revenues. In April 2016, the Executive Resolution No. (1/2016) covering the Second Edition of Holiday Home Rental Regulations was introduced relaxing the rules surrounding such rentals, allowing both homeowners and tenants to apply for a holiday home license without the need to go through a licensed third party operator. The process became relatively straightforward, involving just an online application and an annual registration fee. Services The fees vary by property type and typically include the annual registration fee (around AED 1,500), a unit classification fee (AED 50), relevant knowledge fee (AED 10) and innovation fee (AED 10). The final licence is based on the number of rooms in the property as well as the term applicants intend to let it out as a holiday home. Airbnb As homeowners no longer need a third party operator to market their properties as a holiday home, the popularity of third party holiday rental websites has grown. Whilst properties are typically marketed through multiple platforms such as Trip Advisor, Booking.com, Dubizzle etc. Airbnb is generally viewed as the market leader for shortterm rentals. Since its inception in 2008, the site has witnessed meteoric growth and facilitated the hosting of over 300 million guests in 190 countries around the world. To stay at the forefront of the holiday rental market, Airbnb looks to constantly improve its offering with recently launched initiatives such as Airbnb Experiences and Airbnb Plus. Holiday Homes Supply The change in regulations has led to a marked increase in supply of short-term rental properties over the past few years from 2,775 active listings at the end of 2016 to 5,009 at the end of 2018 which equates to an 81% increase in just 2 years. Holiday Homes Demand Demand has supported the increase in available units with average occupancy levels reaching 65% during s peak season in (March) During the same period in 2017, occupancy levels were at 50%. During the low season months of June, July and August 2018, occupancy averaged 49% which was higher than the same period in 2017 where occupancy averaged at just under 40%. Average Daily Rates (ADRs) Average Daily Rates have remained fairly consistent year-on-year, but have seen a slight decrease when comparing 2018 to The ADR for 2017 was 185 and 167 for 2018 representing a 10% decline. Market Outlook The addition of Airbnb supply to the market will inevitably help to grow and diversify tourism in as travellers are increasingly looking for personal and unique holiday experiences. Similarly, it will provide investors with an alternative and potentially very lucrative income stream. With the obvious benefits to both travellers and property owners, it s likely the holiday rental market will remain buoyant in, certainly in the short to medium term as we approach Expo Valuations Mortgage and Secured Lending Portfolio Valuations Advisory and Research Financial Feasibilities Highest and Best Use Studies Market Research Conceptual Advisory and Project Positioning Studies Project Redevelopment/Repositioning Advisory Investment Strategies Acquisition and Disposal Property/Facilities Management Commercial Mixed-Use Residential International Properties London Off-Plan Residential International Homes and Investments International Relocations Airbnb Market - Snapshot YoY Trend Average ADR () % Number of Active Listings (as at year end) 3,978* 5,009* 26% Total Annual Market Revenue () 59,966, ,230,708 69% Average Monthly Occupancy (%) 47% 55% 9% Sales and Leasing Commercial Industrial Residential Retail *Based on entire units only Holiday Homes Performance

3 Holiday Homes Supply The active listings on Airbnb, i.e. listings which have been live in the last thirty days, specify there are currently 7,971 active rentals available in at the time of writing this report, of which 63% are entire homes, 29% are private rooms and the remaining 8% are shared rooms. Whilst shared hosting was the original driver behind the Airbnb experience, it is technically not allowed under current legislation in and the government has been active in putting a stop to this practice. Hence for the purposes of this report, we are only categorising entire units as an active listing. Looking at year-on-year movement, we can see that active listings have grown steadily. In 2010, there were only 2 Airbnb properties listed in. By the end of 2017 that number had grown to 3,978 and then to 5,009 at the end of a 26% increase in active listings in one year. Number of Active Listings by Month With regards to rental sizes, the mix ranges from studios to 5 bedroom units - with one bedroom units dominating the market accounting for 42% of supply. Presumably, this is due to their flexibility of being able to fit up to 4 people (if a sofa bed is included). In our last Observer report, we noted there was an increasing stock of smaller format apartments and studio apartments that were most affected by market adjustments. There has been a year-on-year recorded drop of 16% on rental rates achieved for studios followed by a year-on-year 12% rental decrease for 1 bedroom units from 2017 to This represents an opportunity for landlords to utilise Airbnb as an attractive alternative to longterm renting. HOT TOPIC Many cities around the world have grown frustrated and intolerant to hosts putting up their homes on Airbnb these include cities such as Paris, Berlin and Barcelona. The short-term rentals platform has been blamed for unruly tourists and rising house and rent prices. As a result, many governments have imposed stringent regulations on Airbnb such as limiting the number of nights a property can be rented or stipulating the house owner should occupy at least 50% of the property when renting it out. No such regulations have been introduced in as of yet Holiday Homes Performance Holiday Homes Performance

4 Top Active Listings by Location Holiday homes in are largely located in Downtown, Palm, Marina, Media 2 and Al Barsha. Average Daily Rates in these areas range from 359 in Palm ; 241 in Downtown ; 218 in Marina; 188 in Al Barsha and 129 in Media 2. Interestingly, Airbnb s best performing property in is a 6-bedroom, 7.5 bathroom villa on Palm which accommodates up to 12 people. It earned 428,436 last year which is an average daily rate of 1,433. Number of Active Rentals & Average Daily Rates What makes holiday rentals so attractive in locations such as, is that a large proportion of properties have many of the amenities that are often associated with hotels. For example, communal gyms, pools, beach access and some apartment buildings even have concierge services. What s more, holiday homes are able to offer more space than a hotel room or suite as well as kitchen facilities which is often preferable for families or larger groups. HOT TOPIC Airbnb offers better value for travellers in when compared to typical hotels, with the average price of a booked listing being circa 16% lower than the average rate of a hotel room in the city. The Average Daily Rate of an Airbnb booking in is 167* while the Average Daily Rate of a hotel room is just over 200 (as at the end of December 2018). *Across 2018 No. of Active Rentals (*covers entire units only) Average Daily Rate The World The Palm Deira Abu Dhabi Waterfront Technology Park Downtown Jebel Ali World Central The Palm Jebel Ali 86 JEBEL ALI VILLAGE Jebel Ali Freezone 297 THE SPRINGS 87 INTERNATIONAL MEDIA PRODUCTION ZONE 86 DISCOVERY GARDENS 66 JEBEL ALI VILLAGE 24 THE SPRINGS 40 Investment Park INTERNATIONAL MEDIA PRODUCTION ZONE Ibn Battuta Mall The Gardens Jebel Ali Green Community Arabian Gulf 41 DISCOVERY GARDENS US $ 109 Al Furjan SPORTS CITY 218 MARINA Golf Estates Heights Discovery Gardens 1,482 MARINA Beach Residence Park Marina Pearl Media Internet Lake Towers Greens Emirates TECOM Meadows Hills Islands International Media Production Zone(IMPZ) 104 SPORTS CITY The Springs Triangle PALM PALM JUMEIRAH JUMEIRAH Sports The Lakes Circle The Palm land Sufouh Safa Manara Barsha 1 Mall of the Emirates Al Quoz 105 AL BARSHA Arabian Ranches Al Waha Community Layan Dubiotech JUMEIRAH Motor LAKE TOWERS 243 MEDIA CITY 2 Barsha 161 Umm Suqeim AL BARSHA 1 JUMEIRAH LAKE TOWERS 129 MEDIA CITY 2 Living Legends 188 Al Khail Gate 112 AL BARSHA Al Barari 122 AL WASL 188 AL BARSHA Maritime Satwa Bur Burjuman Hamriya Badaa Al Wasl DOWNTOWN Deira Wuheida Umm DOWNTOWN Mamzar DIFC Trade Hurair Karama Deira Hor Al Anz Mall Oud Downtown Zabeel 2 Metha Business Burj Khalifa Al Nahda Bay Garhoud Airport Free Zone Culture17 Twar Qusais 114 BUSINESS Bu Kadra Meydan BAY The Lagoons Nad Al Sheba Silicon Oasis 383 AL WASL 690 Ras Al Khor Academic 188 BUSINESS BAY Dragon Mart International Awir 241 Festival ZABEEL 2 Nadd Al Hammar Umm Ramool Nadd Shamma Warqaa 267 ZABEEL 2 Mirdif Mirdif Ghoroob Shorooq Mizar Sharjah Muhaisnah Khwaneej

5 Holiday Homes Demand Average monthly occupancy levels have seen an overall increase of 9% when comparing 2017 (47%) and 2018 (55%). As expected, demand trends are stronger at the beginning and the end of the year during s high season. Whilst DTCM figures suggest the average length of stay in is 3.5 nights, there are instances of individuals who utilise holiday homes for longer periods. This is sometimes because they may be undertaking project work or are on probation and uncertain about whether they will stay in the emirate on an annual basis. As such, these individuals are unable to commit to a traditional annual rental contract as the tenancy cannot be registered if the residency visa is still to be granted - so holiday rentals are a practical alternative. Another key indicator of the growing popularity of holiday homes in the emirate is Airbnb s market revenues which show significant growth, particularly when comparing 2017 and Recorded market revenue for Airbnb rentals in in 2017 reached 60 million, jumping to over 101 million at the end of 2018 which represents a 69% increase. numbers the Airbnb stock, coupled with additional standard hotel stock, is expected to easily absorb the increased demand. We also expect to see a shortterm spike in ADRs during this period. Average Daily Rates have witnessed a slight decrease when comparing 2017 to The ADR for 2017 was 185 and 167 in 2018 representing a 10% decline. This downward adjustment could be due to extra supply entering the marketplace. Many real estate investors are diversifying into the holiday home rental market because of higher returns when compared to the traditional rental market. On average, investors can expect a return which is 2 to 4 percentage points higher than long-term rental yields. To assist owners in further optimising their rental income, Airbnb have introduced a revenue management tool a practice which is widely As prepares for Expo 2020, we expect a significant increase in Airbnb rentals over the 6 month period of the event. Due to increased visitor Median Occupancy (%) used in the hospitality industry. Airbnb s dynamic pricing tool adjusts pricing to adapt to seasonality and key calendar dates, such as Expo 2020, as well as to compete with similar listed properties. Such tools help to create a more sophisticated pool of short-term landlords who are able to maximize their profits and maintain a competitive edge without the need for expensive software or by paying third-party companies

Market Revenue ( Millions) Average Daily Rates () 0 2.0 4.0 6.0 8.0 10.0 12.

6 Market Revenue ( Millions) Average Daily Rates () $50 $100 $150 $200 $250 * For entire units only 8 9

7 Contact Us Nick Witty, BSc (Hons) MRICS Managing Director MENA Adam Wilson, BSc (Hons) MRICS ACIArb Director Head of International Valuations Vladimir Cvetinovic, MRICS Associate Director Valuations & Advisory - Abu Dhabi vladimir.cvetinovic@chestertons.com Ivana Gazivoda Vucinic Head of Consulting MENA ivana.vucinic@chestertons.com Ellen Sleutjes Head of Property Management - UAE ellen.sleutjes@chestertons.com Mena Head Office 1802, Blvd. Plaza Tower 1 Sheikh Mohammed Bin Rashid Blvd. Downtown PO Box 28336, United Arab Emirates Office: Fax: uae.enquiry@chestertons.com Abu Dhabi Office Office M01, Mezzanine Floor Al Ghazal Building (Above Al Hilal Bank) Khalifa Park PO Box , Abu Dhabi United Arab Emirates Office: Fax: abudhabi@chestertons.com Bahrain Office Maz Business The Lagoon Amwaj Island Office: bahrain@chestertons.com Slim Bouker Adviser to the Board slim.bouker@chestertons.com Disclaimer: All articles and data presented herein is intended for information purposes and has been compiled from sources deemed reliable including the Valuations and Research Department of Chestertons, sales and leasing staff, published data, and secondary sources. Though information is believed to be correct, materials presented is subject to errors, omissions, changes, or withdrawal without notice.

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