Dubai: Most tenants renew leases due to high rents, but this could change; here’s why

The gap between the number of lease renewals and new tenancy contracts is narrowing in Dubai.

Real estate industry executives said the majority of tenants in Dubai continue to prefer lease renewals due to higher rentals, but the delivery of new units in the markets is giving them options to move to new areas in the outskirts, resulting in the narrowing of the gap between lease renewals and shifting to new units.

“Tenants still broadly favour lease renewals to avoid higher costs of new contracts, but this gap is narrowing as more new projects are delivered further from the city centre, offering more competitive rates and larger unit sizes,” said Matthew Green, head of research for Mena at CBRE.

He added that new developments are attracting tenants who are looking for more affordable options without compromising on space and amenities.

“New launch activity has continued to grow rapidly, although the leasing market will remain undersupplied in the short-term, with fewer than 25,000 units completed in 2024 and around 45,000 expected in 2025. This was against strong population growth, as total residents reached 3.8 million,” said CBRE’s head of research, adding that a significant increase in new deliveries is anticipated from 2026 through to 2028 as the development cycle peaks.

Prathyusha Gurrapu, director and head of research and consultancy at Cushman & Wakefield Core, expects rents to gradually moderate with the delivery of new supply and the new Smart Rental Index, bringing further parity between new rents and renewals.

Rental contract registrations in the fourth quarter increased 7 per cent year-on-year, primarily supported by a 9 per cent rise in renewal contracts and 5 per cent in new registrations, as per Dubai Land Department data.

Brokerage firm Betterhomes projected that 2025 is set for a record-breaking 72,365 units handover, a massive increase of 171 per cent.

The real estate consultancy CBRE noted that rentals continued to grow in 2024 with apartments rising 16 per cent and villas registering 13 per cent growth.

“Rents are anticipated to continue rising in the coming year due to the supply shortage across core communities,” it added.

With the launch of the Smart Rental Index by the Dubai Land Department (DLD) in early January, CBRE said rental calculations should now better reflect a unit’s qualities and detractors and allow for a fairer assessment of new lease terms.

CBRE welcomed the decision by the UAE Central Bank to restrict lending on transactional set-up fees, including a four per cent DLD registration fee and other mortgage-related costs.

“This is seen as a positive step at a time when speculative activities were clearly on the rise, with off-plan transactions accounting for 70 per cent of all sales during 2024, a cyclical high in the current market cycle,” it added.