It probably won’t come as a surprise to anyone that navigating 2020 has been very difficult for vacation home businesses in Dubai. And whatever company that did not have access to external finance, did not have strong financial reserves, or did not believe in a rapid market recovery, it had to be creative in order to survive.
While in 2019 there were more than 7,000 vacation homes in Dubai, the number has likely dropped by more than double digits in 2020. Many companies have been forced to terminate rental contracts for apartments they had rented. to function as vacation homes. In addition, many homeowners have lost confidence in the vacation home business and have returned to long term rentals.
What can now be concluded is that those who believed in a return to the form of vacation home demand and were able to bear the immediate financial loss in 2020 are now on the fastest path to recovery. . Since the start of the year, we have seen a gradual improvement in occupancy rates and daily rates. Hopefully we can get back to 2019 levels in the next quarter.
On the mend
We still have strong domestic demand, which before the pandemic was for us less than 10% and during the disruption more than 90%. This, interestingly, resulted in above-average rates for April and May of this year. My explanation is that residents and nationals of the UAE still had limited options for travel, but because the vaccination rate is the highest in the world on a per capita basis, they feel safe in the country and wanted have fun outside their homes.
Additionally, what I saw in June is that the share of income coming from international tourists is increasing, driven by the growing share of vaccinations among the global population and the reestablishment of non-quarantine air routes. This increases the demand for accommodation in Dubai and thus drives the daily rates and occupancy levels.
Yet it remains complicated to predict the likely performance for the coming weeks or for the entire year because the reservation window – although widening – remains relatively short. This is due to the risk posed by the positive results of the PCR test, which prohibits tourists from traveling. As a result, tourists tend to mitigate this risk by making reservations at the last minute, making it difficult for the vacation home industry to estimate what their financial performance is likely to be for the year.
What can be concluded is that performance through October is expected to return to pre-COVID-19 levels, then from October to the end of March 2022, the Expo is expected to give a much needed boost. These could hopefully help offset losses from 2020. All of this is subject to the COVID-19 situation. However, I think we are past the worst and are going to see a big recovery in the vacation home market.