Areas in Old Dubai are grappling with a shortage of compact housing

The real estate market in Dubai is facing the challenge of insufficient small-sized housing in several key areas of the emirate, primarily in the heart of the old city, in the Bur Dubai and Deira districts. The deficit is attributed to a limited number of new projects being launched for development. This scarcity is a result of both economic incentives driving developers and an objective shortage of land for construction. All of this is happening while the emirate's population is growing at a rapid pace.

It is known that during the third quarter of 2023, the average rental rates in accessible areas of Dubai showed double-digit growth. Regarding the old districts of the emirate, this translates to a 23% annual increase in prices. This is caused by a supply and demand imbalance amid the city's population growth of over 100,000 people in the same annual period. Over a two-year period, the population has increased by more than 176,000 people.

The core of this migration consists of foreign expatriates, skilled workers, and investors. At the same time, the number of new residential units built in the last few years significantly lags behind the population growth for the reasons mentioned above. This leads to a shortage, most noticeable in the segment of small apartments intended for rental. Old Dubai, where the market is dominated by large apartments built 20–35 years ago, is particularly affected in this situation.

At the same time, experts observe a different situation in the emirate's new areas. There is a high supply of small-sized rental housing here, adequately meeting the growing demand. New areas have more land for construction and are more popular among foreigners. The population growth forecast for Dubai indicates reaching 6 million people by 2040, with a significant portion of this population being migrating foreigners. They are attracted to new areas, partly due to the availability of freehold property rights for land and real estate.

However, this does not mean that demand for old areas in Dubai is stagnating. It is also growing, but at a less pronounced pace. The growth is especially noticeable in Bur Dubai and Deira. Old Dubai benefits from the high historical and cultural value of its districts, which is more meaningful for expatriates who do not view the emirate purely as a place for work or investment. However, the shortage of small-sized housing is prompting the local market to shift towards subleasing and co-living practices.