Loss to Lease

Loss to lease measures the gap between the rent a tenant is currently paying and the market rent the unit could achieve if leased today. If a Dubai Marina apartment is leased at AED 80,000/year but comparable units are renting for AED 100,000, the loss to lease is AED 20,000 or 20%. This metric is important for property valuation because it indicates built-in income growth potential as leases renew.

Loss to lease typically builds up in rising markets where existing tenants signed leases at lower rates. Dubai's RERA rental increase caps (maximum 20% per renewal cycle) mean that in rapidly appreciating markets, in-place rents can lag notably behind market rates. A tenant who signed a 3-year lease in 2023 may be paying well below 2026 market rates, creating substantial loss to lease.

Loss to lease represents embedded income growth that has not yet been captured. For investors buying in a rising market, properties with existing tenants on older leases often have significant loss to lease. This built-in upside means the acquisition price, often based on current in-place income, understates the property's medium-term income potential.

When calculating acquisition yield, use both the current in-place yield (what you receive today) and the market yield (what you will receive once rents reset). The gap between these two numbers quantifies the income upside from lease renewal. Properties with large loss to lease in strong rental markets can deliver meaningfully above-average income growth over a 3-5 year hold.