Experts wonder if Dubai is on the cusp of a new construction boom.
“The current facilities available in Dubai need to be scaled up in line with the future ambitions for the city,” Sheikh Mohammed said.
The development, a joint venture between Emaar Properties and Dubai Holdings, will be located between Sheikh Zayed Road, Emirates Road and Al Khail Road. The announcement was vague in terms of who would finance it, what was the driving force, and specific details.
At its heart is a public park Sheikh Mohammed said would be 30% larger than London’s Hyde Park. And the development means that Dubai will retain the world’s largest shopping mall. There are going to be a 100 new hotels to add to the 400 already tussling for tourists. Separately there is a canal system with waterborne public transport. His Highness also announced the launch of the ‘Dubai Modern Art Museum & Opera House District’ in Downtown Dubai.
Literally weeks after the announcement His Highness, unveiled Dubai Hills, the first project in the new ‘city within the city’ development. The new gated community will provide ultra-luxury residences, designed to the bespoke considerations of the owners. Truly unparalleled in the residential project development history of the city, Dubai Hills ushers in a brand-new lifestyle that will set a new mark in high-end lifestyles, following the enormous success of ‘Emirates Hills’ developed by Emaar.
The announcements were greeted with caution by some members of the construction community, some cynicism by others and with joy by those companie who will be getting RFP and Requests to Tender notices.
Nicholas Maclean is the managing director of CBRE in the region. He points out an anomaly in the way that Dubai operates. If you split the market into residential, office and retail you find differing results. Currently office space is showing roughly 47% of the overall stock unoccupied. This will rise to 50% this year. Yet there is a genuine shortage of good office space and rents are rising near the Sheikh Zayed Road artery.
“There is a lot of offshore money that would like to enter the Dubai market but the investment opportunity is simply not there,” says Maclean.
There are also, according to Maclean, at least three clients of his trying to obtain 50,000sqm properties in Dubai.
In terms of residential property CBRE estimates that some properties are raising their rents this year by 26%. So there are strong indications of need for more housing stock in the city.
One of the major concerns is how much this will cost and how it will be paid for. Sheikh Mohammed offered no word on who would finance the emirate’s latest project, how much it would cost or the timetable for construction. He said only: “We have to start work immediately,” while indicating that investment would total several billions of dollars. He indicated that they had the finance though but declined to offer its source.
We can only guess how it will be paid for now but BPME can offer a guide to at least some of the costs. There will be at least a hundred new hotels, and in Dubai an average hotel has 250-350 rooms. Assuming most of the hotels are five-star, the cost is roughly $110 million per hotel. Let us assume that there will be some four star hotels in the mix, they come in at $68 million per hotel.
The project includes the largest mall in the world, the Mall of the World. The cost per square metre of a mall is approximately $2,500 USD. A typical UAE mega mall project is roughly 200,000 square metres in scale. The Dubai Mall is currently roughly twice the size of the Mall of the Emirates, so would cost more than a billion dollars. The Dubai Mall is being expanded though, so if we assume the new Mall of the World will be at least five times the size of the Mall of the Emirates you would expect a cost of $2.5 billion dollars.
One of the major elements of the MBR City project is the Universal theme park, developed in partnership with Universal Studios. There is a definite advantage to a theme park in MBR City. Imagine trying to sell Dubai as a holiday destination to someone in central Europe. The flight is roughly the same as to Orlando, Florida. Dubai is open on two of three holidays in a year; it is not a summer destination. Currently justifying Dubai as a family destination is a hard sell. Matthew Green, head of research at CBRE agrees: “Expanding and improving tourism-related infrastructure is clearly required if Dubai is to compete on the global tourism stage.”
In 2012 it was estimated that Dubai attracted close to 10 million visitors, up around 10% on 2011 figures. However, to meet its long-term goal of 15 million tourists there will need to be a prolonged period of solid visitor growth. This will of course require additional investment in order to create tourism drivers in the form of leisure and cultural attractions, as well as an overall improvement in the emirates infrastructure so that the city can handle the additional tourism capacity for years to come.
Matthew Green explains: “Although 100 hotels have been suggested for MBR City, we see this level of commitment as being spread over several decades and phased so as to avoid negative impact on supply and demand fundamentals. With around 55,000 hotel keys already in the pipeline and a further 14,000 new rooms to be added by 2015, there is already significant supply to be added to the hotel inventory in the medium term.”
The main consideration, from a construction view is, who is going to build MBR City? There are also questions such as the potential speed of the development and what effect it will have on the infrastructure of the city. Dubai’s new city within a city will be built by Dubai Holding, a conglomerate owned by the Sheikh, and Dubai’s premier real estate firm, Emaar Properties, according to a press release from Emaar.
But what about the infrastructure? Wael Allan of Hyder Consulting explains: “The infrastructure is there. You need roads, drainage and these have been strategically developed over a number of years. You need transport and the RTA has this planned. The Dubai Hills announcement makes perfect sense. You bring the people in and they use water. Then you recycle that water and use it to make parks and green features.
“The transport system here is very good, probably the best in the GCC. The combination of the Metro, the road system and the taxis are great. In JBR the tram system is being built and feeder buses bring people into the central zones. Dubai is one of the only cities in the world where you can live without a car. If you compare it to Los Angeles for example, it has a comprehensive mass transit system. The integrated characteristics of Dubai’s transport system has improved exponentially in recent times.
“Before any development is proposed the government calls in consultants and they define the need.Planning has matured a lot since Hyder started working in Dubai more than 30 years ago. It has grown up. You have to understand with cities you start with the larger picture and then zoom in. All of the elements lock together and no one part can be developed without reference to the others. Crucially you can’t micro manage a city, and some elements that seem odd are part of a larger plan.”
Amongst all this good news though, are some voices of dissent. Mohammed Al Rais, managing director of Hill International, says that: “Dubai needs to complete stalled projects before it embarks on new projects such as the MBR City and the Business Bay Canal project. The MBR City is actually a continuation of Business Bay, while the Canal project, will link it with the other side (of Dubai). It was something that was discussed, from memory, almost eight years ago. But it was never taken up at that time.”
Hyder’s Allan offers an opposing view: “I can see the argument, but the canal project will not affect the overall transport of the city, maybe 2-4% and that will mostly be tourist related traffic. Obviously the canals will add more waterfront developments to Dubai and those properties are desirable. As for developing what we have, there are good developments and bad ones. The good ones will eventually get developed.”
The crash of 2008 was not Dubai’s fault, it was the fallout from the world economic crisis originating in the USA and passing across Europe like a virus. Dubai appears to be bouncing back but the rating agency Moody’s downgrading of Emirates NBD, Commercial Bank of Dubai and Mashreq bank is a reminder that the bad debts of the last boom weigh on the Dubai economy.
One thing is sure, though. As Nicholas Maclean of CBRE points out Dubai is a sort of Middle East-light for investors: “All things being equal investors will choose Dubai as their point of entry into the Middle East. It is easy to attract staff here and when they arrive there is the ability for them to have a good social life. Also Dubai is safe and family friendly.”
Wael Allan of Hyder agrees: “Without specific financial incentives, such as those offered by Abu Dhabi, Dubai would naturally be the first choice for corporates.”
The question is whether the Sheikh making announcements like MBR city is an attempt to prime the pump and talk up Dubai to the world. Wael Allan says, “that’s the job of a ruler. It’s what he should be doing. Only he has a clear vision of where Dubai is going and he is there to drive progress forward. It’s exactly the same as the head of any other country. He is our leader and represents Dubai to the world.”
CBRE’s Green agrees: “The MBR City project is clearly a long term strategy which requires a sensible and methodically planned phasing system to deliver supply to the market over the next 20-30 years.”
Perhaps the last word should come from Sheikh Mohammed: “Most people talk, we do things. They plan, we achieve. They hesitate, we move ahead. We are living proof that when human beings have the courage and commitment to transform a dream into reality, there is nothing that can stop them.”