Real Estate & Construction
Expo(nential) Development Ahead
A2014 IMF overview report on the UAE noted that the construction sector’s stake in the local economy was palpably lower in 2013 than in 2008 (8% vs. 14%, respectively) principally since economic growth now enjoys a more diversified base. And specific to Dubai, the report cited estimates of the Expo 2020 fueling Dubai’s economic growth, including employment, moreover; “…reinforcing the trend of returning confidence to the economy.” And, of course, extensive international attention to be reaped from World Expo 2020 has only added to the mood of general optimism, and will expedite the completion of core projects. Dubai’s construction market is effectively defined by 10 megaprojects worth up to $240 billion due for completion over the next six to 16 years.
Megaprojects – The Big 5
With an estimated value of some $89.5 billion, Jumeirah Gardens crowns upcoming projects in Dubai. It foresees, among other things, the construction of five skyscrapers, of which three are over 600m tall, a string of manmade islands, and the world’s most vertiginous Ferris wheel. A Meraas Development initiative, the scheme was, in retrospect, inauspiciously announced in October 2008 as global financial distress loomed. Yet the project, owned by the Dubai government, is forecast being completed by 2021. Dubai’s second most valuable project is Dubailand—a leading leisure, retail and residential hub, valued at $61 billion. First launched in 2003, part of the project has already been realized and is in action. Around 13 million people annually head for Dubailand’s Motor City, Sports City, and Outlet Mall. The scheme is scheduled for completion in 2020. Additions will include the City of Arabia, with a giant mall and entertainment park. In third place is Dubai World Central (DWC), aka Aviation City. Centered around the Al Maktoum International Airport, the $16.7 billion scheme comprises eight themed districts ranging from logistics and retail to humanitarian and aviation. One of the five scheduled runways became operational in 2014, with full completion of the project expected by 2030. The fourth scheme by value is Limitless’ $14.6 billion residential project Downtown Jebel Ali, which is followed by the Al Jadaf Area Development Culture Village [Arabian Bays] project of Dubai Holding. With a budget of $11.6bn, completion is due in 2023.
THE LANDMARKS CONTINUE
The landmark projects include the ongoing Business Bay project, currently valued at $11.2 billion, which is expected to be fully completed in two years’ time; as well as Mohammed Bin Rashid City, which is being developed jointly by Dubai Holding, Emaar, and Meydan Sobha at a cost of $11 billion, and where completion is earmarked for 2023. On a budget of $10.9 billion Emaar’s Downtown Dubai development scheme is set for completion in 2020, when Meydan, too, intends to apply scissors to tape at its Meydan City project—price tag $7.3 billion. To this, one should also add the Dubai government’s Expo 2020 frenzy, which priced at $7 billion, should be shipshape by 2019.
According to industry data, Dubai’s property market has witnessed a slowdown in new launches following flat growth in property prices since mid-2014. Cited in Gulf News, real estate outfit Tasweek revealed an average drop in prices of 2% in January and February of 2015 from 4Q2014. Meanwhile, YoY transactions declined 20% in January and 17% in February. Another cited report forecast Dubai’s property prices in 2015 posting a flat performance, or else losing up to 10% for the year.
UNDER THE SKIN
A project of any scale, much less the rethinking of an entire city requires adequate infrastructure that can be grown into as need arises. Back in February 2014, the Dubai Road and Transport Authority (RTA) signed off on a $1.9 billion budget for the construction and maintenance of roads. This step complied with the RTA’s Five-Year Plan (2012—16) and envisaged around 100 construction projects, among which are 50 new road, marine transport, and public transport projects. Close to 40% of the budget went to the RTA and just over 30% to RTA Rail. Dubai Metro today has two operational lines with another three to be constructed by 2020, 2025, and 2030.
In conversation with TBY, President and CEO of China State Construction Engineering Corporation—CSCEC (Middle East), Yu Tao spoke of his firm’s longstanding involvement in meeting extensive infrastructural requirements. “Rapid population growth has created pressure on the existing infrastructure.” CSCEC (Middle East) has a proud infrastructure pedigree in the region spanning major highways, railways, and airport projects. “Hopefully, we are able to participate in Dubai’s Al Maktoum Airport as well,” he confided, adding that, “…with [our] proven track record of 40 airports around the world, we have a better chance to ensure the quality and timely handling of megaprojects.”
A SMARTER CITY
The extraordinary global repositioning of Dubai, more specifically the construction that has underpinned is in its second decade, which as Jason Ruehland, Managing Director of facilities managers Emrill told TBY, has created a need for smarter maintenance solutions. “A smart city also means smart business, and one of our clients’ primary concerns today is predictive maintenance.” “Dubai’s landmark buildings,” he continued, “…are now about 15 years old and all of their assets are going to suffer failures and need repairs [and] through cloud-based technology we can monitor the performance and efficiency of their systems and assets.” Emrill has twice been named “Overall GCC FM Company of the Year” by FM Awards.
PRICING THE PROJECTS
Skyrocketing construction activity runs the gauntlet of spiking prices of construction materials and labor. Dubai is not alone in building the glittering cities of tomorrow, and competes for these resources with key regional power centers, such as the Qatari capital of Doha and the Saudi cities Riyadh, Mecca, and Jeddah, pursuing their own infrastructural ambitions. The 4Q2014 Construction Material Price Index (CMPI), a quarterly publication of the Dubai Chamber monitoring the price movements of 251 construction materials, shows that the price of steel and cement and gypsum had fallen YoY by 5.8% and 2.9%, respectively. In contrast, the respective prices of aggregates—gravel and sands and glass and mirrors—had risen steeply by 8.8% and 9.7%. The UAE is a substantial cement producer and exporter, yet the bulk of its labor is imported. And given the vast infrastructural projects the wider region is experiencing, workers are today brought in from beyond the familiar nations such as India and Nepal.
SAVE THE DATE
On November 27, 2013, the Bureau International des Expositions (BIE) in Paris named Dubai as the host of the World Expo 2020. The main sectors to benefit from the event are the construction, hospitality, retail, and, to a degree, real estate sectors. Yet, there are broader economic ramifications. The transportation infrastructure that often materializes prior to a major international event like the World Expo or World Cup can yield the long term benefit of higher economic productivity. The IMF forecasts growth in 2021, in the wake of the Expo, declining from the 2020 peak, as experienced elsewhere after previous Expos. In the case of Dubai; “The decline would constitute a return to its long-term sustained growth of about 5-6% annually.” But first of all, the Expo 2020 site itself will take shape in close proximity to the DWC and Al Maktoum International Airport. The site will feature roughly 700,000sqm of pavilions and 500,000sqm of permanent structures. Official data of the government of Dubai costs the site construction at around $6.9 billion. The event itself is estimated to generate revenues of $38 billion, as around 25 million visitors arrive to snap photos over a period of six months, with 70% hailing from beyond the UAE. To host them all, Dubai has to add 80,000 new rooms by 2020 to the current 65,000, according to Dubai Tourism and Commerce Marketing estimates. Key retail developments, such as the Mall of the World, will also be priority schemes that must be poised for action when the tape is cut on the big day.
Asteco Property Management is one of the Middle East’s largest full-service real estate companies. Also touching on the theme of prioritizing, Managing Director John Stevens told TBY that “The market is maturing with more choice available.” He made an interesting distinction, however by stating that; “Whilst it is always nice to compare Dubai to London, New York, and Hong Kong, you are talking about cities that are hundreds of years old where land is at a premium. Meanwhile, Dubai continues to change and evolve.” And as Dubai grows into its new skin atop state of the art infrastructure, Stevens observes that; “While Expo 2020 is excellent for recognition and for the country as a whole, the new airport is going to be the key.”
Construction remains big business. And as the population rises, not least with expansion of the expatriate community—itself swollen on greater confidence in the region—the sector will remain robust. Yet, successful economic diversification and the post-Expo 2020 landscape will see other sectors stand on its shoulders to make themselves better heard.
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