After four years of downturn, Dubai is back with a new generation of audacious projects aimed at driving tourism and broader economic growth.

In February, Dubai-based developer Meraas Holding announced plans to build a AED6bn ($1.6bn) island development off the coast of Dubai known as Bluewaters.

The project followed the announcement late last year that Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum had approved the development of five theme parks in the Jebel Ali area for a total cost of AED10bn.

The local Dubai Holding and developer Emaar Properties have announced plans to build Mohammed bin Rashid City between Mohammed bin Zayed Road, Al-Khail Road and Sheikh Zayed Road. The megaproject will house the largest shopping mall in the world, more than 100 hotels and will also contain a Universal Studios theme park.

2020 Expo

If that was not enough, an even larger project could also be developed if the UAE’s bid for the 2020 Expo is successful. Dubai submitted a bid for the event in December last year to the Bureau International des Expositions (BIE), the international organisation responsible for overseeing the bidding, selection and management of World Expos.

Dubai is competing against four other candidate cities to host the 2020 World Expo, including Ayutthaya in Thailand; Yekaterinburg in Russia; Izmir in Turkey; and Sao Paulo in Brazil. The winning city will be announced in November. If successful, Dubai will build a 438-hectare expo site that will be developed as a permanent attraction, aimed at boosting Dubai’s position as a regional and international tourism destination. Dubai World Trade Centre is managing the project.

The masterplan for the site has been prepared by a team led by US-based architectural firm HOK. Other consultants working on the scheme include the UK’s Arup, and Thinkwell and Populous, both of the US.

While the projects will obviously benefit the construction industry first, they are all ultimately aimed at boosting Dubai’s tourism sector, which continues to grow and over the past decade has become a key part of the emirate’s economy. In 2011, the sector accounted for 31 per cent of total gross domestic product (GDP).

Dubai’s Meraas Holding has announced plans to build a $1.6bn island development off the coast of Dubai

Developing tourism destinations is familiar territory for Dubai. In February last year, the local Dubai Contracting Company (DCC) won an estimated AED400m contract to build a Four Seasons resort on Jumeirah Beach Road. In the same month, the local/Australian Habtoor Leighton Group secured an estimated AED1.9bn contract to build the Habtoor Palace hotel development on Sheikh Zayed Road. In November, the local ANC Contracting picked up the estimated AED500m contract to build a high-rise hotel development at Dubai Marina, while in December, Canada’s Brookfield Multiplex won the contract to build The Address The BVLD in the Downtown Burj Khalifa area.

Tourist attractions

These new projects will join others that Dubai has delivered over the past decade and have allowed tourism to become such an important part of the economy. These include developments such as the Palm Jumeirah, Burj Khalifa, together with dozens of hotel resorts and major shopping malls. While these projects have undoubtedly been a success, more needs to be done to create attractions for people visiting the city – a challenge that has long been identified.

In 2003, Dubai announced plans for Dubailand with a series of theme parks, including the Universal Studios theme park that is now part of the Mohammed bin Rashid City project. That scheme floundered for five years as developers capitalised on the white hot property market by building villas and apartment blocks rather than parks.

The result was that by the time Dubai’s property slump began in 2008, Dubailand offered few attractions for tourists. It is those failings that have created the need for projects such as Bluewaters and Mohammed bin Rashid City.

Market resurgence

The danger is that these projects could be hijacked by real estate developers again. Property prices in Dubai began rising in early 2012 and since then the market has enjoyed a resurgence. 

According to UK property consultant Cluttons, between the third quarter of last year and the first quarter of 2013, the average sales price for high-end villas rose by 8.9 per cent, while mid-range villas gained 14.9 per cent over the same period. The lower budget-end of the villa market registered the sharpest rise in values, with an increase of 20.2 per cent. There was a similar trend for apartments. Both high and mid-range apartments recorded average sales price increases of 10 per cent each, while lower budget apartment units registered growth of 14.6 per cent over the same period.

The rental market also experienced substantial growth. High-end villas recorded average rental value increases of 9.7 per cent over the same period, while the mid-range villas rose 6.2 per cent. Lower budget villas recorded rental growth of 19.6 per cent.

Apartment rental values followed a similar pattern. Lower budget apartments increased most with a 12.7 per cent rise and mid-range properties climbed 7.7 per cent. The higher end of the market was the weakest performing segment with 6.4 per cent growth. Cluttons says that rising rental values are driving tenants towards lower budget options, which have struggled over the past two to three years.

As property prices rise, developers have been able to sell units offplan and build new projects. Nakheel and Emaar have been leading the market. Nakheel has sold and started construction work on projects on the Palm Jumeirah and at other established developments such as Jumeirah Park and Jumeirah Village. Likewise, Emaar has sold and started work on new units at the Greens, the Downtown Burj Khalifa, and Arabian Ranches.

The sales are transforming the developers’ finances. Emaar made net profits of AED2.1bn in 2012, 18 per cent higher than the previous year on revenues of AED8.2bn. Nakheel made a profit of AED2bn during 2012, a 57 per cent increase on 2011. Revenues were up 91 per cent at AED7.8bn.

Other developers are following Nakheel and Emaar’s lead. In mid-April, local developer Damac Properties launched its Lincoln Park development on Umm Suqeim Road, following on from the launch of the Damac Residenze in Dubai Marina in February. As prices continue to improve, more developers will launch new projects, meaning more construction work for contractors.

Without real estate projects, contractors in Dubai have been forced to rely on government-backed infrastructure projects over the past couple of years. The most active project is Dubai International airport, which last year awarded a raft of deals for the construction of concourse 4.

In January 2012, the local Alec was awarded the contract to manage the construction of concourse 4. Since then, there have been awards covering the substructure, superstructure, mechanical, electrical and plumbing works, and a people-mover connecting the concourse to Terminal 1.

Next year, the focus is expected to shift to the Dubai World Central development and Al-Maktoum International airport in Jebel Ali. The new airport will launch passenger operations from 27 October and its existing infrastructure offers an initial capacity of 7 million passengers a year, although the airport’s masterplan involves it being expanded to support 160 million passengers a year by the mid-2020s.

For transport projects, the Roads & Transport Authority is considering plans for new metro lines to serve the Dubai Expo 2020 site next to Al-Maktoum International airport. The most likely option is understood to be a spur line that will be part of the existing Red Line and will also create options for stations at existing residential and industrial areas that are not currently on the metro network.

The proposal involves a section of the Red Line running from the metro car park at Nakheel Harbour and Tower station, past Discovery Gardens, the Green Community, and Dubai Investment Park, before heading out to the expo site. This option would mean that trains on the Red Line will either terminate at their final destination, Jebel Ali or the expo.

Another alignment that is being considered is an extension to the Red Line beyond Jebel Ali that will head inland to the expo site. This solution would mean longer journey times to the Expo. It would also not provide the opportunity to build stations for existing centres of population and industry. The line would join the planned extension to the existing Green Line to International City, Dubai Silicon Oasis and Dubai Academic City.

Road schemes

New roads are also being planned. The largest road scheme is the creek extension. Contractors are currently preparing to submit bids on 5 May for the contract to build the road bridge crossing Sheikh Zayed Road and the canal excavation as part of the first phase of the scheme.

The contract has been split into two parts. Section 1a involves building a bridge that will take traffic on Sheikh Zayed Road across the proposed creek extension. Section 1b covers the excavation and marine work for a stretch of the waterway running from Business Bay running past Safa Park and leading towards Al-Wasl Road. Later packages on the scheme involve bridges crossing Al-Wasl Road and Beach Road, and excavation and other marine works leading out to the Gulf.

Consultants are also competing for a study that will prepare plans for future road and transport projects in Dubai’s central business district, from the Sharjah border in the north, to Port Rashid in the south and inland as far as Ras al-Khor.

The success of Dubai’s new generation of projects will ultimately come down to money. In 2008, a cashflow crisis brought the construction industry to its knees. If it learns from the past, then the market may once again be a lucrative one for the construction industry. But if the same mistakes are made again, then these new projects risk ending up like so many of those in the past: half built.