Dubai counters market inertia with new projects

04 May 2015

As the emirate’s property market slows down, government clients have been busy driving forward projects, led by Expo 2020-related schemes

After three years of post-global financial crisis resurgence, the outlook for Dubai’s construction market has softened this year. Oil and property prices are expected to drag on the ability of clients to fund and drive forward with projects.

“The Dubai market continues to be buoyant and is currently very competitive, particularly among consultants,” says Stephen Taylor, director at Canadian owned engineering consultancy WSP PB. “However, we expect this momentum to slow towards the end of the year on the back of the decreasing oil prices.”

To counter the growing inertia in the market, clients, mostly government or government-controlled, are pushing forward with new projects. The most eagerly awaited is the construction work for the Expo 2020. After winning the rights to host the event at the end of 2013, consultants and contractors have been eagerly waiting to start work on Expo schemes.

Expo rush

The prize is a significant one. When Dubai won the competition to stage the Expo, it said it will require e6.5bn ($7.4bn) of investment for development and operational costs until the end of the event. The project is now moving closer towards construction as Dubai World Trade Centre (DWTC) issues requests for proposals (RFPs) for three consultancy contacts at the Expo site. The three roles cover infrastructure design and supervision, urban planning and design of public spaces, and the design of the development’s souq/market area.

The RFPs follow a major milestone at the end of 2014, when a team of the US’ CH2M Hill and the UK’s Mace was appointed programme manager for the Expo development.

Other projects that will support the Expo are also starting to move ahead. The largest is a new metro line that will carry an expected 25 million visitors to the site between 20 October 2020 and 10 April 2021. Dubai’s Roads & Transport Authority (RTA) plans to hold an industry briefing on 7 May for firms looking to work on the project, now known as Route 2020, after inviting them to express interest by 30 April. The project involves building a 15-kilometre-long line branching off the existing Red Line at the Nakheel Harbour & Tower station between the Ibn Battuta Mall and Jumeirah Lake Towers stations.

Property slowdown

The Expo schemes are a tonic for Dubai’s projects sector given the weakness in the emirate’s property industry. After three years of strong growth and developers launching new schemes, residential sales prices dropped by 2 per cent during the first quarter of 2015 and are expected to fall further this year as an additional 22,000 units enter the market.

With softening real estate prices, opportunities for Dubai’s construction sector will change as the focus for developers moves from residential property to hospitality, retail and commercial buildings.

Local developer Nakheel has been one of the most active clients for contractors since Dubai’s property market began to rebound in 2011, and has given the go-ahead for new projects with a combined built-up area of more than 2.1 million square metres. The new projects are a 600,000-sq-m residential, retail and hotel extension for Dragon Mart that includes two new towers; a 450,000-sq-m extension of Ibn Battuta Mall with 100,000 sq m of mall space, a new cinema complex, a multi-storey car park, a hotel and glass-covered courtyard; and a 1.2 million-sq-m, 16-tower community at Deira Islands together with a 490,000-sq-m mall.

Nakheel confident

Unlike in the past, when Nakheel’s financial wherewithal has been questioned, in 2015 the firm is profitable and has the ability to fund projects. It made a net profit of AED1.4bn ($368m) in the first three months of 2015, more than double the AED629m made in the first quarter of 2014.

Key fact

Residential prices in Dubai dropped by 2 per cent during the first quarter of 2015

Source: MEED

The 115 per cent increase in first-quarter net profit is the result of a strong performance by the firm’s development business, with ongoing handovers of properties to customers. Nakheel’s growing retail, leasing and leisure businesses also continued to improve and contribute to the overall financial results.

New projects are likewise planned by government-controlled developer Wasl, including a tower on Sheikh Zayed Road known as Al-Wasl Tower; a mixed-use development known as Creek Heights Residences that comprises two towers including a Hyatt Regency hotel; and Dubai Gate, which will be built near to the metro station in Jebel Ali.

Tall towers

Tall towers are back on the agenda in Dubai as clients move forward with high-rise schemes. The most recent to move towards construction is the Burj 2020 tower. The project client, Dubai Multi-Commodities Centre, has approached contractors to discuss building the structure, which when completed will be the world’s tallest commercial tower.

Burj 2020 is not the first post-financial crisis skyscraper to move towards construction. Local developer Emaar Properties has been developing most of the new towers. In 2014, the firm awarded Lebanon’s Arabian Construction Company (ACC) an estimated AED3bn contract to build the Address Residence Fountain Views development, which involves constructing three towers including a 220-metre-tall, 60-storey residential tower.

ACC also won an estimated $490m contract to build The Address Residence Sky View towers at the Downtown Dubai development last year. The complex will have twin towers that will be more than 230 metres tall and will link directly to the Dubai Metro’s Red Line and Dubai Mall.

Emaar  awarded Athens-based Consolidated Contractors Company (CCC) a contract to build the 65-storey Burj Vista towers in its Downtown Dubai district in 2014, and in January 2013 awarded Canada’s Brookfield Multiplex the deal to build the Address The BLVD hotel and residential tower.

High-rise projects

Others are also developing high-rise projects. At the end of 2014, Saudi Arabia’s El-Seif Engineering Contracting won the estimated AED2bn contract to build the 100-plus-storey Entisar tower for local developer Meydan Group. The tower will include serviced apartments, shops, swimming pools and garden areas. It will be built on Sheikh Zayed Road, next to the existing Fairmont hotel.

In November 2013, the local Arabtec Construction won a AED1.8bn contract to build a mixed-use, high-rise tower also on Sheikh Zayed Road. The 77-storey tower will be 369 metres tall and will cover more than 22,000 sq m of office space on 18 floors, and include 908 sq m of retail area. It will also have a 350-room hotel and 83 serviced apartments, as well as 180 apartments.

More high-rise projects are planned. The most high-profile is the One Zabeel tower that is being developed by Investment Corporation of Dubai (ICD). In early February, ICD invited selected contractors to submit prequalification documents for the tower, which will be built in the World Trade Centre area. The building has been designed as a new landmark structure for Dubai, with Japan-based Nikken Sekkei’s design being chosen ahead of proposals from at least three other leading international design firms.

Palm Jumeirah

ICD is also planning a major new resort development on the Palm Jumeirah. In late April, it invited prequalified contractors to bid by 21 June for the deal to build the estimated $1.4bn expansion of the Atlantis resort. Known as the Royal Atlantis Resort & Residences, the hotel will be built next to the existing Atlantis hotel, which opened in 2008 on the crescent of the Palm Jumeirah. The new 800-room, 46-storey hotel will be managed by Bahamas-based Kerzner International. The development will include 250 luxury residences, as well as retail outlets. It is scheduled for completion by 2017.

Another major tourism play is the $2.9bn theme parks project being developed by Dubai Parks & Resorts in Jebel Ali. In April, Brookfield Multiplex won the estimated AED435m contract to build the Lapita Hotel at the development. The 500-room hotel is part of the first phase.

The first phase of the parks project is scheduled for completion in 2016, and will comprise three theme parks: Motiongate Dubai; Bollywood Parks Dubai; and Legoland Dubai. The development will also feature an entrance plaza known as Riverpark and the family-themed hotel known as Lapita. The local/Belgian Bel Hasa Six Construct is working on a deal to build the Legoland park. Several other contractors are engaged in construction packages, including the local Khansaheb Civil Engineering, the UK’s Kier and Laing O’Rourke, and the local Arco General Contracting.

Mall project

In the longer term, there is the Mall of the World, which Dubai Holding plans to build along Sheikh Zayed Road on the Police Academy site opposite the existing Mall of the Emirates, and is still in the early planning stages.

The 800,000-sq-m mall will include a temperature-controlled, covered retail street network spreading across 7km; the world’s largest indoor family theme park; a wellness district catering to medical tourists; a cultural district comprising theatres based on New York’s Broadway; the Celebration Walk, similar to the Ramblas Street in Barcelona; and shopping streets based on London’s Oxford Street. It will also have an arena accommodating 15,000 people.

Metro extensions

For infrastructure, in addition to Route 2020, other new metro schemes that are still in the early planning stages include an extension connecting to the Dubai Parks & Resorts development in the Jebel Ali area; an extension of the existing Green Line, which will be 20.6km-long with 11 new stations running from Jadaf to Dubai International Academic City; and a Red Line extension that will be 3.5km-long and will run from Rashidiya to Mirdif City Centre. 

The US/French team of Parsons and Systra is the consultant for both the Red and Green line extensions. These schemes were due to be completed in time for the Expo, but it is now expected the completion dates may be moved as the RTA focuses on Route 2020.

It is understood that discussions have been held by the transport agency and Dubai Parks & Resorts for the theme park rail link. Another line, still in the very early planning stages, will run from Al-Ghubaiba station in the Bur Dubai area, through the Satwa area, connecting to the existing Red Line at the Burj Khalifa/Dubai Mall station and continuing on to Nad al-Sheba and the Meydan area, where a major transport hub will be located that will include the Dubai station on the Etihad Railway network.

Airport expansion

The largest new project in Dubai is the expansion of Al-Maktoum International airport. It involves $32bn-worth of investment and building, in two stages, an airport with ultimate capacity to handle about 250 million passengers a year.

The planned construction work includes a new terminal building, six nodes or concourses connected to the terminal by people-movers, and new runways. Dubai Airports Engineering Projects told contractors it will start tendering deals for building work in 2015.

Since the endorsement by Sheikh Mohammed bin Rashid al-Maktoum in 2014, progress on the project has been mixed, with an enabling works contract due to be awarded by the end of last year having been delayed. Sources close to the scheme now expect the scope to be reduced, raising doubts about Dubai’s ability to deliver the airport expansion as quickly as initially planned at the project’s launch in October 2014.

The concerns over the progress of the airport are a timely reminder that, although Dubai is planning to build billions of dollars of new projects ahead of the 2020 Expo, it still faces issues when it comes to funding and moving forward with large schemes. While funding for the Expo may be secure, amid dwindling real estate sales, other projects will find it increasingly difficult to progress.

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