Dubai status as hub at risk

17 February 2010

Struggling landlords could see more of their tenants vacate their offices. As much as 40 per cent of Dubai’s gross domestic product could be wiped out by the slump

With its construction sector moribund, Dubai has pinned its economic hopes on becoming a business hub for the rest of the region.

But there are signs that even this ambition is now at risk, with major international firms such as UK bank HSBC and South Korea’s Samsung Engineering both scaling back their presence in the emirate in favour of other markets in the Middle East.

If more companies make the same decision then the emirate’s already struggling landlords will see many of their commercial tenants vacate their offices, taking their staff with them, with serious consequences for Dubai’s wider economy.

Regional economists estimate that before the market crashed at the end of 2008, construction and real estate accounted for up to 50 per cent of the emirate’s economy. Developers in the emirate were awarding up to $14bn of construction contracts a quarter.

But by the end of 2009 the market had collapsed and in the fourth quarter of that year the total value of awards had fallen to just $278m.

Given that trend and the importance the real estate sector previously held for the economy, as much as 40 per cent of Dubai’s gross domestic product could be wiped out by the construction slump.

The lack of work will force many expatriates in the industry to leave. But it is not just real estate that will suffer. There will be knock-on effects for the retail, entertainment and hospitality sectors, since fewer people means fewer consumers and fewer sales.

If Samsung and HSBC’s decisions to scale back are just the start of a broader trend, then Dubai must act fast, but it will find it difficult to stem the tide.

A local presence is crucial when working in the region and most businesses want to be as close as possible to their major clients. If those clients are no longer in Dubai, it will be tough persuading businesses to stay.

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