The excitement in Dubai was palpable in the weeks preceding 27 November, the date when one of four competing cities was to be proclaimed the successful host of the World Expo 2020.
Lets see what will happen after the announcement, business people cautiously said as they were pushed to assess the sustainability of Dubais unexpectedly strong economic recovery in 2013.
Expectations among interested parties were that construction costs and property prices would soar overnight on the back of a successful bid and Dubai was in advance declared a clear favourite. The signing of several major building contracts were anecdotally said to be being held back by contractors hopeful of better deals following the announcement. Others, meanwhile, feared Dubais rebound would be nipped in the bud if it failed to win the right to host the event.
On the day in question, Dubai was declared the winner late in the evening, beating off rival bids from Izmir in Turkey, Yekaterinburg in Russia and Sao Paolo in Brazil. Scenes of celebration erupted around the city and a spectacular fireworks display was launched off Burj Khalifa, the worlds tallest building. The result was welcomed as the drawing of a definitive line under Dubais debt problems of 2009, which brought the emirate to the brink of bankruptcy, and as a confirmation of its re-emergence as the foremost business hub in the Middle East. The Expo will take place over six months between October 2020 and April 2021.
We expect a trend of more stable and sustainable growth to persist over the short term [in Dubai]
Steve Morgan, Cluttons Middle East
The Dubai Financial Market jumped 4 per cent within the first half-hour of trading on 28 November. Although it was unable to maintain the momentum, ending the day about 1.6 per cent higher, it was the first time in a week that the bourse had posted gains of more than 1 per cent. The boost to business was short-lived, however, with the extended weekend for the UAEs national day sapping much of the euphoria that in seven years time Dubai would be hosting a large international exhibition. Analysts have been left to examine what the impact will be on the emirates economy.
The general consensus is that although the immediate impact will not be as significant as first envisaged, winning the event has lifted confidence in the sustainability of Dubais recovery, while the medium-term boost to the economy will be substantial.
|Dubai top tourism source markets*|
|*=In Jan-Sep 2013. Source: DTCM|
Above all, this provides another great boost of confidence, as well as a fantastic global endorsement for Dubai and the UAE, said Simon Moon, chief executive officer, Middle East, of UK engineering and design consultancy Atkins, in a statement following the announcement.
The bidding process has already provided a lot of positive sentiment and there is a strong sense within the market that things are going in the right direction, with good planning and decision-making underpinning future developments. What we expect to see now is a continuation of the forward momentum, rather than a sudden rush of activity, which shows both maturity and self belief.
Earlier this year, concern had been growing that another bubble was forming in the emirates real estate and construction sectors, as property sales prices climbed by more than 20 per cent in the second quarter. But with a major international event to host in 2020, that growth is now expected to be more sustained.
We feel the much talked-about Expo boost has already been priced into the real estate market to an extent, says Steve Morgan, head of Cluttons Middle East, a property consultancy. Dubai has already seen a surge in property prices and we expect a trend of more stable and sustainable growth to persist over the short term.
The successful bid will signify to the rest of the world that the emirate has now cemented its pathway to recovery, following the financial crisis that crippled global real estate markets. The positive result will also go some way to ensuring steady growth to 2020 and beyond and mark the start of a new era in Dubais evolution.
The potential economic impact of the event was detailed in Dubais bid documents, which estimated that over the six months of the event, 25 million people would visit Dubai Expo 2020, with more than 70 per cent coming from outside the UAE. The cost of constructing the Expo site and related infrastructure was put at E5.2bn ($6.9bn) and it was said more than 277,000 jobs would be created in the run-up to the event. The total economic impact of staging the event was put at E28.8bn. But with building work on the Expo site only expected to begin towards the end of 2015, the real boost to the economy is only expected from 2016 onwards.
|Dubai hotel sector performance|
|Jan-Sep 2013||Jan-Sep 2012||Percentage change|
|New guest arrivals||7,941,118||7,231,670||9.8|
|Number of guest nights||30,874,916||27,163,974||13.7|
|Average length of stay (days)||3.9||3.8||3.5|
|Room revenue (AED thousands)||9,399,782||8,000,414||17.5|
|Other revenue (AED thousands)||5,927,453||5,083,192||16.6|
|Total revenue (AED thousands)||15,327,325||13,083,605||17.1|
|Total operating hotels/hotel apartments||609||588||3.6|
|Occupancy rate hotels (percentage)||78.6||76.2||3.1|
|Occupancy rate hotel apartments (percentage)||81||75.5||7.3|
|Average hotel room rate (AED)||589||558||5.6|
|Average hotel apartment room rate (AED)||422||409||3.2|
Translated into Dubais gross domestic product growth, the US Merrill Lynch forecasts a modest increase of 0.5 percentage points in 2016-19 and a more substantial 2 percentage-point boost in 2020-21. According to the governments Statistics Department, the emirates economy grew by 4.9 per cent in the first half of 2013.
The main sectors that will directly benefit from staging the event are the construction and hospitality industries. For the construction sector, there is firstly the building work on the Expo site itself. This will involve the development of a 4.4-square-kilometre plot at Dubai World Central (DWC) next to the new Al-Maktoum International airport in Jebel Ali. The work will include building 700,000 square metres of pavilions and other venue space, and 500,000 sq m of permanent structures.
But winning the event will also spur the wider property development industry. The sector was already recovering strongly this year, with many schemes that had been derailed by the financial crisis being revived and new ones being launched. Those projects will have been given fresh impetus by the 27 November announcement, and analysts expect in particular to see a step-up in activity to complete schemes in the new Dubai end of the emirate.
Steps have been taken to regulate the real estate sector and limit banks exposure to state-backed firms
We are now likely to see the ongoing development and growth of the city southward, away from the coast, as Dubais urban boundaries are pushed out further, says Morgan. The fast-tracking of projects designed to complement the citys 2020 vision of hosting 20 million tourists is inevitable and this will involve the resumption of work on some of Dubais stalled schemes. This positive decision will act as a catalyst to help move planned expansion work along to the next level and provide visible goal posts, along with a definitive reason to get the work completed, although many of these planned projects would have materialised even without the Expo.
The construction sector will also benefit from a massive expansion in Dubais hotel capacity, which is now expected to follow. To accommodate the hoped-for 25 million visitors to the Expo, with the majority anticipated to come from outside the UAE, the emirate needs to double the current hotel stock, meaning the construction of more than 80,000 new hotel rooms. Deutsche Bank estimates this could cost up to $24bn. Again, many of these will be schemes that stalled following the 2008-09 property crash, while others are likely to be concentrated around the DWC area.
Most of the new jobs to be created as a result of hosting the Expo will be in the hospitality sector, accounting for about 40 per cent of the expected 277,000 posts.
Also set to benefit from the event is Dubaisnew Al-Maktoum International airport. The facility opened for cargo services in 2010 and handled its first passenger flights in October this year. Airlines have been slower to shift to the new airport than expected, with just two carriers using it to date, but this number is expected to accelerate in the years ahead, with its location near the Expo site a great motivator.
The long-term vision is that Al-Maktoum International will be able to handle 160 million passengers and 12 million tonnes of cargo a year by the early 2020s. This will be possible once five planned runways and three more terminals are built.
Most of the developments planned or under way in Dubai were on the drawing board in some form or other prior to the property crash. Even the Expo site itself was an exhibition zone planned in the original DWC masterplan. Dubais Vision 2020 was also already targeting tourist arrivals of 20 million and revenues for the sector of AED30bn ($8.2bn). Projects were moving ahead in any case, but winning the event will act as a catalyst to accelerate their development and ensure the 2020 goals are not missed, as the 2015 ones were.
While growth in the short term is expected to be moderate, as the 2020 date nears, analysts are predicting a surge in construction activity and a sharp rise in property prices, particularly for developments near DWC. The danger is that once the event ends in April 2021, there could be another collapse in the real estate sector and Dubai could be left with some overcapacity in the hotel market.
The other risks associated with a new economic boom are hyperinflation and a rise in debt levels at government-related entities. The combination of these and the global credit crunch were what triggered the previous crash. Rising rental prices are already putting pressure on the cost of living in the emirate and the Dubai government is expected to use debt financing to fund the capital requirements for developing the Expo site and associated infrastructure. With $103bn of debt already weighing on public firms, it raises the spectre of fresh financial difficulties.
However, steps have been taken to regulate the real estate sector and limit banks exposure to state-backed companies. These measures should help mitigate any risks and provided the government continues to bid for international events such as the Olympic Games and invest in tourism attractions, the hospitality sector should thrive.
Merrill Lynch forecasts a modest increase of 0.5 percentage points in Dubais gross domestic product growth in 2016-19
Expo 2020 in numbers
- Financing costs: $7bn
- Economic impact: $39bn
- Expected attendees: 25 million
- Proportion of attendees from overseas: 70 per cent
- Number of exhibiting countries and companies: 182
- Jobs created between 2013 and 2021: 277,000
- Size of exhibition site: 4.4 square kilometres
- Number of new hotel rooms needed by 2020: 80,000+
- Investment in hotel capacity required by 2020: $7.2bn
GDP=Gross domestic product. Source: MEED
Huge requirements for hotel rooms
Dubai is expecting to welcome 25 million visitors to the World Expo 2020, which is more than double the current annual arrivals to the emirate. In 2012, the number of visitors to Dubai crossed the 10-million threshold for the first time, as arrivals rose 9.3 per cent on the previous year. It was yet another record year for the sector and hotel revenues rose 18 per cent to AED18.8bn ($5.1bn), from AED16bn in 2011.
The strong performance has continued this year, with visitor numbers in the first nine months up 9.8 per cent to 7.9 million, from the same period in 2012, according to the latest figures from Dubai Department of Tourism & Commerce Marketing (DTCM). This year has seen a wave of new properties open in Dubai, among them Conrad Dubai; Oberoi Dubai; and the Anantara Dubai Palm Jumeirah Resort & Spa. Despite this extra competition, hotel occupancy was also up year-on-year, averaging 78.6 per cent between January and September, while hotel apartment occupancy was 81 per cent.
More impressively, hotel revenues in the nine-month period totalled AED15.3bn, representing a rise of 17.1 per cent. Room rates averaged $160 across the sector as a whole, while according to STR Global, for five-star properties the average rate was $330. At the end of September, Dubai had 609 hotels and hotel apartments, with more than 82,879 rooms. To accommodate the influx of visitors in 2020, the emirate will need to double its hotel stock, meaning it will have to build about 80,000 rooms and more than 500 hotels. Hosting the Expo will therefore create clear opportunities for hotel developers and the construction sector, just in terms of building hotel accommodation alone.
Dubai plans for the future with EXPO 2020 site
In December 2012, a 640-page document detailing Dubais Expo 2020 vision was submitted to the Paris-based Bureau International des Expositions. The masterplan outlined the development of a 438-hectare site, part of Dubai World Central, at the southwestern end of Dubai. This is next to Al-Maktoum International airport, close to Jebel Ali port and equidistant between Dubai and Abu Dhabi.
The site will house the pavilions, exhibitions and cultural events that will be staged by the hundreds of Expo 2020 participants including nations, international organisations and businesses. At the heart of the site plan is an open plaza called Al-Wasl, meaning the connection and also a historical name for Dubai. Branching out from the plaza will be three main zones that symbolise the bids sub-themes of sustainability, mobility and opportunity. The centrepiece will be a huge photovoltaic fabric structure that will shade the plaza and capture solar energy, providing 50 per cent of the Expos power requirements.
The proposed site is impressive, but equally important for the judges was the post-event legacy plan. This was perhaps the strongest element of Dubais bid: the Expo site will become Dubai Trade Centre Jebel Ali. Post-Expo, the site will be used to host exhibitions and conferences, and the area will also house research facilities and a national museum.
Destination Dubai 2020
MEEDs Destination Dubai 2020 conference will be held at the JW Marriott Marquis hotel in Dubai on 28-29 January. It will provide a comprehensive overview of the emirates long-term plans for real estate, the hospitality sector, infrastructure including water, electricity and roads, transport including seaport and airport developments, aviation, financial services and manufacturing.
The confirmed speakers include Hussain Naser Lootah, director-general of Dubai Municipality; Saeed Mohammed al-Tayer, managing director and chief executive officer (CEO) of the Dubai Electricity & Water Authority; Arif Amiri, chief commercial officer at Emaar Properties; Jeffrey Singer, CEO of the Dubai International Financial Centre Authority; Fahad al-Gergawi, CEO of FDI Dubai; and Gerald Lawless, president and group CEO of Jumeirah Group.
For further information, visit: