When a consortium of real estate developers and financiers formed the City Centre Development Company (CCDC) to launch the SR37.7bn ($8bn) Jeddah Central Development Project in October last year, it signalled a change in attitude towards Saudi Arabia's commercial capital.

For decades, the city has played second fiddle to Riyadh in terms of real estate projects. With an estimated population of 3.4 million, compared with 4.2 million in Riyadh, but lacking administrative and ministerial headquarters, Jeddah has been overlooked for significant regeneration and development.

Its crumbling downtown district contrasts sharply with Riyadh's more prosperous central business district, which hosts the 331-metre-tall Kingdom Tower, Saudi Arabia's tallest building, and the 260-metre-tall Al-Faisaliah Centre, its second tallest.

But the construction boom that has spread across the kingdom in recent years has not left Jeddah completely untouched. In particular, prime real estate on the Jeddah Corniche has been subject to major development, with developers targeting high land returns to construct a series of tall buildings.

Three major towers are under construction. The local Aldar al-Khasa for Urban Development is building the 250-metre Headquarters Business Park, the UAE's Emaar Properties is building the 270-metre Corniche Tower, while the local Al-Masarat Company is building the 388-metre Diamond Tower.

Muted development

Yet for the city known as the gateway to the two holy mosques at Mecca and Medina, which receive millions of religious tourists each year to carry out the Hajj and Umrah pilgrimages, development plans have been muted until now.

This changed when the CCDC announced it was to launch a 6-square-kilometre mixed-use project that would capitalise on Jeddah's historic centre and expand the city's role as a regional commercial hub.

In effect, the consortium, which comprises the local Urban Development Company, the local Siraj Capital, Lebanon's Solidere International, Kuwait's Commercial Real Estate Company and Bahrain's Venture Capital Bank, aims to turn around the fortunes of the city centre, where lagoons have become polluted and properties left vacant and devalued.

Following the signing of a memorandum of understanding with Jeddah Municipality in July 2008, groundwork is expected to start at the beginning of next year and the project is estimated to take 25 years to complete.

The plan is to divide the city centre into two main zones: the waterfront and the historic area. Khaled Abdulghaffer, chief executive officer of CCDC, says the group is undertaking three initiatives: cleaning up the lagoons, drawing up a masterplan, and restoring the historic district, which according to the company has lost 400 historical sites in the past 30 years.

"The masterplan will consider growth, population, traffic requirements and urban planning criteria," says Abdulghaffer. "It is worth noting that the old city of Jeddah is the only historic site on the Red Sea. We are in the process of developing a proposal to register for a Unesco [United Nations Educational, Scientific & Cultural Organisation] World Heritage Site," he says. "We have to come up with different solutions. Jeddah is a tourist destination and we have more than 14 kilometres of waterfront, so there is real potential to develop."

The preliminary masterplan will be delivered in July and a detailed masterplan will be submitted in the summer of 2010.

Logistical problems

To do this, Abdulghaffer says the firm has studied masterplans of other large urban projects under construction within the kingdom, including King Abdullah Economic City (KAEC), about 100km north of Jeddah. .

However, the plan for Jeddah presents some major logistical problems. "Our model is different to KAEC because we are not dealing with new land," says Abdulghaffer. "We are dealing with an existing area, which has historical value and environmental issues. The challenge here is much greater than other vacant areas where you start from scratch. You have to deal with people, heritage, culture, traffic and legal complications."

As part of the masterplan, the team are identifying sectors they wish to develop at the site. These are likely to include a logistics park, an historical sector, a central business district, and a high-end residential sector.

The initial phase of the project will involve about 1.13 sq km of land at the entrance to the city centre. The model has a projected built-up area of 24 sq km upon completion.

Richard Azoury, project manager with Solidere International, says the masterplan has also borrowed from ideas used in the development of Mediterranean coastal cities.

"The masterplan is a collaboration between Solidere, [the UK's] Arup and the Urban Development Corporation," he says. "It is almost four years in the making and borrows heavily from similar waterfront developments worldwide, but especially around the Mediterranean."

Azoury says the need to protect the environment will influence both the initial infrastructure works and ongoing development.

"The project is the vision of the late Sheikh Abdulaziz Kamel," he explains. "He was responsible for cleaning the bay of Tunis in Tunisia using technology to capture large quantities of water during high tide to flush out sedentary polluted water in periods of low tide. The same technology will be used by creating artificial basins in the bay of Jeddah for a 100 per cent ecologically friendly solution."

Site preparation

While tenders on the development are not expected until 2010, the first to be issued will be for the construction of the man-made islands that will form the basis of the sustainable flushing solution that will clean out the polluted lagoon in downtown Jeddah. By reclaiming land in the Red Sea, a water storage basin will be built to capture fresh seawater at high tide, which will then be flushed into the lagoon. Another crucial step will be the reclamation of more than 360,000 square metres of prime waterfront land.

Azoury says the project will cost almost $1.5bn for the infrastructure alone. The initial infrastructure phase, and cleaning up of the site, is estimated to take four years.

Despite some doubts over the immediate progress of the project given the global economic crisis, Abdulghaffer is confident that the timing is right. "We are investing in a real project, in a country of high population growth," he says. "There is real potential. If you had asked me this question six months ago, I might have answered differently, but now I think we are picking up. After the financial crisis we had to be very careful and revisited our financial and legal models. I think it is the right time to start."

Over the past six months, a series of real estate projects in Saudi Arabia have been put on hold because of a lack of funding. Projects that have stalled include the SR2bn ($534m) Dubai Towers Jeddah, which was shelved as the developer, Sama Dubai, was forced to review its portfolio of projects. The twin-tower development was to be located on the Corniche. One tower was to be mixed-use, while the other would be a 20-storey office block. It was scheduled for completion in 2011.

Also hit by the downturn was the Kingdom City project, located 20km from the old centre of Jeddah. The 7 sq km project, led by Prince Alwaleed bin Talal al-Saud's Kingdom Holding Company, is expected to house 80,000 residents when completed in 2016.

Investment in Kingdom City totals $26bn but the project's progress has slowed after Kingdom Holding suffered losses of SR31bn in the fourth quarter of 2008, because of the downturn in the local and international equity markets.

New research published at the beginning of June by UK real estate consultant Jones Lang LaSalle reports that real estate prices fell in Jeddah in May for the first time since the economic crisis began. It says the worst hit segment of the property market is high-end residential properties, which have declined in value by 6-10 per cent over the past six months, as the supply of new units has increased faster than demand.

However, work has picked up in recent months and is attracting international comp-etition. In June, local contractor Arabtec Construction Saudi Arabia was awarded the SR2bn ($532m) contract to build the Lamar Towers development in Jeddah.

The project consists of two towers on the Corniche. One will be 60 floors tall and the other 68 floors, linked by a 13-floor commercial space. The taller tower is expected to reach 310 metres. Arabtec Saudi Arabia was formed in March by UAE-based Arabtec Construction and two Saudi companies.

Other major developments are also set to transform Jeddah. In May, the General Authority of Civil Aviation (Gaca) announced it was to convert 5 sq km of land surrounding King Abdulaziz International airport into a free zone, industrial zone, logistics village and residential areas. It is hoped that preferred bidders will be in place by the first quarter of 2010.

The Saudi Transport Ministry also recently unveiled a new transport masterplan for Jeddah, including a SR21bn monorail, and will provide about 800 new buses and a tram network. This follows the announcement by Jeddah Municipality in February that it is committing $1bn to overhaul the city's road network to ease traffic congestion, which is increasing as the number of religious tourists rises each year.

In November 2008, CCDC signed an agreement with the Great Wheel Corporation to signal the start of the Jeddah Eye Ferris wheel development project. The $250m project will be a key part of the Jeddah Central Development Project, making it the sixth city in the world to feature an Eye landmark following London, Beijing and Singapore.

The constant flow of visitors through the city is the reason the developers believe the project will be a success. "There are two major and distinct parts: the modern city centre and the historical district," says Azoury. "Tourism and religious tourism play a major part in the project."