Seen as the Single Most Important Influence on the UAE Real Estate Sector in 2014
November 27, 2013 - “While the Dubai real estate market is poised for growth regardless of the 2020 World Expo, the success of this bid will act as the single most important influence on the real estate sector across the UAE in 2014”. Says Alan Robertson, CEO of Jones Lang LaSalle, MENA.
“Expo 2020 will not benefit all sectors of the Dubai real estate market to the same degree. The hotel and logistics sectors being the biggest winners, while the residential and retail sectors will also derive significant benefits” notes Mr. Robertson
The impacts on the real estate sector can be classified into three groups, prior, during and post the 6 months event itself. While the immediate and short term impact is likely to dominate the headlines and define the shape of the market in 2014, the most important and strategic benefits will be the long term ‘legacy’ effects of the Expo on the UAE economy.
Short term impact (from 2014 to 2019)
“While the Expo will result in long term benefits to the Dubai economy and the real estate market, the short term impact needs to be managed carefully to avoid the inevitable boost in sentiment translating into excessive price growth or over development” notes Mr. Robertson.
Sentiment is a major factor driving the UAE real estate market. Despite the Expo being 7 years away, we would expect the news of Dubai’s successful bid to result in a major boost in short term sentiment and increased interest in the real estate sector.
The most immediate impact of this improved sentiment is likely to be an increase in the asking price for both land sites and existing villas / apartments in developments close to the Expo site. While prices in the Jebel Ali area will almost certainly increase, the availability of significant new supply will temper this increase and could result in a widening gap between asking prices and those the market is willing to pay.
Supply levels in the corridor to the South of Dubai are likely to increase as a result of a successful Expo bid. A number of developers have major land holdings around Dubai World Central and plans to develop these are likely to be ‘kick started’ on the back of the improved sentiment resulting from the World Expo decision.
Nakheel has recently launched 500 new land plots in their Al Furjan project at Jebel Ali and we would expect a rash of further announcements over the coming weeks, as other developers seek to sell either land plots or ‘off plan’ residential units. There remain significant levels of new residential supply planned for Dubai over the next 2 years (with 45,000 units scheduled for completion by the end of 2015). While few of the new projects around DWC are likely to be completed within this timeframe, significant levels of off plan sales could add further competition to those projects already announced.
Demand. Hosting the World Expo will have a significant positive impact on the Dubai economy and therefore the demand for real estate, with estimates that the event could add as much as 2% to Dubai’s GDP and result in the creation of up to 277,000 additional jobs. If these estimates prove correct, the real estate market would be a major beneficiary, through increased spending and higher demand for housing, hotels and commercial accommodation.
The challenge for developers and real estate owners is twofold, to phase projects in line with increased demand (and therefore avoid flooding the market with excess space in the short term) and to find long term uses for the real estate after the event itself.
During the event (2020)
The hospitality sector will clearly be the major winner in terms of real estate demand during the period of the World Expo in 2020. This sector has been driving the recovery of the Dubai market over the past two years, with Dubai currently registering one of the strongest levels of any market globally. Recent data shows that average hotel occupancies over the first 10 months of 2013 have averaged 79% (up from 76% in the same period of 2012), resulting in a 6.5% growth in RevPAR compared to the same period of 2012).
With up to 25 million visitors expected to attend, the World Expo forms a major plank in the Governments vision to attract more than 20 million foreign visitors annually by 2020. Estimates of the additional hotel supply necessary to accommodate these visitors vary (with a number of alternative accommodation strategies being considered), but could be as high as 45,000 additional rooms. This demand is likely to spillover from Dubai to other centres within the UAE and even to surrounding countries such as Oman. Not all the guests will be seeking hotel rooms and the Expo will therefore broaden the tourist accommodation offer of the UAE.
‘Winning World Expo 2020 will be the single biggest driver of activity in the UAE tourist market over the next five years. With existing hotels in Dubai trading at high levels of performance, there is already demand for additional rooms , we now expect an additional surge in proposed supply in all sectors of the market, with DWC emerging as a third major cluster of hotels in Dubai, complementing the existing clusters along the beach and in the CBD / downtown area’. According to Chiheb Ben Mahmoud, head of JLL’s Hotel and Hospitality group in MENA.
The retail and leisure sector will also benefit directly from the high level of visitors during the event itself. The Dubai retail sector is well placed to cater for tourist spending and the World Expo is likely to strengthen demand for the additional F& B and tourist related retail malls in the future supply pipeline.
Legacy impact (post 2020)
“Perhaps the greatest benefit from hosting major global events, be they Olympic Games, Soccer World Cups or World Expo’s lie not in the immediate impact on the host economy during the event itself, but in leveraging these short term factors to create positive long term legacy benefits to the economy and the urban structure of the host city” notes Alan Robertson.
In terms of the real estate market, the most significant legacy benefits of hosting Expo 2020 will be to bring forward the timing of a number of major infrastructure projects and to provide the impetus to develop a whole new urban district (Dubai World Central) to the south of the existing urban area.
The Al Maktoum International Airport (AMIA) forms the centerpiece of Dubai World Central and is one of the largest and most ambitious airport based cities (or Aerotroplis) planned around the world. The airport has been open for Cargo operations since 2010 and passenger services commenced from the new airport in October 2013. World Expo 2020 will act as a major catalyst, accelerating the expansion of passenger facilities at AMIA, which is ideally located to cater for international visitors to the Expo.
Metro extension. A key component of the Dubai Expo bid is a commitment to extend the existing red line of the Dubai metro to Dubai World Central by 2020. As with other proposed infrastructure improvements, this extension may well have proceeded at some point, but the timing will be brought forward by the need to serve the Expo in 2020.
Multi modal freight facility. A less publicized infrastructure benefit of the World Expo 2020 would be the creation of an integrated sea and air freight facility at Jebel Ali. The proximity of the new airport to one of the world’s largest existing seaports at Jebel Ali allows for the creation of a single freezone for the shipment of goods, acting as a major boost to the already significant re-export sector of the Dubai economy.
Exhibition Space . The World Expo will result in the creation of a major new conference and exhibition facility within DWC. This will provide Dubai with a world class purpose built facility to cater for the growing meeting, conference and exhibition market. It will also allow the phased redevelopment of the existing convention and exhibition facilities on Sheik Zayed Road for alternative, higher value, land uses.
JLL’s role in the Expo Bid
Jones Lang LaSalle (JLL) has contributed as part of the Dubai bid team for World Expo 2020, advising on strategic real estate components of the bid and its subsequent legacy. Our involvement in this team has been led by Deepak Jain (head of JLL’s Strategic Consulting team in MENA ). Mr Jain notes that
‘Hosting the Expo will not only strengthen Dubai’s position as a regional business hub but also contribute to its continuing success as a trade and tourism hub from a global perspective as well as an emerging link between Asia and Africa - the south-south trade corridor’