Dubai is in many ways unique: a city known for its scale, size and growth but still with a residential population of only 2 million. It has deliberately pursued a high-growth strategy, by ensuring that its infrastructure and real estate is developed ahead of demand.
This “build it and they will come” mentality saw property as a key part of nation-building and the city made sure there were few constraints to potential development in terms of land supply, zoning restrictions or delays caused by neighbor disputes. The development of Free Trade Zones and the opening up of the real estate market to foreign ownership, in particular, resulted in a massive development boom in Dubai in the mid-2000s, culminating in an estimated 60% of the world’s construction cranes coming together in the city at the same time.
This unprecedented period came to an abrupt end in 2008, with the global financial crises. The rapid expansion of the city and its previous reliance on overseas capital, resources and expertise resulted in a sharp contraction of the Dubai economy and a significant fall in population and employment levels. It had a major impact on the local real estate market.
The withdrawal of capital from Dubai, for example, saw average residential prices decline by more than 40% between October 2008 and December 2010, with the city experiencing the greatest fall in real estate values anywhere in the region. At the height of the downturn, in 2010, investors were overwhelmingly hesitant about Dubai’s real-estate market, favouring Saudi Arabia, Egypt, Doha and Abu Dhabi. About 45% of investors expected no recovery in the Dubai market for at least 24 months.
Three years later, both the economy and the real estate market are recovering well. Population and employment growth are both running at around 5% per annum while the average price of residential accommodation grew by more than 20% in 2013.
Interestingly, the model for Dubai’s future remains largely unchanged, if a little more refined and targeted. It provides a low-tax environment that is open to overseas capital and labour flows, high levels of spending on global marketing and a continued emphasis on investment in the physical and social fabric. The city vision remains that of a true global gateway.
The success of Dubai in pursuing this very different city-building approach is now markedly evident in levels of investment confidence and the matching capital it is attracting. Dubai’s recapturing of momentum is highlighted by its coming third in a recent survey of dynamism and momentum across 111 global cities, undertaken by Jones Lang LaSalle.
In 2013 investor sentiment was stronger towards Dubai than any other market in the Middle East. Its status as a safe haven within a volatile region, its relatively high levels of transparency and regulation (compared with other markets in the region) and the ease of investment for both regional and global players have combined to make Dubai, once again, the preferred destination for property investment. According to the Dubai Land Department, it has experienced an increase in total investment from $8.8 billion in 2009 to more than $44 billion in 2013.
In summary, many visitors remark that the drive down Sheikh Zayed Road (Dubai’s main thoroughfare) is reminiscent of SimCity. Dubai is now taking the virtual analogy to the next level and is developing a city for the global citizen rather than the local population. Dubai is perhaps the most virtual city in the world, driven by high levels of capital inflow and visitors, rather than a large local population.
Read the new Competitiveness of Cities report here.
Author: Charles Doyle is the chief marketing officer at Jones Lang LaSalle.