In the early 1990s, when US architect Frank Gehry was first putting his mind to designing the Fred & Ginger “dancing building” in Prague, the United Arab Emirates capital Abu Dhabi was relatively insignificant.
By the time Gehry designed the titanium-clad curves of the Guggenheim in Bilbao in 1997, Dubai had already started its meteoric growth, but its neighbouring emirate was still in its shadow. So there was surprise last month when Gehry’s next project was announced the Middle East’s first Guggenheim, to be built in Abu Dhabi.
One royal signature and a swiftly assembled finance package to pay the hefty £400m price-tag, and Abu Dhabi had scored the world’s largest Guggenheim museum. This catapulted the emirate into the limelight, not least because it had swiped the deal from under the noses of Dubai’s officials.
Abu Dhabi’s ruler, his Highness Sheikh Khalifa Bin Zayed Al Nahyan, announced the deal saying: “We want to ensure that the Abu Dhabi name resonates worldwide.”
Famous neighbour
The Abu Dhabi government asked Gehry to rush his design, and he will deliver it in just four months. Scheduled to open in 2012, the museum will sit on Saadiyat (Happiness) Island itself the largest mixed-use development in the Arabian Gulf.
To many, Gehry’s project could be just another museum a cultural coup, allowing Abu Dhabi to emerge briefly from the shadows of its more famous neighbour. To others, it is one of several signs that the emirate is open for business, and hoping to attract footloose capital.
A more liberal approach has been adopted by Sheikh Al Nahayan since the death of his father in November. The emirate is beefing up its business tourism market (see box), and encouraging international corporations to open operations.
According to the IMF, infrastructure improvements worth more than $160bn are planned over the medium term. Most importantly for the property industry, legal reforms to allow non-Gulf nationals to buy property in the emirates are going ahead.
Two measures, known as laws 9 and 13, will regulate the registration of real estate and govern ownership of property. The cornerstone of these laws is expected to be issued by the executive Council of Abu Dhabi “shortly”.
While ratification of the laws allowing investment has yet to be carried out, marketing has begun
in earnest.
Nick McLean, managing director at CB Richard Ellis’s Middle East operation, says he has already been approached by investors but in a “convoluted way”, as many remain wary until the rules are set in stone.
Laws 9 and 13 should set a few minds at rest. Law 9 covers foreign ownership of land and buildings, and law 13 provides for the establishment of a land registration department and allows nationals to sell residential, commercial and investment land.
McLean says further amendments are expected in September that will allow foreign nationals to register titles and own 50- or 99-year leases directly. Freeholds will only be available to Gulf nationals. “By the end of the year, these changes should be coming through and, by 2007, things should be pretty interesting.”
For the emirate, the measures are not desperate attempts to fund the shortfall from dwindling oil reserves. The emirate’s GDP per capita is the highest in the world. It controls 100 years’ worth of oil reserves.
The national budget was based on an income of $32 per barrel of oil. With prices well over double that, it is clear Abu Dhabi is not short of cash. That has left many property professionals questioning whether the emirate needs or even wants outside investment.
McLean remains upbeat. “It is, absolutely, a big opportunity for the UAE and I am talking serious, valuable investments in the same way as we have in the UK,” he says, “For the funds, looking into next year, the quantity of capital available is just not going to be placed in Europe. I think we should be a recipient of about a third of that.”
This will undoubtedly affect yields. It is difficult to gauge initial yields, but McLean believes there is roughly a 200 basis point differential between the UK and Dubai. As more international-standard stock comes on stream, however, yields will compress. But he adds: “They are not going to be anywhere near London levels. I’d compare them to eastern Europe, with yields close to Romania or Bulgaria.” CBRE reports place these at around 8%.
CBRE’s figures are backed by a rapidly maturing tenancy market. International corporations and financial institutions are signing agreements for office space, with average lease lengths of three to five years, although one private landlord recently signed a quasi-governmental tenant for 15 years. Average rents in Abu Dhabi are around $470 per m2.
External investment
Mark Prior, regional managing director at EC Harris, says vehicles to allow external investment are being set up, and some of his clients are looking to attract overseas investors. However, most of the emirate’s buildings are not up to institutional standards, he warns.
That is changing, and so are returns. “We’ve advised on a number of developments. Investors are unlikely to see an internal rate of return in excess of 20%, as has been achieved previously in the UAE.”
He adds that, in Dubai, developers were given land. “If you can’t make money in those circumstances, then you may as well give up,” he says. “Now the cost of land is a major factor, and many are having to think very carefully about how they’ll make their money.”
Despite this, some developers are starting to respond to the growing demand. Abu Dhabi-based developer Aldar is the proud owner of the largest hole in the Middle East. With former Stannifer chief executive Ronald Barrott now on board as chief operating officer, Aldar plans to fill it with the 5ha Foster-designed Central Market. The $700m project will replace a former souk, crowning it with four 35-storey office and residential towers and a hotel. Completion is targeted for autumn 2007.
Aldar could not be reached for comment, but Neil Mitchenall of Lunson Mitchenall, international retail agent for Aldar, says the office towers have been planned with international investors in mind a first for Abu Dhabi. But unlike in the UK, whether investors come forward or not, the Central Market scheme will go ahead.
It is a different story for the retail element, however. Abu Dhabi’s retail development is “slow and steady”, says Mitchenall, pointing to just two large shopping centres of 92,900m2. Aldar’s Central Market will add 75,250m2 to the market.
Tenants will be signed up on standard three- to five-year leases of a similar standard to those issued by Capital Shopping Centres, which are accounted for using base rent and turnover. Although the letting programme will not start until next year, Mitchenall is already promising an “enormously upmarket” tenant mix featuring new names for Abu Dhabi.
He believes that Western investors hoping to buy into the scheme will be disappointed, however. “Even with the legal changes, retail is unlikely to change hugely,” he says, adding: “A developer owns one of the only malls in Abu Dhabi, which has a growing population and huge spending power, so why would it sell?”
Mitchenall likens Abu Dhabi to Victorian England. He says: “The royal family owns all of the land and it is selling it off on 99-year leases like Grosvenor, Howard de Walden, Cadogan and the Crown Estate. The twist on the Victorian estates is that the family is selling at reasonable prices and, sometimes, it even gives the land away and chooses the developer. It is a very clever procedure.”
Even if investors could buy, there is a question over whether they would be interested. Laws allowing foreign investment are further down the legislative path in Dubai, yet many Western investors seem wary because of uncertainty over the emirate’s long-term sustainability.
Rental levels in the office market are fast approaching the $750 per m2 mark, but there is a seemingly endless supply of stock. Dubai’s growing reputation as the Marbella of the Middle East has done little to encourage investors.
Construction boom
So should potential investors be wary of the Dubai effect repeating itself in Abu Dhabi? A construction boom is predicted in Abu Dhabi over the next 15 years. The Abu Dhabi Tourism Development & Investment Company is working in partnership with private investors on 15 projects, which will add 4,000 hotel rooms over the next three years.
Several projects have been started, including the mixed-use 1.3m m2 Al Reem Island, 12m m2 Al Raha Beach and Saadiyat Island. They will join other large projects, including the development of Lulu island, Mina Zayed port and various industrial cities under the Higher Corporation for Specialized Economic Zones programme.
Yet the consensus points to measured development. EC Harris’ Prior says: “I don’t think Abu Dhabi will suffer the growing pains of Dubai. It is not growing as quickly. Growth is far more controlled, and the authorities are building up a sustainable economy, including manufacturing.”
And while foreign investors dither, others are making inroads, say Prior. “Abu Dhabi does not need any major development companies,” he says. “At the same time, Western developers haven’t shown much interest, and they are losing out to Korean developers who are starting to look at the potential. And they are much less risk-averse.”
|
|
|
|
|
|
|
|
|
Emirate targets business tourism to boost investment |
|
Like Dubai, Abu Dhabi wants to use tourism to stimulate investment. According to the Abu Dhabi Department of Economy, the emirate averaged an impressive 11.5% economic growth since 1998. It wants to boost this further and, by 2015, the Abu Dhabi Tourism Development & Investment company predicts visitor numbers will have tripled to 3m. But it is not after the sombrero and straw donkey market. Abu Dhabi wants to beef up business tourism, boosting the number of business personnel attending meetings and extending their stay. It predicts that, within 10 years, the numbers travelling to work in the emirates will rocket by 150%, to 1,554,000. Already, the average visitor stay has extended from 2.1 days to four. Although Deloitte HotelBenchmark figures show that Abu Dhabi’s average room rate is half that of Dubai’s $231, this is rising at twice Dubai’s rate. Last year, Abu Dhabi overtook Dubai in the global ranking index for occupancy. As one commentator put it: “Dubai’s reputation is tarnished. Abu Dhabi wants to tap into the more discerning traveller.” |
