The growth of the United Arab Emirate’s property sector over the past five years has been relentless. Until recently, Dubai was the emirate at the forefront of the real estate market explosion but the country’s capital, Abu Dhabi, is fast becoming the setting for a proliferation of large-scale, mixed-use developments, with projects proposed, planned or under construction totalling about $327bn.
The emirate of Abu Dhabi occupies 87% of the UAE’s land area. Its coastline is dotted with more than 200 islands, although most of the land comprises salt flats along its coast and, further inland, sand and gravel desert. The abundance of available beachfront, however, is the basis for the government’s strategy of promoting the city as a tourism and cultural centre.
“We are building on our nation’s assets – islands, lagoons and creeks,” says Mubarak Al Muhairi, director-general of the Abu Dhabi Tourism Authority (ADTA). In partnership with its commercial arm, the Tourism Development & Investment Company, ADTA is responsible for many large-scale, mixed-use real estate projects.
The most ambitious of these is the $30bn Saadiyat Island project, which the government hopes will establish Abu Dhabi as a global cultural destination. The project is the largest single mixed-use development in the Arabian Gulf.
The 27 kilometre (km) natural island development will be made up of seven districts, including a cultural district to include the 41,000 square metre (m2) Guggenheim Abu Dhabi and 22,000 m2 Louvre Abu Dhabi as well as a National Museum and performing arts centre designed by world-renowned Iraqi architect Zaha Hadid.
Ms Hadid recognises an ambition on the part of the UAE’s ruling authorities to bring culture to a region that experienced its first wave of development 30 years ago and a new awareness that a city cannot be built without cultural institutions. Its 30km of water frontage makes the island a natural tourist destination and the project comprises significant cultural and leisure components as well as residential and commercial areas, which will create a community of more than 150,000 people when it is completed in 2018.
To accompany the new focus on tourism, the state is embarking on a huge infrastructure investment scheme, including a major enhancement of the international airport that will include a commercial and industrial zone, a new exhibition and conference complex and a surge of luxury hotel and real estate developments.
Most of the new developments contain an element of residential property that will serve the ever- increasing expatriate population that is driving constant demand for residential property and keeping it in short supply. Abu Dhabi’s population is about 1.6 million and is expected to grow by 6.8% a year over the next decade to a projected 3.4 million by 2015.
According to UAE property management firm Asteco, a shortage of available housing for rent in the city means that landlords are able to lease apartments at an artificially high rate – and well before completion as tenants are willing to pay the price to secure a unit.
Villa rentals are rising significantly as more and more families require homes. On average, villa rentals for the fourth quarter of 2007 were AED308,000 ($83,912) a year – an increase of 30% on AED237,000 in the third quarter. Average rates for a two-bedroom apartment in 2007 were AED120,000 a year and in some areas of the city, rental levels increased 100% on 2006.
A spate of new projects coming on stream should ease Abu Dhabi’s shortage of residential rental property. By 2009, some 150,000 new units are expected to become available but the challenge for investors is matching future demand against future supply.
As for residential sales, the market is opening up to development as foreign nationals are now able to buy property on a 99-year lease and UAE nationals are able to buy and sell property. However, according to Hatham Haidar, chief operating officer of Abu Dhabi developer International Capital Trading, the emirates’ strategy of controlled development will guard against unruly development and imbalances in the supply and demand ratio.
Mr Haidar is leading the Ghantoot City project, a seven million m2 development first approved last July by the emirates’ urban planning division. The project will create a new city in Abu Dhabi not far from the Dubai border and Jebel Ali Free Zone.
Mr Haidar believes that the development’s key location, 40 minutes’ drive from central Abu Dhabi and 50 minutes from Dubai, will ensure its future success. When the new city is completed in 15 years, Ghantoot will offer a 174- to 200-room resort and golf course as well as recreational riding, hiking and swimming.
Another of Abu Dhabi’s mega mixed-use projects is Masdar City. As sustainable development becomes a high-profile issue in western economies, Abu Dhabi is following the trend with the development of a $22bn car-free, carbon-neutral city. The Abu Dhabi Future Energy Company, also known as Masdar, plans to fund research and foster businesses in the alternative energy technologies area.
Masdar’s director of property development, Khaled Awad, is overseeing the project. He says that the sheer scale in which the firm is deploying sustainable industry will inspire other developers to do the same and, at the very least, will raise awareness among the UAE developer community. “We’re trying to make energy efficiency affordable and tenants will use 75% less energy than in a conventional industrial city,” he adds.
As a free zone, Masdar will provide tax-exempt units for light industrial tenants able to operate as wholly foreign-owned businesses. Mr Awad says that expressions of interest from foreign companies have been flooding in, particularly from Swiss companies as well as those from the UK, the US and Malaysia. By the end of the year, a decision will be made as to whether Masdar will build the world’s largest hydrogen power plant, a $2bn, 500-megawatt facility, potentially in a joint venture with BP.
The emirate’s economic diversification strategy and the planned development of industrial, financial and free trade zones such as Masdar City, Abu Dhabi Industrial City in Mussafah and the new industrial area around the new Khalifa port will fulfil and stimulate demand for further industrial space.
The Khalifa Port and Industrial Zone will add 137 square kilometres of industrial space to Abu Dhabi when phase one is completed, with anchor tenant EMAL already signed up to build the world’s largest aluminium smelter with a capacity of 1.3 million tonnes a year. Hassan El Rashid, Abu Dhabi Ports Company’s strategic development advisor, says there have been about 400 expressions of interest from potential tenants for phase one, which is likely to be completed in 2010.
The new industrial zone around the planned Khalifa port will become a super hub for industry in the UAE, according to Mr El Rashid: “The port is a strategic stop along shipping lines, where it will be a platform for manufacturing and a source of raw materials as well as supporting logistics businesses.”
The heavy industrial zone in Abu Dhabi is addressing a present lack. Mr El Rashid says: “Dubai doesn’t have any heavy industrial units and is running out of space anyway.” Perhaps the time has come for Abu Dhabi to take the development baton from Dubai and run with it.
Aldar leads the way
Abu Dhabi’s biggest developer is Aldar, a company that has seen big dollar investments of about $65bn since it launched in 2005. The company’s remit of building civic projects to develop the capital city – by establishing new sectors for commerce, housing, retail and leisure – coincided with one of Sheikh Khalifa Bin Zayed Al Nahyan’s first reforms, which was to allow locals to buy and sell land as well as allowing foreigners to buy property on a 99-year lease.
Since then, Aldar has been involved in a building programme to develop a large part of 35 million m2 of Abu Dhabi, which the company acquired from the government for far less than its potential value. The firm itself is owned by a mixture of leading Abu Dhabi institutions, shareholders and investors, and the government is said to hold 18% of the company’s shares.
In early 2006, an Englishman was brought on board, as Aldar was floated, to create a public company with the kind of transparency and corporate governance expected of any FTSE 100 company. Ronald Barrott, Aldar’s chief executive, says: “We are a truly public company today and that puts us in a club of one in the UAE. We floated on the London stock market last spring and the government simultaneously altered the law to enable us to take in up to 49% of foreign ownership. We got internal clearance for 40% foreign ownership and that is where we stand today.”
The firm is doing so well that investors are holding onto their shares. Mr Barrott says: “That is good news for other Abu Dhabi firms looking for investors.” He sees Abu Dhabi as a major market for foreign investors in the next few years – offering a tax-free environment and a very secure, safe environment with tremendous quality of life for employees.
Mr Barrott relocated his family to Abu Dhabi when he joined Aldar and admires the lifestyle that the city has to offer. He says: “It’s great for families because there is such a family culture and we have all of these different nationalities and religions, which works very well.”
On the waterfront
Among the Aldar developments set to change the face of the city is Al Raha Beach, an entirely new waterfront city spanning 11km and encompassing 11 separate precincts, each with its own distinctive use. “Al Raha Beach is a whole new community and is expanding the city as well as housing up to 120,000 people,” says Mr Barrott. “One of the precincts has a business district that will be the equivalent of London’s West End.”
The business district will feature Abu Dhabi’s new World Trade Centre designed by Sir Norman Foster and its 26 floors will provide 6000m2 of shops and restaurants and 32,000m2 of class A office space. Rental yields in the Abu Dhabi office market are among the world’s highest and the market is significantly undersupplied with retail property space, despite an increase of 220% in total retail area in the emirate since 2000.
Projects such as the World Trade Centre and Aldar’s Al Mamoura building, delivering 60,000m2 of class A office space, will hopefully realise the government’s aim of attracting more global firms to the region.
Across the water from the business district, Aldar is developing Yas Island – one of the emirates’ largest natural islands – which will be Abu Dhabi’s main entertainment and retail hub. The leisure destination will include a Formula One racetrack, which will be ready for its first race in 2009, a Ferrari Experience theme park as well as a 300,000m2 retail development, including villas and apartments.
Both the Yas Island and Al Raha Beach developments include the food and beverage, retail and lifestyle elements that make a city attractive, says Mr Barrott. “We’re putting elements into the capital city that are yet to exist in Abu Dhabi, which other cities take for granted as they have evolved over 200 years,” he adds.
That means creating a signature area that Abu Dhabi will be globally associated with. Aldar’s Central Market project, a redevelopment of the city’s traditional Arabian Souk district, is a mixed-use office, residential and retail development featuring three towers including a 52- storey hotel, a 58-storey office tower and an 88-storey residential tower.
Boost for retail
The first phase of the Central Market project is due for completion in the middle of this year. By 2030, the government estimates that there will be more than four million m2 of retail space, including the Abu Dhabi airport expansion programme, which comprises significant retail space in the terminal and surrounding complex.
The development of the city has been planned in close co-operation with the government authorities. Mr Barrott says: “We have a visionary government that set up a planning authority to make sure all potential developments are rigorously checked and to restrict and control the amount of buildings in the various use classes, to ensure we balance supply and demand.”
By all accounts, trade has been going well for Aldar since the firm started selling residential property last year in a sellers’ market. Yet speculation about future oversupply when all of the projects in progress come online is a long-term problem.
In the short term, both residential and commercial rental and sales will continue to be buoyant. Demand outstrips supply by a long way at present and it will take four or five years to catch up. Mr Barrott says: “Rentals in the residential and office market are artificially high but will eventually balance out when new developments come online.”
All systems go
The many mixed-use projects that Aldar is developing will deliver residential units to ease demand over the next five years as well as providing hotel space to service the growing tourist population. “We have a programme of development for 40 hotels over the next five to eight years, seven of which will open next year,” says Mr Barrott.
Importantly, Abu Dhabi is driven on a sustainable economic growth model whereby companies are developed and need to be populated by employees, residents and tourists, who all need to be housed. Mr Barrott says: “That has been happening over the past years as the city has been growing – and since the 1950s and 1960s it has grown from a handful of people to a city of 1.3 million people today.”