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In recent years, Dubai has further cemented its position as a regional hub. The growth of logistics, tourism, financial and business services, as well as the emirate's image as a luxury lifestyle destination, have all been central to this — so much so that others in the region are emulating some of the elements that make it a success. But how does Dubai — and indeed the UAE as a whole — stack up against other global hubs?
Between 2004 and 2014, manufacturing activity in the UAE increased at an annual average rate of 3.1 per cent, according to World Bank data. On the same basis, while Singapore (6.1 per cent) outperformed, Hong Kong (-1 per cent), Australia (-0.4 per cent) and the UK (-0.3 per cent) did less well. The UAE saw cumulative growth in exports of almost 117 per cent between 2004 and 2014, around twice as fast as Germany (58 per cent) and Singapore (61 per cent). Undoubtedly, the UAE's strong export performance has been helped by the excellent quality of its transport infrastructure — the World Economic Forum ranked it first globally in its 2014-15 report, ahead of Singapore (second), Hong Kong (third) and Germany (seventh).
This suggests that the country's prospects as a regional logistics hub are secure in the short -to-medium term. Partly because of this and Dubai's continued success in leveraging its strategic position between East and West, tenant demand for quality industrial and logistics property in the UAE has been outpacing supply in recent years.
Turning to the financial and business services sector, the rise of Dubai International Financial Centre — one of 38 free zones in the UAE — over the past decade has helped to extend the emirate's lead as a hub. Looking forward, with the International Monetary Fund's projections showing that the UAE will grow at an average rate of 3.6 per cent annually over 2015-20 (faster than Germany, the UK, the US, Hong Kong and Singapore), it is unsurprising that international businesses continue to set up shop in this market. It has also helped that the UAE is becoming an easier place to do business (it has steadily been climbing up the World Bank's ranking since 2011 and placed 22nd out of 189 countries this year).
Moreover, it takes just eight days to start a business in the UAE — not too far from the six days needed in the UK and US, and less than the 15 days required in Germany. Prior to the 2008-09 crisis, Dubai saw the launch of a number of office construction projects, which were gradually delivered in the subsequent two to three years. However with tenant demand low, the emirate's vacancy rate inevitably rose. But since 2011, the financial and business services sector has returned to growth, office take-up has been rising and the availability rate has been heading down, leading to increasing investor demand for institutional-grade buildings.
In the hospitality sector, the total number of keys per capita in Dubai is significantly higher compared with other selected hubs. Moreover, when looking at luxury keys per capita, the gap opens up further. Admittedly, this is partly because the emirate has a much smaller population compared with other more established global cities, and also due to the significant number of hotel keys delivered since the previous downturn. This surge in new supply, coupled with a strengthening UAE dirham, which has hit demand, has applied downward pressure on both average daily rates and occupancy.
That said, Dubai continues to make strides as a tourist destination and an air travel hub. Visitors to Dubai are staying longer to enjoy the city's attractions, with the average length of stay rising from 2.6 nights in 2004 to 3.8 nights last year — further proof that the government's strategy to enhance and expand the emirate's offerings is working. What's more, Dubai International (70.5m) overtook London Heathrow (68.1m) last year to become the world's top airport for international passenger traffic, impressive given that less than a decade earlier Dubai was handling around half Heathrow's volume.
Meanwhile, in the residential sector, prime home prices in Dubai saw an uplift of 59 per cent over the five years to 2014, which is a better performance than London (52 per cent), New York (47 per cent), Hong Kong (31 per cent), Paris (18 per cent), Singapore (7 per cent) and Sydney (2 per cent). But as widely reported, Dubai's residential sector has faced headwinds over the past year, leading prices to see a downward adjustment.
In annual terms, prime home prices fell by 4.5 per cent in the second quarter, although this was a smaller decline compared with the mainstream segment's 12.2 per cent decrease. Also, the new residential supply pipeline for the prime segment is not significant, suggesting that prices should maintain a greater degree of resilience over the next 12-18 months.
Finally, Dubai remains one of the safest locations in the world, with excellent connectivity, strong economic prospects, low tax regime and a stable political system. These factors will undoubtedly play an important role in paving the way for its success as a global hub.
Source: Khawar Khan, Special to Property Weekly
The author is Manager – Development Consultancy and Research at international real estate consultancy Knight Frank