Many of the concerns that had been weighing on Dubai’s economy in the aftermath of the 2008 global financial crisis look to have been laid to rest this past year, with the emirate consolidating its place as a regional centre for tourism, transport, trade and retail, while posting robust growth.
One of the strongest signs that Dubai’s economy, and that of the UAE as a whole, looked set to give a strong performance came in June, when the New York-based MSCI announced it was upgrading the country from frontier to emerging market status. The S&P Dow Jones Indices followed suit in late October, paving the way for UAE to access previously unavailable sources of capital and tap new investment.
Dubai’s economy expanded by 4.9% between January and June in a year-on-year comparison, according to official statistics, marking its best first-half-year performance since 2008. Full-year growth for 2013 is expected to edge towards 5%.
A glance beyond the headline figures reveals that Dubai’s recovery has been driven by an expansion across several key sectors, including the aviation industry, which accounts for up to 20% of GDP when both direct and indirect contributions are taken into account.
The emirate is already home to one of the world’s busiest airports, Dubai International, and a second facility – Al Maktoum International Airport (AMIA) – is under development as the cornerstone of the Dubai World Central transport industry and logistics centre. AMIA welcomed its first commercial passenger flight in October, having handled cargo shipments since 2010. The airport is a long-term project, with an expected completion date of 2027, at which point it will have five runways and be capable of serving 160m passengers each year.
Arguably the sector hit hardest by the financial crisis, Dubai’s real estate market has shown signs of growth this year. Giyas Gokkent, chief economist at the National Bank of Abu Dhabi, recently highlighted the industry’s apparent recovery, pointing out that average residential property prices in Dubai were up 34% in September over the prior year.
Some experts feared rapidly rising real estate prices earlier in the year could herald a property bubble. However, new mortgage regulations put in place by the UAE Central Bank, together with data issued later in the year indicating that property values had remained below pre-crisis levels, helped ease concerns.
Activity is also picking up in the market for retail space, following years of flat pricing and shelved construction projects. Rents in choice retail locations have increased, while several new developments are in the pipeline. According to a report published recently by Colliers International, the emirate is expected to add 369,000 sq metres of new retail space by 2015.
Although Dubai offers more retail space per capita than anywhere else in the region, Colliers, alongside other industry watchers, concluded that the market was still some way off saturation point. The report said the emirate should continue generating interest among international retailers and customers alike.
Improvements in the real estate market and the overall economy could bolster the position of Dubai’s government-related entities (GREs), especially as they look to make sizeable debt repayments over the next few years. According to the IMF, the emirate’s government and GREs combined will owe more than $60bn on maturing bonds and syndicated loans between 2014 and 2016. A continued recovery in the real estate market would make it easier for GREs to divest assets to meet their obligations, as well as improve access to international capital for refinancing.
In a boost to real estate developers and the wider investment community, November brought word that Dubai had been chosen as the location for Expo 2020. Preparations to host the event, which takes place every five years and provides one of the biggest platforms on the global stage, are expected to bring billions of dollars in investment across most sectors of the economy.
The emirate will also hold the 10th session of the World Islamic Economic Forum in 2014.
The meeting will bolster Dubai’s plans to establish itself as a centre for Islamic finance and highlight the increasingly important role the sector plays in the broader economy.
Dubai has had a banner year in many industries and continues to be an attractive destination for investors, thanks to its business-friendly environment. The completion of major projects, alongside preparations for Expo 2020, should provide a solid foundation for continued expansion across the major elements of the economy.
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