Reaching for the sky – do megaprojects really pay off?

Photographer: Chris Ratcliffe/Bloomberg

On the surface, they are tall, statuesque and worthy of a super model, writes Ben Flanagan. But in reality, they are often extremely late, expensive to maintain, or just “all talk and no trousers”.

Welcome to the pretty, but precarious world of Gulf megaprojects.

The region, and the UAE especially, is no stranger to grand-scale construction feats, from Dubai’s Palm Jumeirah and Burj Khalifa, to the Louvre Abu Dhabi, which is set to open late next year.

In Dubai, plans are underway for the world’s biggest mall (again), tallest residential building (the Meydan One), longest indoor ski slope (as if one wasn’t enough), and even a tropical rainforest (yep – in the desert).

It seems like history is repeating itself – a Megaproject 2.0 reboot after the financial downturn and property crash.

But is it?

The last few months have seen a raft of announcements, from grand-scale residential complexes to dizzying skyscrapers and ambitious island developments.

A few are new developments – but others are relaunched or reimagined variants of older, stalled projects.

Some, however, won’t ever see the light of day – and will forever remain on the drawing board, experts say.

Marketing ploy

Last month’s Cityscape Global, Dubai’s giant real-estate exhibition, featured many complex architectural models showing, in minute detail, the latest grand designs for the region.

But some of these projects will remain in miniature and never get built, analysts say.

Richard Paul, Head of Residential Valuations at Cluttons UAE, said many displays at Cityscape and similar exhibitions are purely intended to test the market – and certainly don’t amount to any confirmation that construction will go ahead.

“Just because something’s got a shiny model at Cityscape doesn’t mean that we’re necessarily going to see it,” he told Benchmark.

“There have been lots of projects that have been announced that we still haven’t seen… A lot of the time when you have announcements of megaprojects – or any project for that matter – it’s a bit of a marketing ploy. They’re testing the waters.”

There is nothing wrong or deceptive in this, however. It’s not like the developers participating in Cityscape are taking anyone’s money.

Mr Paul likened the practice to a concept car being unveiled at an auto show. It may look pretty – but it’s not necessarily something you’ll ever see on the street.

But if there is a lot of interest in a particular project at a show like Cityscape, it may get the green light.

“The money that is spent on models and the design is a drop in the ocean compared to the value of what a project could bring in. [Cityscape] is a platform to say ‘look at us, we’ve done this and we’ve done this, the plan is to do something like this’. And you see what the response is. It might go back to the drawing board; all sorts of things may change before the construction.”

Do megaprojects work?

The Meydan One project announced in August is just one of the ambitious Dubai schemes in the pipeline, with the development set to include the world’s tallest residential tower, longest indoor ski slope and largest dancing fountain.

Other megaprojects include the Sharjah Waterfront City, announced at Cityscape, which is actually a revised plan for a previous development known as Nujoom Islands. The real-estate show also saw plans outlined for the Burj 2020 development, which is set to include a diamond-like skyscraper at its centrepiece as well as retail, hospitality and residential spaces.

And there’s also Dubai’s $6.2bn Mall of the World, set to span 8 million sq. ft., the biggest globally. Launched in July 2014, it is expected to take three years to complete.

Whether such timelines are met remains to be seen. For there are numerous examples of mega developments that run years late – if they complete at all.

The Louvre Abu Dhabi museum on Saadiyat Island, for example, was supposed to open its doors in 2012 – but now won’t be finished until next year. And work on high-profile projects such as the Palm Jebel Ali and The World islands largely ground to a halt after the financial crisis.

Yet there are of course numerous, and thriving ‘megaproject’ communities already in existence in the UAE, such as Jumeirah Beach Residence and the Downtown Dubai area that surrounds the Burj Khalifa.

“The proof of the pudding is that some have been developed,” said Mr Paul.

“There certainly have been megaprojects that have been announced that have come to fruition, and that have ultimately been a success,” he added.

“Big projects take 10 years to build, a lot of them. So it is ambitious. But we’re in a part of the world that is extremely ambitious. There were plenty of negative naysayers in the market back in 2001 and 2002, and things sprung up out of Dubai and we live in the city that we do now. It’s had its ups and downs and it’s learning from those mistakes. And those megaprojects are in place now.”

Craig Plumb, head of research for the Middle East and North Africa at consultancy JLL, said however that the success rate of megaprojects is a mixed bag.

“Some work, others do not,” he said. “Among the successful master plans that have clearly worked in Dubai are the Marina, Palm Jumeirah and Downtown. Others that are still developing but are certainly now beginning to form viable and sustainable communities would include JLT and Business Bay.”

Previous announcements

Mr Plumb said many of the new large developments being launched are additional components to existing projects. And some could face pressure due to economic conditions, he said.

“The recent decline in oil prices and consequent pressure on government spending is likely to ensure a greater focus and prioritisation of projects going forwards,” he said.

“I would not say that the age of megaprojects is back as it never really went away – more accurate [is] to say that more development is actually now occurring within some of the previously announced masterplans. Burj 2020 is a new development within JLT and Meydan One forms part of the broader MBR City initiative.”

Mr Paul echoed the sentiment that megaprojects “never really went away”.

“There seems to be always another announcement… of a project or large community that hits the headlines and grabs people’s attention. That’s all part of being in Dubai,” he said.

Megaprojects 2.0

But Mr Paul added that, given the speculation that the Dubai property market has bottomed-out and growth is set to return, the pace of megaproject development could speed up.

“The market has softened over the last 18 months or so. And there are a lot of developers and investors [are] suggesting that maybe we are coming to the end of that, and that we are hitting the bottom of the market,” said Mr Paul.

“You could argue therefore that, if we’re nearing the bottom of the market, then perhaps that’s the time for a developer to announce a project. And as long as it’s correctly priced and there’s appetite for it, it could do well.”

And so large-scale projects such as Dubai South – the 145 sq. km. “airport city” being built around the new Al Maktoum International Airport – along with others like the $17.4bn Dubai Creek Harbour at The Lagoons, could gain momentum as property prices recover.

With that, there’s a new era of megaprojects on the horizon. And they’re just as pretty, but perhaps a little wiser, than before.