Sunday, January 3, 2010

Burj Dubai: Symbol of Vision

On Jan 4, 2010, the main Sh Zayed Road, alongside which the Burj Dubai is situated, will, from late afternoon, witness a bumper to bumper traffic jam as people will rubber neck to see the 800 meter tower be unveiled to a world that held its disbelief for some six years. While the events of 2009, especially the last quarter, may have dampened the spirit of inaugurations, there is going to be no holding back as the ceremony marking its opening will commence. In the area around the tower those fortunate enough to be invited to the event will leave just about as much space as a taxi packed with hippopotamus will allow. Emmar Properties, the owners of this symbol of modernism will carry the pride of their work, hopefully also acknowledging the hard work of thousands of laborers who toiled to make this dream happen.

Yet, more than the adroit steadfastness of Mohammed al Abbar, who heads Emaar, the vision of Sh Mohammed bin Rashid al Maktoum, the Ruler of Dubai and Prime Minister of UAE, will be showcased. Indeed that vision may have been scaled back by the setbacks of Dubai World, but there will be rejoicing that Emaar did the impossible, not only for the vision of Dubai but for the UAE. At the same time the media is ofcourse looking at the future of the economics of such a grandiose tower. Admittedly such iconic buildings are not built to make money by the truck load, but more to act a beacons of progress and development. Indeed the Empire State Building took 19 years before it became profitable, and indeed did other such iconic towers take longer to break even. These buildings were built to become symbols of attraction and this is what Burj Dubai would also be for some years before it turns to be entirely profitable.

However, it remains to be seen if the cheer of such a launch will rub off onto the the depressed real estate market within the country. I am perhaps the optimist who refuses to see the glass empty, but there is no merit in the argument that there is an over supply looming in the horizon. While domestic population in Dubai may shrink by as much as 10% over the next two years, we should not forget that this shrinkage happens at the lower end of the job scales. While indeed 40,000 additional units on the market will create over supply conditions I do not see anything wrong with this as its time that greedy landlords also appreciate that an oversupply does mean that the rents will come down. This means the cost of doing business will indeed come down too. I also believe financial constraints, project delays and the general uncertainty in the market will mean that these 40,000 units will be phased into the market at a slower pace. People are worried that only 70% of the new units will be leased out, but then this is fine, as it allows a better balance to the market where leasing rates went out of control.

When the search lights and strobes will unveil the tower we will also notice the contrasting styles of Nakheel and Emaar. While the Burj Dubai will remain the icon in Emaar's cap, it has to also be credited as the one developer in the UAE who has actually delivered. The main feather in Mr. Abbar's cap will be that Emaar has delivered more completed real estate in the country than anyone else, and indeed this is something that they should to proud off. Yes some may argue that it may have over extended itself but we must acknowledge that it was no mean feat to build a 800 meter tall tower and the many other projects it completed. The question now will remain whether this alone will act as a watershed to commence the recovery of the real estate market?

While the financial press will do its utmost to spoil the party with the oft repeated remarks about the looming $22 billion debt of Dubai World, my own sense is that now a restructuring is pretty much on the cards. The twin effect of the Burj Dubai being open and the debt restructuring being completed will be positive and reinforcing. There will be differing views on whether the extravagance of having the world's largest tower was a necessity or not. This is now irrelevant as the concept of Burj Dubai was at a time when all things big were being considered and somehow the necessity to be in the Guinness Book of Records was paramount. Soon after the Burj Dubai was announced Nakheel, Dubai World's subsidiary, decided they needed a tower even higher, not to mention there were some private developers who secretly also craved the same idea. If nothing else the recent slowdown and the problems that have come with it have dampened those spirits with good reason.

The vision of equally tall towers popping up on the Dubai landscape will now be into the future and perhaps a very distant future. I personally hope that this will be considered the last of the 'tall ones' as other than satisfy ego and to be an icon there is no immediate need for another 800 meter tower. Dubai already has a few architectural icons and there is indeed no need to more to that list. Someone asked me about the vision for Dubai that was unveiled from 2003 and then refined at times is still intact or not?

The idea of being the entertainment capital for the region and the metropolis that competed with the best of the world is perhaps never wrong to conceive. I suspect the grand scale that was planned was being implemented too rapidly. Yes projects like Dubailand, Al Bawadi (a few kilometer strip of hotels) and the grand plans of Nakheel are either slowed down or perhaps will need to be chopped up. The exuberance of development was such that some ideas were just not financially practical but were being touted around with the glee of a child in a candy shop. Underwater hotels, revolving towers (one in which each floor revolved), designer labeled towers, theme parks that could perhaps attract a handful of people being compared to the likes of Disney all were welcomed in the enthusiasm of creating something new and something on a scale bigger than life. Anyone who questioned the economic viability of the ideas or the pace at which all this was happening remained the unheard voice. Projects like theme parks and massive residential complexes will be on the back burner for some years to come and this is a good thing. First the fundamentals have to be restored, the idea of the grand has to be replaced with the practical and as the financial system adjusts to the new realities it will also bring a more durable strength to the system.

Does this mean the vision of Dubai will not happen?

I would rather say it will not happen in the three to four year period but more as a part of perhaps a 20 year plan. There is nothing wrong with this dose of realism. I remember in the early 1990's and soon after the first Gulf War, Sh Zayed road was popping up as the new development area. A prominent businessman from Abu Dhabi decided he will be build the Holiday Inn Crown Plaza and everyone wondered what was going through his mind. As others followed suit and buildings started to come up analysts questioned whether there was a viable future for these buildings on Sh Zayed road. Yes it all seemed before its time and today too one can say some of the projects were before their time and some perhaps a decade too early. I believe the vision was not wrong at all, but the speed of trying to realize it all created pressures that were just too hard to handle, especially when the global downturn happened.

In this sense the opening of the Burj Dubai will mark the end of an decade of exuberance and show that the new decade must now be one of repair and consolidation. Yet in the landscape of the country the landmark will become, like the Burj Al Arab was for over a decade, a symbol not only of pride, but identification with an element of success that will be seen with either envy or admiration.


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Anonymous said...

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