I've been telling folks that many of the announced theme park projects for Dubai would turn out to be vaporware, and that even the ones that got started are facing a tough go of it, with falling oil prices and a worldwide credit crunch triggered by still-overpriced U.S. housing.
Most of the theme park companies lured to Dubai weren't drawn by the market's potential. No, they were brought in by fat royalty and consulting checks written by oil-enriched Dubai-based developers, who were to handle and pay for the construction, and in many cases, the operation of the parks.
Perhaps some of these projects may yet see opening day. (I'm told that Universal's is the closest to becoming reality.) Even the Busch deal might be put back on the table at some point, according to Kassab.
But the economics of these projects are tough. To get them built, the developers need expensive oil to fund the construction and licensing. But to attract the tourists that would keep the parks alive and profitable, the operators need cheap oil, to keep airfares low. Anyone see a problem there?
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The main thing that's hit Dubai has been the lack of demand for real estate due to the global economic climate. As a former resident of Dubai, and someone who visits twice a year I notice each and every time I go back just how many new high-rise towers appear, these were all started during the boom period, now the economy has slowed down the demand has fallen and Dubai has been hit hard.
I'm pretty sure that Universal will certainly go ahead, along with the Marvel and Dreamworks parks, although all these projects will likely be delayed. Legoland should also go ahead due to the Dubai governments stake in Merlin.
Six Flags is a strange one, although I do expect it to go ahead. The F1 park will certainly go ahead and a lot of the park has already been built, along with a number of Dubailand attractions.
I should be going to Dubai again pretty soon so I'll get some photo's of Dubailand and the planning office plus a write up if you think it will be of interest Robert.
Second, what is happening in the world's financial markets now is not some unfortunate random downtown that just happened to scuttle grand plans in Dubai. The world's financial melt-down was the inevitable, and easily foreseen, result of the financial bubble that created these plans.
Let's examine the Dubai market, using Las Vegas as comparison. Both were large tourist developments created in isolated desert communities. But Dubai faces obstacles that Vegas did not. First, there is no Los Angeles within driving distance to provide a core local market. Second, migration within the immediate community is severely restricted, and generally not open to families or desirable for outsiders seeking long-term relocation.
So there are just two options to populate the Dubai market: the small market model, which would be limited to highly wealthy individuals, primarily those in the Middle East whose fortunes derive from the sale of oil. The large market model is middle-class to wealthy Europeans and South Asians, whose ability to fly to Dubai depends upon cheap transportation (i.e. cheap oil) and favorable credit and exchange rates.
We will not again in our lifetimes see credit as easily available as we have seen in the past 10 years. And if long-haul transportation costs remain low enough to make Dubai a viable destination for Europeans and Asians, capitalization for Dubai's projects will become a problem, given the lower oil revenues (and corresponding oil-driven investments) and the tighter restrictions on credit.
If oil prices rise, the Europeans and Asians are priced out of the market, so Dubai would be building its projects and money-losing playthings for the local wealthy. (Put the Ferrari project in this camp.)
Simply put, the numbers don't work for the 2007 vision of Dubai (as they don't work for the 2007 vision of just about everything in the world). Whatever is to be completed in Dubai -- and remain open for a decade or more beyond -- will have to be developed within one of the two models that I've described.
As you said Robert, the financial crisis that kicked this global economic problem into gear was foreseeable but go to Dubai and mention the phrase ‘economic crisis’ or ‘credit crunch’ and you’ll find most people play it down, especially those at the top. There is certainly a head in the sand attitude in Dubai, which they are now paying for, thousands of luxury villas and apartments are left vacant, not to mention the hundreds of towers which were designed for office space.
There is a local market though, many residents of other Arab nations flock to Dubai regularly as their own countries don’t have anything similar to what Dubai can offer. Even residents of other Emirates go to Dubai to get away from the strict drinking laws imposed on them in places like Sharjah.
This was always going to happen to Dubai, at one point the bubble was going to burst. A key economic principle is that a boom period cannot be sustained, no more is that more obvious than in Dubai.
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Rather than Dubai, I'd watch what Abu Dhabi does next after they get their Guggenheim and Louvre museums, and Ferrari theme park up and going. The second richest royal family in the world sitting on 10% of the world's proven oil reserves may have some interesting projects to come...