Nakheel targets a life of affordable luxury in Dubai

Dubai-based real estate developer Nakheel is best known for the sumptuous Palm Jumeirah artificial archipelago in Dubai. However, the company is turning its focus from luxury real estate to the three- and four-star segment of the hotel market, mirroring the shift in tourist visitors and consumer preferences of the largest and most populous city in the United Arab Emirates.

With a portfolio spanning the residential, retail, hospitality and leisure sectors, Nakheel has recently undertaken several large hotel projects with well-known hospitality brands to build three- and four-star all-inclusive hotels with entertainment facilities and a family focus.

These projects include separate joint ventures with Spain-based RIU Hotels & Resorts to construct an 800-room beachfront resort and water park, and with Thailand-based Centara to build a 601-room beachfront and waterpark, at new artificial development Deira Islands.

An affordability push

“There’s a general drive [in Dubai] to make ticket prices lower, living affordable, and to bring in people. Dubai’s story is fundamentally grounded in population growth,” says Adil Taqi, chief financial officer of Dubai-based real estate developer Damac.

Nakheel’s Deira Islands are part of this affordability push, and a result of the demographic shift in Dubai’s tourism that is seeing increased growth from emerging markets. China climbed to become the fourth largest source market for international visitors to Dubai in 2018, with numbers rising 12% to 1.21 million in the year, while the number of Russian visitors jumped 28% to 678,000, according to Visit Dubai tourism data.

“The new family offerings of three- or four-star hotels will change the demographic. People are coming in from new areas such as Asia, [and there have been] a lot of Chinese travellers recently. [This is partly because] the visa on arrival has changed for Russians and people from Asia,” says Thorston Ries, Nakheel’s head of hospitality and leisure.

New regulations introduced in late 2018 enabled tourists from certain countries to extend their stay in the UAE by applying for a new 30-day visa without having to leave the country. Moreover, the implementation of a new system of long-term residence visas, for five or 10 years, as well as 100% ownership of businesses on the UAE’s mainland, is set to bring foreign investment and workers into Dubai. “People can stay and work longer. This is obviously going to encourage more real estate investment,” says Mr Ries.

Managing prices

Nakheel’s diversification strategy is in line with Dubai’s ambitious tourism target of 25 million tourists a year by 2025, as the UAE opens itself up to emerging economies and increases its emphasis on ‘affordable luxury’.

“[The revised target of] 25 million tourists by 2025 is ambitious, but we believe achievable. Part of our strategy is to work to bring in more tourists by offering a new segment, as Dubai was previously just about luxury,” says Mr Ries.

Mr Taqi adds: “Dubai deliberately wants to position itself as [a destination specialising in] ‘affordable luxury’. Over the past three or four years, you could argue that it lost the plot a little, and became expensive. Through more shopping malls and [real estate] offerings, that will be addressed.”

Food for thought

In the retail space, Nakheel has witnessed a shift towards more food and beverage outlets in its malls, as consumers and tourists want more reason to stay in the centres. In the past, food, beverage and entertainment made up roughly 10% of leasable space in the malls; today, this figure is rising to between 25% and 30%, according to Mr Ries.

Travel and tourism is extremely important to Dubai, directly contributing $11.1bn to the emirate in 2017 and accounting for 10.1% of total GDP. This figure is forecast to rise to $15.8bn in 2027, according to the 2018 city travel and tourism impact report from the World Travel & Tourism Council.

On a global basis, Dubai was ranked fourth for international visitor arrivals with 15.8 million in 2017, and third for international visitor spend at $23.6bn, according to the report. The top three sources of international visitors to the country in 2018 were India, Saudi Arabia and the UK, with 2.03 million, 1.56 million and 1.21 million visitors, respectively, according to Visit Dubai tourism data.

Dubai attracted a record $10.5bn of FDI in 2018 – a climb of 43% compared from 2017 – through 523 FDI projects creating an estimated 25,000 jobs, reports Dubai-based magazine Arabian Business. With visa extensions, a greater focus on more affordable segments of the tourism market, assisted by developers such as Nakheel, Dubai could well attract more FDI in the future.