RESEARCH

HOW DOES DUBAI FARE AGAINST OTHER GLOBAL HUBS?

THE HUB REPORT

THE HUB REPORT 2015 RESEARCH

KEY FINDINGSIn recent years, Dubai has further cemented its position as a regional hub. The growth of logistics, tourism, financial & business services, as well as the emirate’s image as a luxury lifestyle destination, have all been central to this – so much so that others in the region are emulating some of the elements that make it a success. But how does Dubai – and indeed the UAE as a whole – stack up against other global hubs?

Country Key

France

Germany

Hong Kong

India

Indonesia

Italy

Australia

Bahrain

Brazil

Canada

China

Egypt

Jordan

Kenya

KSA

Malaysia

New Zealand

Oman

Singapore

South Korea

Taiwan

United Arab Emirates

United Kingdom

United States of America

Please refer to the important notice at the end of this report.

Between 2004 and 2014, manufacturing activity in the UAE increased at an annual average rate of 3.1%, according to World Bank data. On the same basis, while Singapore (6.1%) outperformed, Hong Kong (-1%), Australia (-0.4%) and the UK (-0.3%) did less well. Even more significantly, the UAE saw cumulative growth in exports of almost 117% between 2004 and 2014 – around twice as fast as Germany (58%) and Singapore (61%). Undoubtedly, the UAE’s strong export performance has been helped by the excellent quality of its transport infrastructure – the World Economic Forum ranked it 1st globally in its 2014-15 report, ahead of Singapore (2nd), Hong Kong (3rd) and Germany (7th). All else equal, this suggests that the federation’s prospects as a regional logistics hub are secure in the short to medium-term. Partly because of this, as well as Dubai’s continued success

in leveraging its strategic position between East and West, tenant demand for quality industrial & logistics property in the UAE has been outpacing supply in recent years. As a result, rents have been moving in an upward direction.

Turning to the financial & business services sector, the rise of Dubai International Financial Centre (DIFC) – one of 38 free zones in the UAE – over the past decade has helped to extend the emirate’s lead as a hub. Looking forward, with the IMF’s projections showing that the federation will grow at an average rate of 3.6% annually over 2015-2020 (faster than Germany, UK, US, Hong Kong and Singapore), it is unsurprising that international businesses continue to set up shop in this market. Moreover, the fact that the UAE is increasingly becoming an easier place to do

business (it has steadily been climbing up the World Bank’s ranking since 2011 and placed 22nd out of 189 countries in 2015) also helps. Moreover, it takes just eight days to start a business – not too far off the six days needed in the UK and US, and less than the 15 days required in Germany. Prior to the 2008-09 crisis, Dubai of course saw the launch of a significant number of office construction projects – a number of which were gradually delivered in the subsequent two to three years. However with tenant demand simultaneously low, the emirate’s vacancy rate inevitably rose. But since 2011, the financial & business services sector has returned to growth, office take-up has been rising and the availability rate has been heading down – leading to increasing investor demand for institutional-grade buildings.

In the hospitality sector, the total number of keys per capita in Dubai is significantly higher compared to other selected hubs. Moreover, when looking at luxury keys per capita, the gap opens up further. Admittedly this is partly because the emirate has a much smaller population compared to other more established global cities – but also due to the significant number of hotel keys delivered since the previous downturn. This surge in new supply, coupled with a strengthening in the UAE dirham more recently (which has hit demand), has begun to apply downward pressure on both average daily rates and occupancy. That said, Dubai continues to make strides as a tourist destination and an air travel hub. Visitors to Dubai are staying longer to enjoy the city’s attractions, with the average length of stay rising from 2.6 nights in 2004 to 3.8 nights in 2014 – further proof that

the government’s strategy to enhance and expand the emirate’s offerings is working. What’s more, Dubai International (70.5m) overtook London Heathrow (68.1m) last year to become the world’s top airport for international passenger traffic – impressive given that less than a decade earlier the former was handling around half the volume compared to the latter.

Meanwhile in the residential sector, prime home prices in Dubai saw an uplift of 59% over the five years to end-2014 – a better performance than London (52%), New York (47%), Hong Kong (31%), Paris (18%), Singapore (7%) and Sydney (2%). But as widely reported, Dubai’s residential sector has faced headwinds over the past year, leading prices to see a downward adjustment. In annual terms, prime home prices fell by 4.5% in Q2 2015, however

this was a smaller magnitude of decline compared to the mainstream segment’s 12.2% decrease. Also, the new residential supply pipeline for the prime segment is not significant, suggesting that prices over the next 12-18 months should maintain a greater degree of resilience. Finally, Dubai remains one of the safest locations in the world, with excellent connectivity, strong economic prospects, a low tax regime and a stable political system – combined, these factors will undoubtedly play an important role in paving the way for its success as a global hub.

5.21

6.025.59 5.85

MANUFACTURING & LOGISTICS

INDUSTRIAL & LOGISTICS PROPERTY SECTOR

Quality of Transport Infrastructure, 2014-15 (1 = extremely underdeveloped, 7 = efficient by international standards)

Source: The World Bank Sources: World Economic Forum, Global Competitiveness Report

Source: The World Bank

Sources: Various, Knight Frank Research

-1.0

%

-0.4

%

-0.3

% 0.3%

0.8% 1.

8%

3.1%

6.1%

1,90

9

4,15

1

5,91

8

6,33

5

7,18

2

10,6

84

15,6

23

38,2

25

116.7%70.2%61.1%58.3%58.2%47.4%

24.9%21.9%

Note: percentage change calculated in local currencyAt the time of writing, data for the US, UAE and Singapore

was only available up to 2013 (thus CAGR is for 2004-2013)

Rates converted from local currency to US$ in August 2015

Industry Output As a Proportion of Total GDP, 2014

Prime Industrial Rents (US$/sq m/annum) JAFZA Class 1 Industrial Rents (AED/sq m/annum)

Annual Average Change in Manufacturing Output, 2004-2014 (in constant prices)

Air Transport, freight (million ton-km, 2014)

Cumulative Growth in Export of Goods, 2004-2014

6.03

6.646.49 6.56

Source: The World Bank

7.2% 19.4% 19.8% 20.5% 25.1% 27.1% 30.7% 59.0%

Industry comprises the mining, manufacturing, construction, water, electricity & gas sectors as per The World Bank definition 2013 data

Source: The World Bank

2014 data are IMF estimates

Paris

Munich

Los Angeles

Sydney

JAFZA

Hong Kong

London

Singapore

65

85

87

93

132

243

172

226

700

600

500

400

300

200

100

0

100

80

60

40

20

0

% d

evelo

ped

Q3 2007

Q3 2008

Q3 2009

Q3 2010

Q3 2011

Q3 2012

Q3 2013

Q3 2014

Sources: Dubai South, JAFZA, Knight Frank Research Figure is for the logistics cluster

Jebel Ali Free Zone

Dubai South

THE HUB REPORT 2015 RESEARCH

Indicative Rents in Dubai & Abu Dhabi (AED/sq m/annnum)

KIZADMussafah

Dubai Investment Park (DIP)

Jebel Ali Free Zone (JAFZA)Al Quoz

398398

484

484

549

3

2

1

4

5

145sq km

57sq km

43

1

2

5

FINANCIAL & BUSINESS SERVICES

OFFICE PROPERTY SECTOR

Annual Average Real GDP Growth Forecast, 2015-2020 (%)

Total Business Tax Rate, 2014 (% of Commercial Profits) Ease of Doing Business Ranking, 2015

Number of Free Trade Zones Days Required to Start a Business, 2014

Source: Healey Consultants, Special Economic Zones in India, Arab Chamber of Commerce and Industry, Enforcement & Compliance

Source: IMF Source: The World Bank

Source: Doing Business 2015Source: The World Bank

2231

14108731

33.7%

43.8%

48.8%

66.6%

14.8%

22.8%

18.4%

47.3%

Special Economic Zones Foreign Trade Zones

A percentage of foreign banks and oil companies' income in the UAE is taxable. Municipality taxes

are also levied for commercial premises

53.2

4.8 6.3 6.5 7.5 7.710.2

8.8

17.041.9

21.620.111.19.1 9.1

5.0

Total Office Stock, Q2 2015 (sq m, millions) Vacancy Rates, Q2 2015 (%) Prime Rents, Q2 2015 (US$/sq m/annum) Indicative Rents in Dubai, Q2 2015 (AED/sq m/annnum)

Source: Knight Frank Research Source: Knight Frank ResearchFigure is for Île de FranceFigure is for ManhattanFigure is for Central London

Rates converted from local currency to US$ in August 2015Excluding free zones Average asking rent in Upper Fifth Place

Figure is for the West End

3

15

85 6 6

Paris

ParisSy

dney

Sing

apor

e

Dub

ai

Hong

Kon

g

Mun

ich

3 3

Hong

Kon

g

Mun

ich

Dub

ai

Sydn

ey

Mun

ich

Sydn

ey

Dub

ai Paris

Sing

apor

e

459 542

607 83

2 998 1,14

6

2,05

8

2,08

0Ho

ng K

ong

New

Yor

k

New

Yor

k

New

Yor

k

Lond

on

Lond

on

Lond

on

1.4% 1.6% 2.3%

2.5%

3.0%

3.1%

3.6%3.3

%

THE HUB REPORT 2015 RESEARCH

230

USA

38

UAE

10

Egypt

7

Kenya

6

Jordan

3

Oman

2

Bahrain

20

China

202

India

Sing

apor

e

TECOM CBur Dubai

DeiraJLT

Business BaySheikh Zayed Road

Media CityInternet City

Knowledge VillageEmaar Square/Downtown

DIFC

9159691,0751,1301,5071,6151,6151,6151,6151,9912,530

3

2

1

4

5

10

11

7

8

9

6

32

14

510 11

789

6

171

Hong

Kon

g

143

Dub

ai

Paris

Dubai

London

Singapore

Sydney

New York

Hong Kong

TOURISM

HOSPITALITY SECTOR

80

70

60

50

40

30

20

10

02005 2006 2007 2008 2009 2010 2011 2012 2013 2014

146

179

218

186

161

290

190

Major Source Markets and Total Number of Overnight VisitorsHotel Keys per 1,000 Population

5-Star Hotel Keys as a Percentage of Total Stock International Passenger Traffic (Millions)

5-Star Hotel Keys per 1,000 Population

Sources: Various, Knight Frank Research Sources: Various, Knight Frank Research

Sources: Dubai International Airport, London Heathrow Airport, Respective National and Regional Statistics Agencies & Tourism Boards, Knight Frank Research

Average Length of Stay (Nights) Average Occupancy Average Daily Rate (US$) Average Revenue per Available Room (US$)

Sources: Mastercard, Destinations NSW, Respective Cities, Statistical Agencies and Tourism Boards, Knight Frank Research

THE HUB REPORT 2015 RESEARCH

Dubai

27.9

10.5

Singapore

10

Hong Kong

9.7

London

9.5

Paris

8.1

Sydney

5.2

New York

Paris

London

Sydney

Singapore

Hong Kong

New York

Dubai

1.1

1.7

2.1

2.4

2.6

12.9

0.5

Figure is for hotels and serviced apartments 2013 data as 2014 data unavailable

3.8Dubai

Paris

New York

Sydney

London

5.3 7.7

2.6 3.0

Hong Kong

3.3

Singapore

3.7

New York 11.8m

Dubai 12.0m

London 18.7m Hong Kong

8.8m

Paris 15.6m

Singapore 12.5m

Sydney 3.0m

Sing

apor

e

159

256

New

Yor

k

115

Paris

138

Sydn

ey

181

Lond

on

79%

80%

83%

86%

86%

88%

90%

6%11%

20% 21%24%

46%50%

ParisLondon

Singapore

Sydney

Hong Kong

Dubai

Dubai International

London Heathrow

New York

25.0%

15%

19.3%

20%

Typical purchase costs for a non-resident buyer purchasing a $3m property

RESIDENTIALPrime Residential Price Growth - US$3 million invested in 2009

LIFESTYLE

Sources: Global Petrol Prices, Mercer, Knight Frank Research

Source: Knight Frank Research

7.8%

45%

6.0%

0% 7.9%

45%

5.0%

45%

THE HUB REPORT 2015 RESEARCH

London

2009

2010

2011

2012

2013

2014

Paris New York Hong Kong Singapore Sydney Dubai

$4.6

$4.3

$4.0

$3.7

$3.3

$3.5

$3.7

$3.9

$4.0

$3.5

$4.4

$3.7

$3.4

$3.5

$3.4

$3.9

$3.8

$3.9

$3.6

$3.4

$3.2

$3.8

$3.9

$3.3

$3.5

$3.1

$2.8

$2.6

$2.6

$2.8

$3.0 $3.0 $3.0 $3.0 $3.0 $3.0 $3.0

$4.8

$4.8

$4.1

$3.6

$2.8

top marginal rate

higher ranking means higher cost of living for expatriate employees in that city

Sources: KPMG, Knight Frank Research

Dub

ai 350

32

10

0.47

23

Lond

on 120

13

24

1.82

12

Sydn

ey 245

4

8

1.01

31

New

Yor

k 100

19

29

0.78

16

Hon

g Ko

ng 150

9

43

1.97

2

Sing

apor

e 186

13

23

1.60

4

Paris 122

5

33

1.59

46

Days of sunshine per year

Number of international schools within a 50km radius of the city

How far is the closest airport (km)

Average cost of petrol, US$/litre (three-months to July 2015)

Cost of Living Index , 2015

Prime Residential Price Change, Q2 2015

Personal Income tax , 2015

x%

x%

6.9%

45%

6.6%

-15.2%

-4.5%

x%

12.5%

0.1%-6.7%

2.0%

HONG KONG

SINGAPORE

DUBAI

CITY

SYDNEY

PARISNEW YORK

LONDON

Dubai Real Estate Market Overview: 2014 Key Events & 2015 Outlook

Dubai Prime Residential Report Q1 2015

Abu Dhabi OfficesResearch ReportH1 2015

Knight Frank Research Reports are available at KnightFrank.com/Research

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DEVELOPMENT CONSULTANCY & RESEARCH Harmen De JongPartner+971 56 1766 588Harmen.DeJong@me.knightfrank.com

Khawar KhanResearch Manager+971 56 1108 971Khawar.Khan@me.knightfrank.com

Diaa NoufalAssociate Partner, MENA Research+971 4 4267 666Diaa.Noufal@me.knightfrank.com

COMMERCIAL LEASING & SALESWilliam NeillPartner+971 56 4202 312William.Neill@me.knightfrank.com

UAE RESIDENTIAL SALESMaria MorrisAssociate Partner, Dubai Residential+971 56 4542 983Maria.Morris@me.knightfrank.com

Important Notice© Knight Frank LLP 2015 - This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears.

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