Wealth Management by

Great expectations

February 3, 2014 5:58 am

Is the investment hype of Expo 2020 overrated? Deepak Jain, head of strategic consulting, Mena at Jones Lang LaSalle discusses

By Maha El Gazzar

It may have not surprised a lot of people when Dubai won the bid to host Expo 2020, on November 27, 2013. Following the victory, an influx of new projects and investments have been announced by the government, gearing up for the international event, which will be held for the first time in the Middle East region. With economic output projections of approximately $38.6 billion and more than 277,000 employment opportunities until 2021, an $8.4bn infrastructure spend in the region will be required to bring the emirate up to the standards required to host the event.

An estimated 30 per cent of all visitors (out of a target of 25 million) are expected to come from the UAE itself, whereas the remaining 70 percent will be international guests (according to Expo 2020 Dubai’s organising committee’s projections).

However, some previous World Expo events did not fare too well. Historically, the share of international visitors to World Expo events has been comparably small – eg Expo 2012 in Yeosu, South Korea, at 5.5 per cent; Expo 2010 in Shanghai, China, at 5.8 per cent and Expo 2008 in Zaragoza, Spain, at 3.6 pe rcent. “We certainly think that Dubai Expo 2020 will be unique due to its location and easy accessibility, on account of its airport infrastructure, which provides access to nearly two thirds of the global population. It will certainly have a positive impact across real estate asset classes, with a particular focus on hotels, leisure and retail. We also think that it will positively impact the commercial and residential sectors,” says Jain.

Jain explains to AMEinfo.com that it is too early to tell how much indirect investment Dubai will reap due to the expo. However, direct investments by the government are well in place.

“It is a bit early to comment on the latter, as we are still a few years away from the expo. The real impact can only be ascertained in a couple of years’ time.  In terms of direct investment, most of which is related to infrastructure development in and around the expo site, and linked to defined projects.

However, the city still has a long way to go to prepare for the mega event, especially its hospitality sector. “Dubai needs to both increase and broaden the range of hotel rooms available before Expo 2020. The bid committee estimates that an additional 45,000 rooms will be required to service visitors and these rooms will not all be in hotels (some will be in the form of hostels, guest houses and hotel apartments) and not all of these rooms will be in Dubai (with many visitors choosing to stay in Abu Dhabi, Sharjah or other emirates),” adds Jain. “Dubai’s hotel market is currently ‘top heavy’ with too many luxury rooms (four- and five-star), and not enough affordable and mid-market hotels (two- and three-star).”

Expo 2015 is the next scheduled Universal Exposition and will be hosted by Milan, Italy. More than 21 million are expected to visit, according to the organiser’s forecasts, of which 13 million will be from Italy.

“We believe the fundamentals are strong this time around and lessons have been learnt.  A number of initiatives have been taken by the authorities to slow the pace of price rise and make the [real estate] sector more regulated and transparent, although more needs to be done.  Of course, this does not mean that we will not see any correction in the medium to long term, as the real estate sector will always have up and downs. This is the system of supply and demand factors. As supply chases demand, we will have periods where supply may exceed demand, which might result in downward pressure on prices,” says Jain.