Yet a visit to the site today suggests there is a lot more living than working taking place, with nannies pushing carriages and children romping around a playground.
Throughout Dubai, developers are restarting projects that were stalled by the emirate’s property crash in 2008. But as the development engine revs back up, the real-estate landscape looks less and less like anyone envisioned in a prebust world.
Residential projects are moving forward, reflecting strong demand for apartment sales and rentals as the economy grows on the back of trade, tourism and aviation. Meanwhile, the office market is dormant. About half of the city’s office space is empty, one of the highest vacancy rates in the world, brokers say.
The result is that developers in Business Bay and other areas increasingly are switching to residential. For example, Damac Properties converted five office projects in Business Bay into hotel apartments. These buildings were in a variety of states of construction, with some not having broken ground while others were half-built.
“We saw that office space was not recovering yet, and then we had to make a decision what to do with these buildings,” explains Ziad El Char, Damac’s managing director.
Developers are making similar decisions in other major cities around the world as housing markets boom but demand for office space recovers slowly.
In London, developers including Land Securities PLC, British Land Co. and Canary Wharf Group PLC have shifted gears and are building condominiums instead of office towers.
Dubai was the fastest-growing housing market in the world in 2013 to the end of September, according to Knight Frank global index, as prices rose an average 28.5%. Some analysts are questioning whether that growth is sustainable, and have warned of another potential bubble in Dubai if prices continue to soar.
Yet for now, Business Bay is benefiting. Demand for apartments is strong because prices and rents are lower than those downtown, about a mile away.
Two-bedroom apartments in downtown Dubai were being rented at between 150,000 U.A.E. dirhams ($41,000) and 170,000 dirhams a year in the third quarter of last year, compared with between 100,000 dirhams and 125,000 dirhams in Business Bay, according to CBRE Group Inc. Similarly, average sales rates were 25% cheaper in Business Bay at 13,220 dirhams a square meter.
“We are close to downtown, you can walk it,” says Harsimran Kaur, who moved with her husband in March to Executive Towers, a complex of 12 skyscrapers in the heart of Business Bay.
In the run-up to the global financial crisis, Dubai’s low office vacancy rate—less than 5%—sparked a flurry of commercial development.
Many developers sold units in offices to investors much like they were residential apartments. Many eager investors piled in to make a quick buck, thinking they could sell the units to corporate tenants.
Then the financial crisis hit and Dubai’s economy crashed. Companies left the emirate and the vacancy rate increased to about 22% in 2009. The rate tumbled further as new offices were completed and Dubai’s economic fortunes foundered.
Built around a man-made stretch of water, the Business Bay district currently has 35 completed office buildings and 20 residential towers, according to Jones Lang LaSalle.
Some Dubai developers are moving ahead with office projects, especially if they have investors that are obligated to buy units from them when the project is completed.
But major developers such as Deyaar and Omniyat also are converting office buildings into residential and hotel apartments in Business Bay now.
Deyaar, which has 13 projects in Business Bay and will launch a new 700,000 square-feet residential development next year, says rents for a one-bedroom apartment have increased from 45,000 dirhams to 75,000 dirhams in about 18 months.
“Residential is getting crazy and crazy and crazy,” says Saeed Al Qatami, chief executive of Deyaar.-WSJ