Spectators at the January 4 inauguration watched fireworks turn the world’s tallest tower into an 828-meter fountain of flame. What came as a surprise is that the tower, known as Burj Dubai since its announcement in 2003, was renamed by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum as Burj Khalifa Bin Zayed, in honor of the United Arab Emirates President and ruler of Abu Dhabi Sheikh Khalifa bin Zayed al-Nahyan. Burj Khalifa was originally set to open by the end of 2008, but Emaar properties, the developer behind the tower, delayed its opening several times until January 4, 2010, the date marking Sheikh Mohammed’s fourth anniversary as ruler of Dubai.
Dubai to Khalifa
The name change came as a surprise and was decided upon at the last minute; the tower’s souvenirs and tickets purchased for the observation deck on the 124th floor still said ‘Burj Dubai’, while ‘Burj Khalifa Bin Zayed’ was only carved on the tower’s plaque.
“[It] was obviously something that was kept close under wraps until the last minute,” Michael Hughes, executive director of strategy at the Brand Union in Dubai, told Maktoob Business. Brand Union is working with Emaar on the Burj’s brand, according to Maktoob.
Although rebranding Burj Khalifa was welcomed by the media and the general public, and considered as a way to affirm the unity between Dubai and Abu Dhabi, it will come at a high price for Emaar. The developer will have to pour large amounts of money into rebranding. Some estimates say it could take up to three years and tens of millions of dollars to get the right branding message established.
Whether the whole area will be rebranded as Downtown Burj Khalifa is still unknown, since street signs remain unchanged and no announcements from the Dubai municipality have been made on the issue.
“[Downtown Burj Dubai] is currently being rebranded by Emaar, and we are still waiting for the announcement,” said Ian Albert, regional director at commercial real estate specialists Colliers International.
Burj Khalifa, built at an estimated cost of $1.5 billion, is expected to remain the highest tower in the world for at least the next few years and includes residencies, office space, a hotel, a fitness center, meeting rooms and other amenities. Although the tower is officially open, delivery of units will not take place until February or March, and Emaar is yet to announce its handover plan and the number of units available for lease and sale.
“We haven’t received confirmation [from] Emaar yet,” said Ghada Ghannam, residential leasing consultant at Better Homes.
“It is not clear at the moment how many units will be handed over at each phase,” added Albert.
Selling like hot cakes
Emaar’s Chairman Mohamed alAbaar has announced that 90 percent of the tower has been sold and that 85 percent of the payments from buyers have been made. The rest will be paid upon delivery.
“From what I’ve heard in the market, I don’t believe there has been a lot of flipping, but details about sales at the Burj Khalifa have been kept heavily under wraps,” said Wendy Hulbert, residential leasing consultant at Better Homes. “The word on the street is that a Korean investor bought the entire top floor, but this is only speculation.”
Albert thinks that units at Burj Khalifa were subject to a high level of speculation and at the peak of the market reached sky high prices.
“The average rate reached [$35,000 per square meter]. However, following the market downturn prices fell to [$11,600 per square meter] at the beginning of January 2010,” he said.
It is unclear whether Emaar will sell its remaining 10 percent, but the company has revealed that it will rent out the top floors for meetings and workshops for around $2,700 per hour, according to The National.
The secondary market
The selling price at Burj Khalifa for residential units ranges between $10,200 and $12,000 per square meter, while commercial units are selling for $17,000 to $20,000 per square meter, according to Vineet Kumar, head of sales at Asteco Property Management.
Units sold to investors in the primary market are expected to be resold or leased, but all the brokers Executive spoke to said it is still unclear how many units are currently available in the secondary market.
“Most of the units that were sold in the primary market will eventually be on sale or lease, though we don’t know the exact number yet,” said Bernard Aoun, manager at the residential sales and leasing department at Better Homes.
The leasing market is equally as murky. There are still no units available for rent and it is unclear how high the rental rates for either the residential or the commercial units will be.
“The [office rental] rates are still unclear at the moment. We expect the rent to be around $1,800 per square meter or more, depending on the floor level,” Porush Jhunjhunwala, manager at the commercial leasing department at Better Homes told Emirates Business 24|7.
Filling the tower
The opening of the tower came at a time when Dubai was still suffering from an oversupply of properties, especially in the commercial market, and even though the Burj will be one of the most prestigious addresses in the world, there are concerns that the absorption rate of its units may not be as high as expected.
“Everything is a challenge at the moment,” said Better Homes’ Hulbert, while speaking about how soon the units may be filled.
“It’s hard to forecast if the tower will be filled up completely, we’ll have a better idea as we watch the property market here over the next few months,” added Aoun.
Competition may also come from the 740,000 square meters of office space that are expected to be delivered in and around Downtown Burj Dubai during the year, which will further increase the vacancy ratio in the area, according to Jhunjhunwala.
Funds from a burj
Emaar’s Abaar told The Khaleej Times that the tower was expected to yield 10 percent for the company and the revenues from sales will be included in its 2010 financial statement, after the units are delivered. He added that although the falling cost of construction material had kept prices down, the tower had still exceeded its budget by some 10 percent.
Roy Cherry, research analyst at the Dubai-based investment bank Shuaa Capital told Alaswaq.net that the revenue Emaar will receive from the Burj in 2010 will amount to $2 billion to $3 billion, some 30 percent of which will be net profit for the company.
Waiting on the numbers
While the long-awaited Burj Khalifa has finally opened, the Armani Hotel inside is still not completed, units are yet to be handed over, and room rates have yet to be set. Accordingly, it is too soon to predict how the tower will fare in terms of pricing and occupancy, and whether it will truly be the center of business attraction or the most prestigious white elephant in the world.
“Until the tower is fully completed, it is not possible to predict what the impact will be from improved, or worsening, global and regional market conditions,” said Colliers International’s Albert.
While the tower will likely add to a positive balance on Emaar’s books, economists are skeptical about whether it will boost confidence in Dubai’s troubled economy in general, or its real estate sector in particular.