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Sat 14 Nov 2009 04:00 AM

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New Year, New City

Abu Dhabi is on the rise, and now, in the wake of its inaugural F1 GP, the world knows it. But how solid are its fundamentals?

New Year, New City
Sheikh Sultan Bin Tahnoon Al Nahyan, chairman of Abu Dhabi Tourism Authority, is pinning his hopes on headline-grabbing events such as the Grand Prix to plug the city as a tourism destination.
New Year, New City
The Guggenheim museum, located on Abu Dhabi’s Saadiyat Island, is set to open its doors in 2012.

Abu Dhabi is on the rise, and now, in the wake of its inaugural Grand Prix, the world knows it. But how solid are its fundamentals?

"What they've done is unbelievable," Formula One supremo Bernie Ecclestone said of the new Abu Dhabi Grand Prix circuit which was unveiled earlier this month.

"No one is going to top this," he gushed to Reuters.

Other top motor racing names at the event, including Lewis Hamilton and Nick Heidfeld, also praised the sporting world's latest star attraction. The circuit is part of Aldar Properties' $40bn Yas Island development, and will also include another motoring milestone, the first ever Ferrari World theme park.

The race made global headlines and was beamed into homes around the world, generating untold PR awareness for Brand Abu Dhabi and helping to raise the city's profile and image to billions of potential visitors.

Abu Dhabi has not been lambasted in the global media to the same degree that Dubai has and its accolades have come not just from Formula One stars, but also from respected analysts and economic observers.

"Abu Dhabi is seen by investors as the real estate market likely to exhibit the strongest performance in the MENA region," Deloitte said in its recent review of the GCC construction sector.

"A more conservative approach to the pace of real estate development, combined with substantial oil revenues are expected to cushion Abu Dhabi, resulting in its relative outperformance over the next two years," the report added.

This sentiment was echoed in Jones Lang LaSalle's Third Real Estate Investor Sentiment Survey, which said that the UAE capital "is seen as the market likely to perform the best over the next 12 months."

More than a quarter of respondents to the Jones Lang LaSalle (JLL) survey said they believed Abu Dhabi would remain "the most attractive investment environment of all the major markets in the region."

The JLL survey also highlighted the hotel sector as a key factor in the emirate's short term success.

The Abu Dhabi Tourism Authority (ADTA) has already put in place an initiative to try and generate increased investment into the tourism sector in general.

In October, it launched its first generation stakeholder programme ‘Partners in Progress', which it said was established "to co-ordinate industry-wide destination development and promotion efforts".

The programme has set up five industry development committees, covering sectors such as tour operators, retail and attractions, accommodation, transport and business tourism. It is expected that these committees will meet on an ongoing basis to monitor growth and to review any potential opportunities in their various sectors.

"We share one common aim - the delivery of an internationally recognised, sustainable tourism product. We have achieved a great deal, but have yet more to do before welcoming our targeted 2.3 million hotel guests by 2012," Sheikh Sultan Bin Tahnoon Al Nahyan, chairman of ADTA, said at the launch of the programme.

Al Nahyan believes that large scale headline-grabbing events, such as Formula One, are excellent ways to promote growth in Abu Dhabi tourism and he confirmed in an interview with the Oxford Business Group that part of the ADTA's current five-year strategic plan is to target another seven major events by 2012. He added that the emirate plans to announce its latest sporting acquisitions in the coming months.

"Major events deliver destination awareness and economic and cultural benefits to Abu Dhabi," he said.

This December, the legendary British dance festival Creamfields confirmed that it is set to bring its brand to the UAE and named Abu Dhabi as its chosen venue.

The event is likely to bring more crowds to the capital's airport, which is already bucking international trends by notching up healthy growth in passenger numbers.

In the first nine months of this year, Abu Dhabi International Airport recorded annual passenger growth of 7.5 percent, according to Abu Dhabi Airports Company (ADAC).

"To date, we have already welcomed seven new carriers in 2009, and with Malaysia's Air Asia becoming the eighth to start operations to Abu Dhabi, we can be nothing short of pleased with the way the airport has maintained solid growth, despite difficult times for the industry globally," said John Stent, acting chief of ADAC.

Abu Dhabi's tourism market predominantly consists of executive travellers on short term travel, with the corporate segment consisting of 80 percent of current inflow, according to a report published by Colliers International.

The ADTA's plan is to attract approximately three million tourists a year by 2015 and one of its main aims is to increase the leisure segment to 40 percent of the total by the same year. Therefore the coming year's is likely to see Abu Dhabi focusing on delivering products that will attract long-term family-orientated tourists, rather than corporate travellers.

These projections have not been immune to the global downturn, however. Business Monitor's UAE Tourism Report Q3 revealed that overall visitors to Dubai, Abu Dhabi and the Northern Emirates had dropped year-on-year by three percent, compared to a ten percent rise last year. However, the report did forecast a "slight recovery in growth" in 2010.

Although the global economic recession has taken its toll on tourism forecasts, plans to transform Abu Dhabi into the cultural heart of the UAE continues. The Middle Eastern outposts of the Louvre and Guggenheim museums, both located on Saadiyat Island, are scheduled to be completed in 2012.Dubai may be the bigger player on the worldwide tourism stage, but Abu Dhabi has notched up steady growth this year, when compared to its glitzier neighbour.

Figures from STR Global's latest Hotel Review 2009 showed that Dubai's average hotel occupancy rate fell 14.6 percent in the year end to August, while in Abu Dhabi it fell by 8.6 percent.

Average daily room rates provide an even more dramatic comparison. Rates in Dubai fell 23.7 percent, while Abu Dhabi room rates managed to rise 10.2 percent in the same period.

Average revenue per available room (RevPAR) also showed a marked difference between the two tourist destinations. RevPAR for the first eight months of this year was down nearly 35 percent in Dubai, while in Abu Dhabi it held relatively stable and declined by less than one percent.

With Abu Dhabi's fundamentals holding solid in the face of the downturn, hoteliers are feeling positive for the future.

Abu Dhabi National Hotels, the owner of properties managed by brands such as Hilton, Le Meridien and Sheraton, reported an increased of nearly 30 percent in net profit for the first nine months of the year.

Alongside airport passenger numbers and occcupancy rates, the Abu Dhabi economy is also on track for growth next year.

The emirate's economy may grow by around four percent in 2010, compared to three percent this year, Mohammed Omar Abdullah, the undersecretary of Abu Dhabi's Economic Development Department told Bloomberg.

Abu Dhabi is already the dominant partner in the UAE and will contribute the lion's share to federal reserves next year.

The federal budget will rise by 3.4 percent next year to AED43.6bn, or nearly $12bn.

Abu Dhabi is expected to contribute AED17.7bn to reserves from investments and services, compared to just AED1.2bn from Dubai.

Even in the recession-hit real estate industry, prospects are beginning to look healthier across the UAE's largest emirate.

Aldar Properties, Abu Dhabi's largest developer, reported an improvement in land sale transactions in the third quarter of the year and reported that, despite "challenging conditions",  it had made a profit of $117.1m in the same quarter.

"Abu Dhabi has strong fundamentals, an over-demand situation and did not get overly involved with the speculative market till last year," said Robin Teh of Chesterton property consultancy, adding that the capital is expected to be one of the best areas for real estate investment in the UAE.

"Things will get better when more supply is being delivered in the first part of 2010," he said.

In August, the UAE Federal Government scrapped a rule that required start-up companies to have a minimum budget of AED150,000, a move aimed at encouraging growth in the small business sector. The change appears to have had the desired impact as the number of new company registrations has doubled compared to last year, according to data reported by the Abu Dhabi Chamber of Commerce.

One industry that is  expected to experience a surge next year is Abu Dhabi‘s retail sector. Colliers International has reported that total leaseable space in the Abu Dhabi retail sector will increase to approximately 1.25 million sq m by 2010, which will represent a rise of 121 percent since 2008.

The Colliers report also noted that, when compared to Dubai, the emirate‘s luxury market is still in its infancy. The number of anchor rentals  - large stores or major retail chains -in the capital is up to 63 percent fewer than those in Dubai.

With GDP per capita running at over $70,000 in Abu Dhabi, residents still have a significant amount of disposable income to feed this growing market.

Abu Dhabi's buyout of Premier League football club Manchester City bought the emirate global recognition last year. The Abu Dhabi Formula One Grand Prix further cemented the city's spot on the world stage, linking its name with more than just oil.

Now, 2010 appears to the year in which the emirate can build on this diversification and continue to expand its appeal to global tourists, retailers and hoteliers.

The new decade could even be the year in which Abu Dhabi manages to overtake Dubai in the global psyche to becomes the UAE's number one attraction.

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