Dubai rides growth wave as winter lockdowns hit Europe

Tables at Gaia, one of the hottest dining spots in Dubai, are booked two weeks in advance and the crush of businesspeople emerging from surrounding offices keeps staff on their toes.

“Every day feels like a Friday,” said Evgeny Kuzin, chairman and co-founder of Bulldozer Group, which owns and runs several restaurants including Gaia. They’ve been hiring staff to keep up with renewed demand.

As infection rates in Europe explode and governments tighten restrictions once more, Dubai’s economy is rebounding faster than expected. Property sales are at decade highs, and streets so choked with traffic it’s hard to find an empty taxi.

Postponed as Covid-19 swept the globe last year, Expo 2020, one of the world’s biggest in-person events since the pandemic, is now in full swing, attracting both Dubai residents and visitors fleeing new lockdowns that have sparked unrest in Austria, the Netherlands and other European nations.

By contrast, the United Arab Emirates, of which Dubai is a part, has so far avoided a new wave. About 90 percent of its population is fully vaccinated and high-risk individuals are being offered boosters. The economy’s been open for months but new cases have hovered below 100-a-day since October. Deaths are rare, helped by a relatively young population and a well-equipped health system.

“The recovery has been faster than we expected,” said Scott Livermore, chief economist for Oxford Economics Middle East in Dubai, who’s raised his growth forecast by about 1 percentage point to 5 percent for 2021. “Expo has played a role in that but also the success Dubai has had in avoiding a Delta wave that has allowed the domestic economy to pretty much get back to normal.”

Faster than expected

It’s a far cry from last year, when Dubai’s government, like many around the world, shut down the city to stop the spread of Covid-19. Even when things started to open up, people were reluctant to go out amid strict social distancing rules. Many five-star restaurants opted for home deliveries to stay afloat. Others closed.

Heavily dependent on tourism, Dubai’s economy contracted 11 percent last year. Its flagship airline, Emirates, halted flights, laid-off employees and cut salaries as the world’s busiest international airport fell silent.

Footfall in restaurants, cafes, shopping malls and movie theatres started rising toward the end of September after falling through the year, according to Google mobility data. The uptick’s gathered pace since Expo opened.

Preliminary data showed October’s hotel occupancy rates at nearly 82 percent. That’s a 60 percent increase from a year ago and about 6 percent higher than 2019’s like-for-like levels, data from research firm STR Global shows.

Non-oil business activity jumped to a two-year high in October, helped by optimism around Expo, according to IHS Markit’s Purchasing Managers’ Index. The exhibition has attracted more than two million visitors so far and runs until end-March.

“For the first time in a long time – since 2015 at least – there is a strong ‘feel good factor’ in the hospitality market in Dubai,” said Philip Wooller, Middle East and Africa director at STR Global.

End of a downturn?

The rebound is partly driven by the rising price of oil, whose ebbs and flows are powerfully felt in Dubai’s property market, another big contributor to the economy. Real estate prices crashed more than a third from record highs in 2014, when crude prices collapsed, exacerbating a supply glut.

This year, home prices have risen at their fastest pace since 2015, with transaction volumes up 77 percent in August from a year earlier, and 56 percent from 2019 levels. But apartment rents have fallen 5 percent as construction continues, highlighting the fragility of the real estate market that still owes much of its allure to Dubai’s status as a tax-free haven for the wealthy to park money.

There’s also the danger that the pandemic will catch up with the free-wheeling city. Dubai loosened restrictions last winter as vaccination levels rose, attracting tourists swapping lockdowns for winter sunshine. Cases soon spiked to 4,000-a-day, forcing Dubai to impose new restrictions. A travel corridor with Britain was shut after the government faced criticism over holidaymakers spreading the disease.

Activity could also slow once Expo ends and the rest of the world opens up.

“Many factors might have contributed to Dubai’s upturn: High oil prices have created a boom in the region, a receding virus and the Expo have boosted tourism and a recovery in the real estate market has improved sentiment. It’s all looking great now although some of these tailwinds could fade over time,” said Bloomberg’s Ziad Daoud, chief emerging-markets economist.

Growing competition from Saudi Arabia, which is rapidly opening up its economy and pitching itself as an investment centre, has also emerged as a longer-term challenge for Dubai. As Expo got underway, so did Riyadh Season, a series of events and concerts that’s also drawn thousands and made headlines.

“Saudi tourism will have a lot to offer,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “But Dubai has an unmistakable buzz.”