Dubai’s abandoned palm islands rise again as Gulf rides oil and gas wave

When they were first conceived, Dubai’s palm islands were almost too audacious to be real. 

Dredged up sand from the bottom of the sea and trucked in rock blasted for nearby mountains would be used to build a trio of islands shaped like palm trees on the coast of the Persian Gulf.

The developments, overseen by state-owned developer Nakheel, were supposed to house tens of thousands of people, offering beach-side properties to lure wealthy residents from European capitals as Dubai looked to cement itself as a leading tourist destination. 

Today Palm Jumeirah, one of the three islands, is the city's playground for the ultra-wealthy. It attracts droves of tourists to its beaches and hotels, such as Atlantis and the Burj Al Arab. The island helped attract 7.12m international visitors to Dubai in the first six months of the year, with 506,000 from the United Kingdom - the fourth largest source of tourism.

But the government’s island ambitions have not been fully realised. Two of the three islands were left unfinished after the global financial crisis - victims of the credit crunch that swept the world.

Dubai's property prices fell by as much as 50pc in the crash and £400bn worth of construction projects were put on hold or cancelled. The city was ultimately unable to meet its debt obligations and was forced into a $20bn (£17bn) bailout from the United Arab Emirates.

Now, however, the final two palm islands are being revived. After more than a decade on the sidelines, more ambitious plans are receiving renewed interest amid an influx of wealthy Asian billionaires, as well as Russians looking for places to park their wealth in the wake of international sanctions.

The Financial Times reported that developer Nakheel has contacted investors offering to buy back their contracts for plots so they can start work again. Palm Jebel Ali, one of the two islands, is set for new building projects after a refreshed management team at Nakheel applied for approval to build properties on the island.  

Palm Deira has not yet been properly formed on the coastline, while Palm Jebel Ali has been built but mothballed. Palm Deira is set to be populated with commercial, residential and hospitality projects, when its foundations have been cast on the coastline.

Taimur Khan, head of research for the Middle East region at CBRE, says there is a renewed focus given the lack of available land elsewhere. There are now a dwindling number of beachfront plots available to serve the latest wave of wealthy clients looking to find a base in Dubai.

Mr Khan says: "We've sort of used up the extension that was already provided to the beachfront. There are now only a handful of quality plots available on the beach to develop.”

In the post-crisis years, developers focused on inland plots that were less risky and expensive, allowing for the construction of more affordable properties alongside luxury residences.

Mr Khan says: "There's been a bit of pain, but we're getting to a stage where the market is doing very well here, with the international businesses moving here and a number of individuals from all segments of society deciding to live here."

The energy crisis is benefiting Dubai due to the huge economic uplift in neighbouring economies such as Saudi Arabia, home to the world's largest oil company Saudi Aramco. The International Monetary Fund recently said Saudi Arabia is set to be one of the world's fastest-growing economies this year on the back of surging oil prices, with its GDP rising by an 11-year record of 11.8pc in the second quarter of 2022. 

Dubai is not seeing a direct benefit from soaring oil prices as the city's economy now largely relies on the real estate and tourism industries. The UAE GDP, which stood at $421bn (£355bn) in 2019, collapsed by more than 10pc in the pandemic as tourism was restricted.

The palm islands themselves were conceived by Sheikh Mohammed bin Rashid al Maktoum as a way to attract attention to Dubai as its oil supplies dwindled.  

However, Mr Khan says the wider jump in commodity prices "obviously impacts sentiment" as oil price rises increase regional economies' capacity for investment, tourism and trade. 

Dubai's more relaxed attitude to the pandemic saw it rise in international prominence in recent years. In Britain, the city was introduced to a whole new generation of potential residents by social media influencers who flocked to its hotels claiming they were travelling for work.

The unfinished islands are some way from being presentable on Instagram, although they are not completely devoid of infrastructure. They have roadworks and some retail units on the land. But they are still daunting projects for developers compared to the built-up areas inland. 

"These are man-made islands, the infrastructure costs are significant," Mr Khan says. 

"The ingenuity required to develop them is significant, and if you are building inland it's not as difficult.”

Development will see additional infrastructure added before new homes and hotels can be added in phases, according to the level of demand. 

Mr Khan says: “There has been some work on them, they're not completely barren, there's been an outdoor market, but now it's moving into the next phase where we'll see a more mixed-use community there."

City officials and builders are set to take a slightly different approach to these projects than they would have previously. 

The latest wave of development comes amid a wider push to make the metropolis a more pleasant place to live so it might be able to attract more permanent residents. Dubai, which is largely populated by expats, has largely been seen as a place to spend a few years working. But the government has published the Dubai 2040 plan to help the city become a place where people may wish to live for longer periods. 

They want to build a city with a diverse mixture of properties rather than swathes of luxury mansions, and the developers are trying to make sure the city's spaces have an appropriate mix of housing, retail, and office space to properly support residents' lifestyles. 

Mr Khan says: "Dubai did some audacious stuff in the early days, but they have been calculated about what people actually want and what they aspire to. 

"The development going forward won't always be looking at doing it in the same way. I think the offering will change. So rather than just having super-luxury properties all the way across, you will have a broader mix, with retail as well. The live-work-play element will be crucial going forward."

With vast expanses of land yet to be reclaimed from the sea before progress can be made, it will still take decades of work before the islands are ready to be presented in their final form to the Instagram generation.