Sustainable city advances in Dubai, but is still an exception – 03/20/2024 – Market

In 2017, Leonardo DiCaprio made a secret visit to Dubai to discover a new housing development with exclusive benefits. With 600 homes, 11 bio-domes and an urban farm running through its center, the project known as “The Sustainable City” claimed to be the most environmentally sustainable community in the Persian Gulf and a potential model for a greener future.

Seven years and $354 million in construction costs later, only parts of that claim have been realized.

“The Sustainable City” now has around 3,000 residents and is one of the few low-carbon projects in one of the world’s harshest climates.

It generates a significant amount of its own electricity and combines technology with traditional architecture to keep residents cool and comfortable without maximizing energy use.

But the city has yet to start a trend. After a push for greener development in the early 2000s and despite big pledges at the United Nations climate conference in Dubai last year, the UAE still severely lacks buildings and communities that reflect its environmental goals. “The Sustainable City” should be a model; It’s still just an exception.

“There was a period when there was a desire to achieve world-class levels of sustainability,” says Karim Elgendy, associate fellow at the Center for Environment and Society at Chatham House. “I don’t think that exists anymore. It required major transformation of the construction industry itself.”

The period Elgendy refers to peaked in 2006, when Abu Dhabi announced plans to invest nearly $20 billion in an idea known as Masdar City, a 6.5-square-kilometer neighborhood that would be nearly carbon neutral thanks to to the magic of clean energy, LEED-certified building design, and a solar farm.

Foster + Partners, the architecture firm behind Masdar City’s initial design, took inspiration from medieval Arab and European cities, relying on lots of greenery and strategically placed shade to keep the spaces cool. The development was slated to house 50,000 residents and was touted as the world’s first zero-carbon, zero-waste city.

While Masdar City was under construction, Faris Saeed, a Jordanian civil engineer and founder of Diamond Developers, was building skyscrapers in Dubai’s marina.

Then the 2008 financial crisis hit, devastating many developers and pushing the city to the brink of bankruptcy. Interest has waned in navigating the cost and complexity of sustainable construction, and weak buyer demand has limited developers’ fledgling green ambitions.

Saeed saw an opportunity. “We started thinking, ‘How can we build a unique, possibly more immune model?'” he says. “We wanted to perfect green and sustainable development, but we knew that if it wasn’t commercially viable, it wouldn’t work.”

In 2012, SEE Holding – the parent company of Diamond Developers, also owned by Saeed – purchased a 460,000-square-meter tract of desert on the outskirts of Dubai, with plans to build a community distinguished by sustainable design. Right from the start, there were obstacles.

SEE struggled to convince banks to lend for the project once they learned about the sustainability aspect. Saeed said he often went back to bankers with assurances that the Sustainable City would function just like a traditional housing development.

But buyers weren’t convinced either. When Sustainable City began construction in 2014, Saeed hung a banner outside the construction site promising that he would not charge “zero service fees,” which are similar to condominium fees that offset maintenance costs. (Cidade Sustentável allocates 40% of its mall revenue to cover the difference.) This benefit worked: By the time construction was in full swing, 60% of Cidade Sustentável had already been pre-sold.

Residents began moving into the community in 2016, but another benefit came four years later when HSBC allocated its first “green loans” in the UAE to Sustainable City homeowners.

The loans offer a 0.25% interest rate discount for properties that meet certain sustainable criteria and a 50% reduction in bank processing fees, according to the lender. Saeed says many of the current owners purchased after living there for several years as renters.

Today, the Sustainable City is fully occupied, with a three-year waiting list for families wanting to move there. (Saeed still owns 10% of the houses, which are rented.) Alongside its 500 houses and 89 apartments, the development has a school, commercial space and equestrian club, as well as one of the region’s largest schools for autistic children. Its urban farm and 11 bio-domes produce food that is sold to nearby restaurants and supermarkets.

Approximately 80% of the Sustainable City is car-free, with paved paths for cycling and shared electric buggies for travel between homes. Clusters of houses share parking lots – shaded with solar panels – at the edges of the development, meaning residents must walk to their cars even during Dubai’s hot, humid summers. (Many housing developments in the city include underground parking or parking in front of the villa.)

Throughout the development, the architecture is geared towards reducing direct sunlight and ensuring adequate insulation. Saeed says his buildings use 40% less water thanks to special devices, resulting in 30% less sewage.

A biogas plant converts organic waste into energy, and solar panels are installed on every roof. The development generates 80% of its own energy in winter and 40% in summer, when temperatures routinely exceed 45°C.

“We start with finances,” Saeed says of his approach to buyers. “People’s number one concern is money, followed by social and environmental concerns.”

The UAE has also evolved since the debut of the Sustainable City. The country has committed to achieving net-zero emissions by 2050 and announced plans to invest up to US$54 billion in renewable energy by 2030. It has abandoned some fuel subsidies, started promoting public transport and introduced a corporate tax.

When COP28, the UN climate conference, took place in Dubai last year, it was led by Sultan Al-Jaber, who also runs Abu Dhabi National Oil Co. Despite criticism over his appointment, the summit ended with the first agreement to move away from fossil fuels.

This momentum will be crucial as the planet continues to warm, with Gulf Cooperation Council countries warming about twice as fast as the global average. The United Arab Emirates has the second largest per capita carbon footprint in the world, behind neighboring Qatar.

Sustainable building design will become increasingly important as policymakers and business leaders are tasked with reducing energy consumption in a region where up to 70% of electricity goes to cooling homes.

But the UAE still has a long way to go. Abu Dhabi Future Energy Company, which operates renewable energy projects in the US, UK and UAE, ranks 62nd in the world among renewable energy companies, according to BloombergNEF.

Masdar City, still conspicuously empty, casts an equally long shadow over the UAE’s historic greenery. And the Sustainable City largely stands as a populated development built with greener living in mind. Chatham House’s Elgendy says the model isn’t easily scalable, largely due to limitations on car use.

“Sustainable City found an opportunity in a certain type of tenant and presented it as a lifestyle,” he says. “I don’t think a typical Dubai resident is your typical customer. Without the political incentives, it’s hard to see other developers doing more.”

The Dubai government has hinted that future regulations would make the industry more sustainable, says Tatjana Lescova, associate director of corporate ratings at S&P Global. But for developers, more stringent environmental requirements could pose additional costs, administrative hurdles and technical challenges.

Demand for LEED-certified office space has been growing in the city, according to a November report from CBRE Group Inc. This largely reflects a drive for quality: In Dubai, LEED-certified offices rent for around 34% more than those without, according to the report.

About 24% of the gross leasable area of ​​CBRE-monitored assets in the city is now LEED certified – a total of 12.2 million square feet. Until the third quarter, the average occupancy rate for these assets was 96%, up from 91% the previous year.

Saeed says he is planning another development in Dubai, although he did not provide details or a timeline. SEE Holding is also replicating its model elsewhere, building similar communities in Abu Dhabi, Sharjah and Oman – with a total of around 3,850 homes in planning or under construction and 4 billion dirhams ($1 billion) in pre- sales in all ongoing projects.

Oman’s development will produce all of its own energy from renewable sources, says Saeed. It will also produce 70% of its own food and recycle all of its own water.

To fund these expansion efforts, SEE is planning an initial public offering of its business, including Sustainable City, according to people familiar with the matter. Late last year, the company was considering banks including Barclays Plc and Citigroup Inc. to work on the IPO, which would also include its engineering, design and consulting units. Details such as the size and timing of the transaction are still being discussed and could change, the people said.

SEE is also considering partnerships for projects in the US, Europe and Africa, and Saeed says he hopes to complete a deal in Cyprus in the coming months. To persuade partners and potential buyers, he is focused on keeping construction costs in line with those of traditional projects. SEE is also offering short-term rentals to combat rising home prices.

But Elgendy warns there are more uphill battles ahead. “It’s actually quite hard work. Even with all the smart technologies, all the passive architectural techniques that would reduce the need for air conditioning in the first place, the amount of air conditioning needed for comfort is still too high for some panels to solar systems can manage,” he says. “There is a limit to sustainability and carbon emissions in the Gulf in general.”