Thrills & Spills: Theme Parks in the GCC

The Gulf is seeing a theme park building boom. When the dust settles, there may not be enough laughs to go around. Published in Bloomberg Businessweek, 1 March 2015

As many UAE residents know, driving along the highway between Dubai and Abu Dhabi can be a hair-raising experience. Speeding cars and perilous overtaking mean the journey is often punctuated by a succession of heart-in-mouth moments—even more so when heavy fog descends.

But soon enough there should be some more legitimate thrills to be had along the way. Dubai Parks & Resorts, a company spun out of local property developer Meraas Holding, is turning a vast site on the outskirts of the city into a playground for locals and tourists alike. By September 2016, the first three parks should be ready to open. Two will take their inspiration from the movie industry. Motiongate is a collaboration with two Hollywood studios, DreamWorks Animation and Sony Pictures, while Bollywood Parks will try to harness the appeal of Indian films. The third is a Legoland. Within a year of those openings, a fourth attraction—by US theme park giant Six Flags—should be welcoming its first guests at the same site, although the company will not be drawn on its plans at this stage.

The Dubai Parks & Resorts project is the biggest theme park development the region has ever seen, but it is far from the only one. Elsewhere in the emirate, IMG Worlds of Adventure, backed by the local Ilyas & Mustafa Galadari Group, is taking shape. The 140,000-square-metre indoor site forms part of the City of Arabia development in Dubailand. It will have four zones, including ones based on characters from the Cartoon Network and Marvel Comics. There are plenty of others schemes in development. By some industry estimates, up to 20 theme parks are planned for the UAE alone and more are in the pipeline in Oman and Qatar.

All this may sound rather familiar to anyone who was in the region 10 years ago. Back then a dozen or more large theme parks were announced, but the economic downturn put paid to almost all of them. The only one to make it from the drawing board to reality was Ferrari World on Yas Island in Abu Dhabi. Some look at the current trend and see many of the same dangers as before. “If you go back to the early 2000s too much was being built; it didn’t make sense,” says industry veteran Dennis Spiegel, president of US-based International Theme Park Services. “They didn’t have the hotels, the tourism or the local population to support it. When we look at today’s developments we see some of the same issues. Dubai’s strategy is risky, there’s no doubt about it.”

The logic behind this latest glut of theme park projects is based on some ambitious projections. The Gulf markets committed to building these venues are targeting a massive increase in tourist visitors in the coming years. For example, Dubai has a goal of 20 million visitors by 2020, up from 10 million in 2012; Qatar wants to bring in 7 million visitors by 2030.

The thinking is, if such targets are to be hit, offering more attractions is going to be vital. After all, all those visitors need something to do. There are already lots of smaller facilities, including family entertainment centres and water parks dotted around the region, but no Middle East venue makes it into the top 25 amusement parks in the world, according to consultancy firm Aecom’s 2013 Theme Park Index.

Globally, parks in the US, Europe and the Far East dominate the market, but the facilities now being built in Dubai could change that. Dubai Parks & Resorts says it is hoping to attract 6.7 million visitors to the first three parks in their first full year of operations, in 2017. IMG Worlds of Adventure says it will have capacity for more than 20,000 visitors a day, which would mean an annual capacity of more than 7 million if it was to open every day of the year. If such capacity is turned into ticket sales, it could place these parks among the global big-hitters. The most popular of these is Magic Kingdom at Walt Disney World in Florida, which gets 18.6 million visitors a year, but other Disney and Universal Studio parks attract 6 million or more.

Given the size of Dubai’s population and its tourist sector, if the new parks are to hit their ambitious targets they will have to persuade a lot of visitors to come to the emirate for the first time. That is a new business model for the industry. “Most theme parks live off the surrounding residential market rather than the tourist market. In Dubai and elsewhere in the Middle East, the presumption is that a lot of it will be based on tourism; that it will attract tourism and create a new market,” says Margreet Papamichael, director of economics at Aecom. “I don’t know how realistic that is. I’m waiting to see what happens when the first one opens.”

Dubai may be leading the way with its theme park blitz, but others are also getting in on the act. Neighbouring Abu Dhabi has already Yas Waterworld and Ferrari World on nearby Yas Island, but  it expects to add a Warner Bros. theme park in the near future. That project was first announced in September 2007 but, as with some other schemes, it was hit by the downturn. With the economic fortunes of the UAE recently on the up, such schemes are being revived.

In Qatar, Halul Real Estate Development Company is developing Doha Oasis, which will include homes, shops and an indoor theme park. According to Faithful & Gould, the US project manager, the theme park will feature at least 26 rides and attractions. Spiegel, whose company worked on the masterplan, says it is likely to cost around $300 million (1.1 billion Qatar riyals) and is aiming for 1.5 million visitors a year.

A large theme park is also earmarked for Lusail, north of Doha, on a site being developed by Qatari Diar. One of the districts there, Qatar Entertainment City, will cover almost 1 square kilometre and will include a theme park as its main feature. In December 2008, Six Flags was linked with a theme park at the site which was due to be completed in 2012, but a spokeswoman for the US company, Nancy Krejsa, now says “a definitive agreement to build a park in Qatar was never reached”. As it stands, it is not clear which operator will be involved.

In Oman, meanwhile, the local FBF Group and Arabian Malaysian Development Company are building Majarat Oman alongside the Al-Sawardi Beach Resort, an hour’s drive from Muscat. WY Consultancy & Development Services, the project management consultant, says the park will cover 25,000 square metres and will cost 40 million Omani rials ($104 million) to develop. Once complete, it will be the largest indoor entertainment facility in the country.

Even Saudi Arabia is seeing some activity. The country’s tourist industry is hampered by tough visa conditions among other problems, but some still sense an opportunity. “Saudi Arabia is not yet a mature market. It is not like what is happening in Dubai, for example, but there are some projects,” says Abdul Latif Al-Afaliq, who chairs the National Tourism Committee of the Council of Saudi Chambers of Commerce.

Al Afaliq’s day job is with the Al-Ahsa Tourism Company, which is developing a scheme in the Eastern Province around Al-Gara Mountain, an area pockmarked with caves that are cool in the summer and warm in the winter. The company has developed a concept, which will tell the story of the universe and of life on earth. It is investing 50 million Saudi riyals ($13 million) in the first phase, but if it can raise finance and extend its existing 20-year lease on the site, Al-Afaliq says there could be up to nine more phases. He adds that the project should open in the next six months and the firm is aiming for around 2 million visitors a year.

Other major projects in Saudi Arabia don’t qualify as theme parks but could help to boost the fortunes of the tourism sector more generally. Among the most significant is Al-Ogair, a government-backed tourism resort planned for a 100 square kilometre site on the Gulf coast. It will contain a marina, hotels, entertainment centres and parks among other things. The scheme was given royal approval in 2008 and, although work has not started on the site, Al-Afaliq says it may begin later this year.

As in the rest of the Gulf, other Saudi projects appear to have suffered from the recent downturn. In 2008, US theme park developer Vision Maker carried out feasibility analysis and concept design on a scheme called the Light of Islam, which it described as an “Islamic Epcot”. The company did not respond to a request for comment, but the project does not seem to have moved forward.

Given the cost of major theme parks it is not surprising that many projects never see the light of day. Dubai Parks & Resorts says the total cost of its project is 10.5 billion dirhams ($2.9 billion), of which 8.7 billion  dirhams is for construction work. Dubai Parks & Resorts says the total cost of its project is 10.5 billion dirhams ($2.9 billion), of which 8.7 billion dirhams is for construction work. To help pay for this, the company agreed a 4.2 billion dirhams syndicated finance facility in November, led by Goldman Sachs. It also ran a 2.5 billion dirhams initial share offering as part of its entry on to the Dubai Financial Market.

In April 2014, Abu Dhabi Islamic Bank closed a 1.2 billion dirhams syndicated Islamic facility for the IMG Worlds of Adventure. Others that participated in the deal included Al-Hilal Bank, Commercial Bank International, Noor Islamic Bank and Sharjah Islamic Bank. In 2012, a previous round of Shariah-compliant financing had been arranged with Al-Hilal Bank and Mashreq Bank.

According to Aecom, an industry rule of thumb is that a developer should invest $100-200 for every visitor they hope to attract in the first year. On that basis, a target of 1 million people through the gates would require $100-200 million of investment.

How wise these investments prove to be will only be discovered in time, but there are some ways in which the risk can be reduced, such as linking a development to a shopping mall or hotel, which can help to generate footfall. The City of Arabia development, which is home to IMG Worlds of Adventure, also includes the Mall of Arabia, for example. And the Mall of the World scheme launched by Dubai World in July last year, which is designed to be the world’s largest shopping centre, will also include what it says will be the world’s largest indoor theme park under a single dome. In terms of links to hotels, the Aquaventure water park in Dubai is connected to the Atlantis resort on Palm Jumeirah. The park had 1.2 million visitors in 2013 and ranks among the top 20 of its type in the world.

Another water-based attraction is currently under development in Dubai, which is also linked to an existing resort. The Pearl of Dubai is an artificial reef scheme designed by the US-based Reef Worlds, which will provide a set of Babylonian-themed ruins for divers to explore. Patric Douglas, chief executive officer of Reef Worlds, says the project is being built on a five-acre underwater site, close to the artificial archipelago known as The World. It forms a second phase of an existing resort, which he declines to name due to a non-disclosure agreement. The scheme, aimed at everyone from novice snorkelers to expert divers, should be complete by 2017 and it is the first Reef Worlds project to be built.

The company had previously tried and failed to sign up resorts in the Caribbean, but it is finding the Gulf region more receptive. “The potential of the market is huge,” says Douglas of the region. “If you can conceive it you can build it, which is unlike anywhere in the world right now, other than perhaps China. That gives rise to an incredible creative push as to what we can do. Dubai doesn’t yet have a footprint in the dive and snorkel tourism market. We’ll be able to tap into that $3 billion market with this.”

Reef Worlds is hoping to get another commission in Qatar and Douglas appears optimistic about what the future might hold. “By 2030, we should be looking at a substantial series of artificial reefs in the region, which are fully monetised,” he says.

Douglas says his scheme is relatively low cost. “We’re a tenth of the cost of traditional water parks. They cost in the many millions of dollars these days. We’re coming in a lot less than that,” he says. That should help it to become financially viable, but the recent history of the theme park industry in the region is littered with grand visions that have come to nothing.

Universal Studios theme park was due to open in Dubailand by 2010. The property market crash put paid to that plan and, although ground was broken on site in 2008, the project was put on hold the following year and remains in limbo. A spokesman for Universal Studios says it hasn’t given up on the emirate, but has nothing to announce at the moment. “The most I can say is that we continue to review Dubai and opportunities there,” says Tom Schroder.

Another more recent failure involved Spanish football giants Real Madrid. In March 2012, the club unveiled plans for an island resort in Ras al-Khaimah, which would have included an amusement park along with a marina, sports facilities and a museum. Up to $1 billion was to be invested and the aim was to attract 1 million visitors a year. It should have opened in January this year, but the scheme was dropped in 2013.

Other plans that have fallen by the wayside have been revived, although the location has sometimes changed. In March 2008, Six Flags agreed to develop a theme park in Dubailand in conjunction with Tatweer, a subsidiary of Dubai Holding. However, the US firm pulled out in 2010 after Tatweer failed to make some payments on time. Since then, Six Flags has signed the deal with Meraas Holding to join in on the Dubai Parks & Resorts project.

In a similar story, SeaWorld announced plans in 2008 to open a park in Dubai. The Worlds of Discovery was planned for Nakheel’s Palm Jebel Ali and would have included three other theme parks: Busch Gardens, Discovery Cove and Aquatica. That idea ultimately went nowhere, but recently SeaWorld has been looking at the Middle East once more. In May 2014, it announced it had signed a six-month memorandum of understanding with an unnamed partner to develop a multi-park scheme in the region. That was subsequently extended and in November last year Jim Atchison, then CEO of SeaWorld Entertainment, said the first phase should open in 2020. Just where it will open has not been revealed, but location is undoubtedly a critical part of the mix when it comes to the success or failure of a theme park.

Having the right intellectual property (IP) is also vital, particularly for the new generation of parks that will have to appeal to a diverse customer base. “If you want to attract an international audience from all over the world, and you also have regional or domestic visitors to consider, then you need to have something that appeals to all those target markets,” says Papamichael. “Very quickly you’ll start looking at the IP of an existing, international brand.” That explains all the deals with the likes of Sony Pictures, Cartoon Network and others. Further elements that should make success more likely, if not certain, is to build enough of the right sort of hotels and develop the market for meetings, conferences and exhibitions (known in the industry by the acronym MICE). There is a symbiotic relationship between theme parks and hotels. Visitors to theme parks need a place to stay and hotels can encourage visitors to stay longer. According to Filippo Sona, head of hotels for the MENA region at property firm Colliers International, theme park hotels occupy an enviable niche in the hospitality industry. “The global average occupancy for theme park hotels is around 81 per cent. It is far higher than for any other hotel market you can think of,” he says.

Sona believes there is a clear opportunity for the industry to take advantage of the new theme parks by building more hotels and to develop the meetings and conferences market. “The MICE business is a very important driver of the business for large-scale theme parks,” he says. “It is the key to making a theme park a success, alongside targeting the regional market and proximity to major infrastructure like airports and major roads.”

For now, hotel plans for the various new theme parks are still at a relatively early stage. One hotel has been announced for the Dubai Parks & Resorts project, the four-star Lapita hotel, which will be themed as a Polynesian resort. According to Sona, whose firm has worked as a consultant on some aspects of the Dubai Parks & Resorts project, three more hotels are planned for phase one. In Qatar, there are 12 five-star hotels planned for the Entertainment City district of Lusail. Dubai World says that 75 hotels will be within walking distance of the Mall of the World.

But even if a park operator appears to have all the ingredients in place—a theme with wide appeal, the right mix of rides, a good range of hotels and a good location—success is still not guaranteed. If the market is overcrowded, the ride is sure to be rough for some. “I’m hard-pressed to see how they can all survive,” says Spiegel. “I just don’t see how it can happen.”