Luxury residential cost models - an urban tall tower and a mid-rise apartment development
Make hay while the sun shines. The demand for luxury property in the United Arab Emirates (UAE) continues with Dubai topping the list as the preferred location amongst the Emirates. Property developers continue to set records for ‘off-plan’ sales, with many developments being sold out quickly, sometimes within minutes.
In the first part of this article, AECOM’s Andrew Thompson, Director and Head of Assets, and Minesh Ratnadurai, Associate Director, Assets Team, analyse recent data and trends for luxury residential properties. In the second part of the article, they delve deeper into what it costs to build such luxury residential developments with a focused ‘cost model’ approach.
Dubai is an established location for all things luxury and ultra luxury, a magnet for the wealthy and it is fast becoming one of the global destinations to own property. The UAE boasts many world-class developments, such as the Burj Khalifa – the tallest building in the world, the Burj Al Arab – Dubai’s iconic hotel and global landmark of Arabian luxury, the Museum of the Future – considered by many to be one of the most beautiful buildings in the world and many other similar landmark developments.
In the midst of its growth into a famous tourist destination and a transitional hub for business, the Emirate has also become home to many expatriates that have travelled to live and develop their careers in the city of Dubai. It is estimated that around an additional 300,000 people have relocated to the UAE in the last two to three years, and a number of these people have sought to purchase high-end, luxury property.
Based on property sales records during 2022 and according to Knight Frank’s research, with 219 no. USD $10m + home sales during the same period, Dubai ranks fourth, just behind New York (244 sales), Los Angeles (225 sales) and London (223 sales. The city’s stellar rise is further evidenced by the fact that Dubai is now the fifth most active city of USD $25m + home sales also, with 26 no. in 2022, where only London (43 no.), New York (43 no.), Los Angeles (39 no.) and Hong Kong (28 no.) rank higher (Knight Frank, 2023, Wealth Report).
As of Q2 2023, Dubai led the highest rate of property sales increase globally, i.e., 48 per cent in 12 months, for luxury homes (Knight Frank – Prime Global Cities Index Q2 2023). In addition, the average sales price increased by 20 per cent year-on-year, and average rental rates increased by 22 per cent in the same period as of August 2023 (JLL Q3 2023 UAE Real Estate Market Overview). Based on Knight Frank’s Worldwide Index Report 2023, Dubai’s real estate had improved by 70.3 per cent in September 2022, with the major concentration being on luxury properties, which were regularly in the top five market values. This is far higher than the same index rises of 2.5 per cent for London, 8.9 per cent for Paris and 7.3 per cent for New York.
Aside from sales numbers, it also needs to be understood how ‘relative value’ plays into the current global demand for luxury and ultra luxury residential developments. The city of Dubai stands as the fifth most attractive area in terms of USD /sq. ft that can be purchased with an average size of c. 1,130 sq. ft. for every USD$ 1m spent - only outdone by the likes of Sao Paulo, Cape Town, Mumbai, and Madrid (Knight Frank, 2023, Private Capitol Outlook).
In comparison to other locations, the cost of building residential developments in the UAE also remains relatively low (refer to page 112 of this publication for the average building cost of residential mid-rise and high-rise developments around the world). The cost of building residential developments in other regions is lower only in the Asian and Africa geographies, such as China, Thailand and South Africa etc. This is mainly due to lower local labor costs and the fact that the UAE has a well-established geographically located infrastructure in the Middle East to source high-end materials from various parts of the world.
With this boost in demand for luxury residential developments, a property developers’ key goals in the early stages of a project is ‘speed to market’; how quickly can they launch the product on the market and how they can design and build the product and get it into the hands of the owners.
The next part of this article looks in detail at some of the key cost drivers for two types of luxury residential developments; the first a tall luxury residential tower, in excess of G+70 stories, placed in an urban/city centre environment, and the second is a mid-rise, G+ 8 to G+ 10 luxury residential apartment development placed in either an urban environment or beside the sea.
In addition to looking at some of these key cost drivers, we will also look to breakdown the overall indicative costs for both building typologies across the building elements themselves.
Key cost drivers
Many building typologies carry common key cost drivers that can be derived from the building itself, regardless of its use. These common key cost drivers are typically as follows:
Structure – What type of structural frame is being adopted in order to achieve the architectural intent? What is its shape and form? Is it thin or thick? Is it concrete or steel (or a mix of both)? Is it tall or small? Are the site constraints and ground conditions affecting the structural design? How are the apartment layouts and floor plans affecting the structural grid layout? Are there wind loadings at certain heights and locations? What are the current seismic design requirements for this location? Etc.
Façade – How is the above structure intended to be enclosed? What is the transparent (i.e., glass) to solid (i.e., rendered blockwork, aluminium panels, GRC etc.) ratio? What is the specification and design of the frames and glass itself? How tall are the floor to ceiling heights? Are there many openable sections (i.e., sliding doors and windows etc.)? Is there any sun shading treatment required? Etc.
MEP – What type of systems are being adopted? What is the specification and design of these systems? Are there many ‘controllable’ and/or ‘automated’ parts to these systems? Are there many sustainable initiatives being designed into these systems? Are any of my systems ‘smart’ enabled? What is the intended designed life of these systems? Where is my major plant and equipment being specified to be sourced from? Etc.
Procurement and contract – What form of procurement is to be adopted? What is the preferred form of contract and how is the risk allocation shared within this contract? Is the programme aggressive or is it achievable? Can we get an ‘enabling works’ (i.e., excavation, de-watering, piling & shoring) package on site whilst procuring a ‘main works’ package? How does contractor selection play into all of this? What is the current appetite in the market for this type of work?
With luxury residential design, developers tend to maintain strong control of the design element choosing to use a ‘traditional’ procurement route, in most cases having renowned architectural firms attached with many rounds of design iterations. Contracts are usually tendered on a ‘fixed price, lump sum’ (FPLS) basis, however, provisional sums and PC rates are often maintained to allow for the design to be developed and refined prior to the specific award of key components, such as finishes and interior fit-out works.
Special focus area Finishes and interior fitout – Throughout our experience of delivering luxury and super luxury developments, one of the single biggest cost drivers which sets them apart from other developments is obviously the finishes and interior fitout. The specification and design of these components can in some instances drive costs to other levels. Furthermore, the range of costs within this component itself can also vary hugely and the control of these costs needs to be heavily monitored at the early stages of the design in order to achieve desired budgetary outcomes.
Important questions such as: How much natural stone is being used? Where is this natural stone being specified to be sourced from? How much joinery is being specified and designed? How much solid wood, veneers, metal inlays, intricate designs, etc. are required? These are all relevant questions to be asked.
As part of the luxury offering from many developers, there is defined intention to provide certain affluent features that enable the product to stand out and be considered ‘luxury’ and ‘well or best positioned’ in its luxury class.
Floor, wall, and ceiling finishes In general, the apartments’ internal floor, wall and ceiling finishes for luxury residential developments are typically of a more illustrious, high-end nature, and the material selection, as well as the quantity of the same, is as important as the design itself. Simply put, there is generally more physical quantity of the expensive finishes in luxury residential apartments as opposed to the same found in mid to high-end apartments.
The UAE, due to its location as a central geographical hub, has made the importation of goods from other regions more accessible and in a lot of cases, more feasible. European originated luxury finishes such as natural stones and marble, tend to be around four times (or more) the cost of traditional selections for a residential asset falling into a mid-spec category. Developers typically choose to plan the procurement of these items using a Prime Cost (PC) rate at main contractor appointment and thereafter spending time on developing these designs and selections to, hopefully, fall within that PC rate. It is also common practice to have contractors build mock-ups that go through several inspections giving great care and attention to quality. These mock-ups can be subject to onerous approval processes to ensure the right level of detailing, aesthetic, finish, and workmanship is achieved. Great attention is given to small details, such as edge treatments, stone pattern ‘book-matching’ and stone patterns/ markings. For natural stone, this type of selection process can also drive up costs due to increased wastage in order to achieve the specified stone ‘book-matching’ or ‘pattern’ requirements. Developers may also require designer ‘wallpaper’ on certain ‘feature walls’ within the apartment and from our experience, these costs can be enormous as certain designer wallpapers can be classified as ‘artwork’ in itself.
Joinery (kitchens, wardrobes, cabinetry etc.) In many luxury residential developments, the specification and design of the wood used in joinery is key to determining the standard of quality expected. Where the wood is sourced from also plays its part. In some cases, the detailing to be achieved for doors, door frames, skirtings, library bookshelf cabinetry, office cabinetry, walk-in wardrobes etc., requires highly skilled joiners, sometimes sourced from other countries. The design and layout of the apartment itself, as well as the quantity of joinery items required, also have a cost impact. As an example, it is becoming pretty much a given in luxury apartments to have a front of house ‘show kitchen’ - which would be an additional open area kitchen, close to, or part of, the main open plan living and/or dining area. This would be a fully functional kitchen with extremely high-end specifications not only for the kitchen worktops, cabinetry, finishes etc. but also the functional kitchen equipment and white goods, and in some cases, industrial restaurant standard cooking equipment. This ‘show kitchen’ is of course in addition to the fully functional ‘back of house’ closed area kitchen where most of the physical prepping and cooking takes place. The cost of ‘show kitchens’ range greatly depending on their physical composition, size and specification. AECOM has encountered ranges of between AED 300,000 to AED 600,000 per unit, however, this can be even higher depending on the identified brand and design features. For bedroom joinery, again the costs can vary hugely depending on the design and specification requirements. Factors such as: specific types of woods and/or joinery veneers that need to be sourced internationally, does the joinery design have any metal in-lay design features and if so, what type of metal is required? Is it a precious metal like gold or silver? In some instances, we have seen clients specify ‘luxury yacht’ joinery companies to undertake the bedroom joinery works.
Amenities – As an overall product offering, developers look to ensure that occupants receive the highest level of amenities available. For example, where a standard mid to high-end residential development will house a resident swimming pool(s) and basic gym facilities for common use, a luxury residential development will look to turn the dial up in terms of both the level of specification of these facilities, as well as the ‘individual apartment unit offering’. This ‘individual apartment unit offering’ can include, the provision of luxury amenities, such as private lap swimming pools on balconies and terraces, private saunas and jaccuzzis within the apartments themselves. For the overall development, this can also include larger residents’ ‘infinity’ swimming pools and mainstream gym and spa facilities that will house the highest standard of equipment with increased sized spaces for multi-use training functions, such as dedicated weight training, cardiovascular training, yoga, reformer pilates and dance, etc. For luxury residential projects, there is also an appetite to provide the community it serves with amenities that are not typically standard offerings. These can include mini movie theatres, indoor golf simulator rooms, private members clubs and cigar lounges, etc.
Other cost factors - When it comes to providing a luxury residential apartment development, location plays a key part in the overall equation, as far as saleability is concerned. In many cases, luxury residential apartment developments tend to be placed in more densely occupied areas close to many of Dubai’s world-class facilities and amenities, such as Downtown Dubai, Dubai Marina or the Palm Jumeriah. These locations can sometimes place further cost constraints on the construction budget when it comes to considering construction working space, restricted laydown areas, staff parking, noise level requirements, logistics, etc. The additional downtime for traffic or transporting time for off-site laydown areas can also add to the construction costs as contractors try to accommodate for these restrictions.
Cost models - The following are two cost models derived for two types of luxury residential developments; the first is a tall luxury residential tower, in excess of G+70 stories, placed in an urban/city centre environment, and the second is a mid-rise, G+ 8 to G+ 10, luxury residential apartment development placed in either an urban environment or beside the sea.
There is a wide range of costs for luxury residential developments. This range is primarily influenced by the above aforementioned key cost drivers, as well as the architectural response to a site with the required structural solution, followed by overall specification standard levels and then building height. We have broken down the overall indicative costs for both building typologies across the building elements themselves using the RICS NRM. The models reflect a summarised elemental cost breakdown obtained from a competitive tender through a traditional single stage, fixed price lump sum arrangement using FIDIC Red Book contract.
The cost models include for all main contractor preliminaries and risk allowances to complete the buildings to a high standard. Demolition, enabling works, external works, external infrastructure and utilities services, loose FF&E, professional fees and VAT are all excluded.
