Since the dawn of civilization, for about four millennia, the tallest buildings on Earth were located in the Middle East. The Pyramids of Giza remained unsurpassed until the construction of cathedrals towards the end of the Middle Ages in Europe.

The claim for the world's first skyscraper, is fiercely disputed, but the first building with a structural steel skeleton, was Chicago's 13-story Tacoma Building, erected in 1892. A little earlier, in 1887 the Tower Building in New York sparked the race for height in the Big Apple that would culminate with the Empire State Building in 1931, surpassed only much later, in 1973 by the Twin Towers. They were topped after one year by the Sears Tower in Chicago. Twenty years later, new records were set in Asia, Kuala Lumpur’s PETRONAS Towers first and then Taipei 101.

With the inauguration of Burj Khalifa, the tallest man made structure on the planet will once again be located in the Middle East, in a country with less history than Egypt, but certainly embracing the future in a dynamic style well symbolized by Burj Khalifa’s imposing, yet sleek, silhouette.

Burj Khalifa is not merely a skyscraper; it is a vertical city surrounded by an integrated network of other purpose-built structures such as the Dubai Mall, the DIFC district and Business Bay. Taken together these mega structures, connected by a state of the art urban mass transit system (the Dubai Metro) and a network of highways, will form an integrated agglomeration which will redefine the conventional notion of urbanization. The sheer size of Burj Khalifa makes possible the concentration of businesses and social activities within a relatively limited space at an unprecedented scale. This process of agglomeration within mega buildings spurs a host of positive externalities associated with the faster and smoother interaction of many individuals with specialized competencies.

Burj Khalifa is an example of how production is facilitated when there is a clustering of economic activity. Economies of agglomeration describe the benefits that firms obtain when locating near each other. Localization economies arise from many firms in the same industry locating in close proximity to each other, benefiting from a common pool of skilled labour and the greater ease of communication, lower transactions costs and supplies, and innovative ideas due to proximity. This is exemplified by the DIFC which today groups more than 800 companies in its complex.

Indeed, the concentration of economic activity in cities is the reason for their existence. Cities form and grow to exploit economies of agglomeration. But there are also dynamic effects that arise from agglomeration. Dubai is benefiting from two types of knowledge spill over effects. The proximity of firms in the various free zones (DIFC, Media, Healthcare, and Jebel Ali) in the same, common industry facilitates the exchange of ideas about new products and services and leads to innovation and growth. Further, the closer the firms are to one another, the greater the knowledge spillover.

More important is the benefit from knowledge spillover across industries and clusters. The proximity of firms and individuals with different perspectives and competencies encourages an exchange of ideas and fosters innovation in an industrially diverse urban environment. The variety & diversity of geographically proximate industry clusters in Dubai leads to economies of scope (a wider variety of goods & services is produced) and promotes innovation and growth. Empirical evidence from both advanced and emerging economies shows that such economic externalities –in particular knowledge spillover externalities- are a major engine of growth.

Burj Khalifa is the world’s first tallest tower designed for multiple uses: residential, commercial, office, hotel & leisure. This means that as an investment it presents a more diversified risk profile than an office tower. Furthermore the agglomeration economies and networking synergies with the surrounding areas will constitute a powerful force of attraction for tenants and owners. We estimate that the Dubai International Financial Center contributed more than US$3.2 billion or about 4% of Dubai’s GDP in 2008. The Dubai Mall with its 3 million visitors per month and a surface area of almost 6 million square feet is likely to account for another 3% (the retail sector in Dubai accounted for almost 40% of GDP in 2008). Adding to the picture the soon to be competed Business Bay, the existing high rise buildings along Sheikh Zayed Road, and the hotel facilities in Old Town, Burj Khalifa will be the pinnacle (in more senses than one) of an area which could account for well over 10% of Dubai GDP next year i.e. a figure exceeding 10 billion dollars, and expected to increase progressively as inside construction is completed. In other words the Business Bay – Burj – DIFC Axis will become the beating heart of Dubai’s service economy.

A skyscraper has never been a matter of purely economic calculations, nor is evaluating the economic returns on mega buildings obvious. Each one displays a unique blend of financial venture, technological advances in structural & electro-mechanical engineering and architectural/artistic experimentation. Ever since the development of the first hi-rise edifices, tenants have placed higher value on space with better light, views, and networking opportunities. The actions of developers suggest that value has been placed on the location and prestige of a landmark address, not just on the value of saleable or leasable space. In essence the two sides of the equation are balanced because financial risks are rewarded by expected capital gains arising from branding and international recognition.

Burj Khalifa will indeed be an icon of the XXI century marking an urban area (unlike many other skyscrapers which at night are eerily deserted) with a distinct lifestyle flavour, filled with attractions for tourists, shoppers and residents thanks to a host of amenities from the Dancing Fountains show to the movie theatres, restaurant areas and hotels. The extent of these synergies are untested in any previous experience with mega buildings, therefore they constitute a bet. But bold bets have come to represent the essence of Dubai. This city is not for the fainthearted.

Nasser Saidi & Fabio Scacciavillani