Saudi City of Jeddah Aims to Build World’s Tallest Tower

JEDDAH, Saudi Arabia—The builder of the world’s future tallest tower hopes it will redefine the cityscape in this desert region and project the Saudi kingdom’s ambition to be a global powerhouse. The skyscraper, which will comprise condominiums, office space and hotel rooms, is expected to open by 2019. But Saudi Arabia’s economy heavily depends on petroleum revenue and has been hurt by the steep drop in oil prices. That has raised questions about whether the estimated $20 billion needed to complete the sprawling development around the tower will materialize, and whether demand for space might dry up. Jeddah Economic Company, the private joint venture developing the project, has financing to complete the $1.5 billion tower at the center of the site. Most of the remaining 57 million-square-foot project in northern Jeddah—which will include a supersize mall, housing units and an artificial lake—could face delays.

“It’s a statement of power, of economic growth, of success,” said Mounib Hammoud, chief executive officer of JEC. “We know that phase one will be complete by 2020. The rest depends on economic growth and on the market.” Phase one consists of the main skyscraper and part of the surrounding development. So far 31 out of 167 floors in the main tower have been completed. The collapse in oil prices has clouded the economic outlook for Saudi Arabia, forcing the government to run a record budget deficit last year and to announce a significant reduction in public spending in 2016.

These economic headwinds could affect the timing of the broader development, which is important because the world’s tallest buildings generally have had a record of poor financial performance, say real-estate brokers. They can be costly to maintain and difficult to lease. What makes such projects worthwhile investments is the value they add to the land surrounding them. For example, completion of the Burj Khalifa—currently the world’s tallest building—in 2010 spurred development in downtown Dubai, a neighborhood that is now prime real estate. The Burj has become a tourist attraction and the city’s most marketable landmark, emblazoned on everything from T-shirts to snow globes. The land used for the Jeddah development belongs to JEC, which is one-third owned by Prince al-Waleed bin Talal’s Kingdom Holding Co. Other owners include Abrar International Holding Co., Qila’a Jeddah for Real Estate Investment Ltd. and Saudi Binladin Group, which is also the project’s main contractor. The skyscraper alone, which has the working name Jeddah Tower, comes with plenty of bragging rights. Once complete, it will be the first building to soar more than a full kilometer (3,281 feet) above ground. To put that in perspective, that’s over three times New York’s Chrysler Building, and would surpass the Burj Khalifa by some 170 meters. JEC has a deal to get 8.4 billion Saudi riyals ($2.24 billion) in financing from Saudi Arabia’s Alinma Investment Company, a subsidiary of government-backed Alinma Bank. About $1.5 billion of that will go to the tower and the rest to parts of the surrounding development. The idea for the tower came from Mr. al-Waleed, who has previously invested in banks, hotels and media, with sizable stakes in firms including Four Seasons Hotels Inc., Apple Inc., and News Corp., which owns Dow Jones & Co., publisher of The Wall Street Journal. The Jeddah Tower has a triangular core that expands into three wings that will taper as they rise and then separate at the top. The form “can be interpreted as a reference to the folded fronds of young desert plant growth found in Saudi Arabia,” said Adrian Smith, the architect who designed both the Jeddah Tower and the Burj Khalifa. Because of its proximity to Islam’s holy cities of Mecca and Medina and its large port, Jeddah has long been a gateway for millions of pilgrims and developed into an important commercial hub. Since the Red Sea city is already developing north along the coast, the idea behind the project is that it will be positioned at the heart of the new Jeddah.

Still, Jeddah has a long way to go before it one-ups Dubai. It’s the second-largest city of a kingdom that remains deeply conservative and wary of outside influence. With the exception of citizens of Gulf countries, foreigners are not allowed to buy residential properties. International firms, however, can buy commercial space. “Can Jeddah ever compete with Dubai as a global city? Not in our lifetime,” said Craig Plumb, Dubai-based head of research for Jones Lang LaSalle in the Middle East. “It would need a lot of liberalization in Saudi Arabia for that to happen.” Some JEC executives, however, are bullish. “With these difficulties in the economy, many people go to real estate. It’s seen as a safe haven,” said Talal Al Maiman, who sits on the board of both Kingdom Holding and JEC. “I believe that by the time that the tower is finished by 2018-2019, we should be recovering.” JEC plans to start selling apartments off floor plans in the Jeddah Tower by the middle of this year. Prices haven’t been set yet, the company says, but a senior executive linked to the project said prices could range from roughly $10,000 to $15,000 per square meter for unfurnished residential units. That is significantly more than the average sale prices for apartments in the city, which is around $1,210 per square meter, according to JLL data. By comparison, a square meter of real estate in Manhattan on average costs $5,397, according to the latest report by real-estate firm Douglas Elliman. There is a correlation between changing skylines and economic health, according to Andrew Lawrence, an economist with Oculus Research Asia, a real-estate investment research firm. “Typically building starts in optimistic, euphoric periods of the market, and it ends in the downturn,” he said. Many of New York’s most iconic buildings, such as the Empire State Building, were completed during the Great Depression. More recently, celebrations for the opening of the Burj Khalifa coincided with a debt crisis in Dubai and a crash in real-estate prices. Write to Margherita Stancati at margherita.stancati@wsj.com This article originally appeared on The Wall Street Journal.