Theme parks are big business. In 2018, there was an increase of around four per cent in theme park attendance globally and this trend is set to continue. The International Association of Amusement Parks and Attractions forecasts compound annual growth in the market of 3.8 per cent up to 2022, with visitor numbers rising towards 1bn per annum.
In the Middle East, market expansion is driven by government policies to attract more tourists, coupled closely with the wider diversification of oil money. In this area alone there are big plans for new theme parks, such as Qiddiya in Saudi Arabia. This adds to the many existing attractions such as Ferrari World and Warner Bros World in Abu Dhabi, IMG World of Adventure and Dubai Parks and Resorts in Dubai – not to mention those currently under construction, such as SeaWorld Abu Dhabi.
New levels of disposable income are emerging in high-population countries, such as India, making the Middle East a major theme park tourist destination.
This, in turn, is making long-term investment in the theme park industry more viable than ever before.
Challenges
When considering the development of a theme park, having the right project and cost managers on board at an early stage is critical to the project's success.
The role of the project manager on theme parks presents some unique challenges, especially around managing the lines of communication between employer, consultants, specialist vendors and project stakeholders who will undoubtedly be located in several different countries.
A variety of time zones, working weeks and cultures, along with significant amounts of travel, can lead to inefficient working due to a lack of face-to-face collaboration.
Project delivery teams based in the relevant country are the obvious solution to these issues, and productivity generally increases exponentially through these teams. However, there is a general reluctance for consultants to relocate en masse from overseas because of licensing issues for companies and the personal disruption for their employees. Shift working, rotations and co-location can often maximise productivity.
Regardless of location, getting the right consultants on board at an early stage is critical. There needs to be an appreciation of not just the key construction drivers, but also of the highly specialised demands of such a huge and diverse build.
Only a relatively small proportion of the physical assets are likely to use traditional construction methods. A range of specialist consultants with experience in areas such as rides and theming, as well as an international background, will be essential.
The role of the cost manager or cost management consultant on a theme park is also significantly different from more traditional construction projects. The main challenge for the cost manager is balancing commercial decisions against the subjective aspect of guest experience. This makes budget management and value engineering extremely challenging.
Specialist theme park elements such as rides shows and theming can often represent more than 60 per cent of the overall construction cost. These elements are not easily benchmarked neither are the interfaces well understood by professionals who havent been through the process before. Not understanding this at the outset could expose significant cost overruns as the design and construction progress.
One of the biggest challenges for both the project and cost managers is ensuring the change management process is robust with an embedded flexibility for late change. This is especially important on theme parks involving a wide range of technology. Through both the design and build process new technologies come on to the market that enhance what may already be proposed in the design or budget. Clients and end-users alike want to see these latest technologies integrated to enhance the brand and marketability of the park.
When considering the development of a theme park having the right project and cost managers on board at an early stage is critical
Theme parks are complex and will continue to change from inception through to completion. Such complexities cause interface and conflict issues between the trades working alongside each other with different priorities mindsets and ethos.
Flexibility in the contract provisions needs to allow for late change with minimal time and cost impact. It is imperative that the project team collaboratively engage in the change management process for successful completion of the park.
This flexibility is equally important when working with specialist vendors who are in short supply and generally operate using factory production slots that do not always follow the regional industry norms.
Late decisions or changes to design can result in missed production slots that in turn lead to significant critical path delays.
For example a ride vendor may have a four-month production slot to produce a ride yet if the design is not complete and production cannot begin work will begin on another job and the ride will move to the back of the production slot queue.
As with any other construction project the health and safety regulations of theme parks need to be well understood and observed. In the Middle East significant steps are being taken with the introduction of worker welfare policies relating to all parties involved in construction. The related costs both hard and soft need to be understood and accounted for.
Furthermore theme parks are often seen as risky because of concerns about potential injuries despite the fact that stringent safety standards are the industrys top priority. Rides now incorporate thousands of sensors to evaluate safety factors before the launch of any vehicles with further safety advancements constantly being explored. Safety precautions dont come cheap but are an essential part of any ride system and these will continue to evolve over time.
Expenditure and revenue The capital spend on any theme park project is always going to be significant but there is plenty of room to develop various revenue streams beyond the rides and attractions. Visitors tend to have realistic expectations about admission prices accepting that it is unlikely to be a cheap experience. The park brings the footfall and then visitors are encouraged to spend additional money on retail food and beverages. The location of these facilities needs to be well thought through along with the extent of the themed fit-out to ensure consumer spend is maximised. It is not uncommon for themed retail food and beverage fit-outs to cost two to three times per square metre that of a five-star hotel.
Securing the intellectual property (IP) to a theme park can be a significant cost that must also be factored in and strict guidelines can mean that securing the necessary permissions and sign-off is not a quick or straightforward process. An established IP such as Harry Potter owned by Universal or Toy Story by Disney allows for a new theme park to benefit from a brands image and following tying together various experiences on offer. An IP can help a theme park differentiate itself from smaller amusement parks such as those that are increasingly being developed in shopping centres in the Middle East.
With or without IP theming is an integral part of theme parks because it brings them to life. The design needs to be well managed to achieve the optimum balance between creative licence and being fit for purpose. IP requirements can be onerous requiring significant amounts of reworking to achieve the expected brand standards.
Local conditions can have an impact on revenue. If the weather is inclement for part of the year the theme park may have to close. This seasonal loss of income needs to be factored into financial projections you cant make money when the park is closed.
Local demographic and cultural traits in the Middle East also need to be considered. It is normal for local visitors to want to attend parks in the evening rather than during the day and this can affect the operational requirements of a theme park.
One solution is to build indoor or semi-indoor spaces but this can be more difficult logistically and increase the capital expenditure costs significantly. For example the target market of a proposed outdoor water park was Gulf Cooperation Council (GCC) nationals. Market research showed that most visitors wanted to visit the park at night so areas for queuing had to be cool in the day but heated in the evening.
ProcurementProcurement has to be carefully planned. In the Middle East traditional procurement routes are generally preferred by clients but time pressures to open the parks can mean that hybrid solutions are created for example management contracting that combines both traditional and design and build elements. Hybrid solutions often entail a significant number of provisional sums which can present time and cost risks to the client. The project team needs to manage this carefully to guarantee that budgets will be achievable scope gaps are minimised and the schedule is maximised.
Timing is important: contractors and designers should be involved early in the process particularly if the physical infrastructure has a long lead time. It is essential for the design and procurement programmes to be aligned to minimise potential delay claims.
Rides are usually the principal attraction so early procurement and design input is critical. Capital expenditure is high signature roller coasters can cost between $25m and $100m but this can be contained by investing in off-the-shelf rides which can then be used with minor modifications. Bespoke rides are more expensive and can incur significant issues relating to testing and commissioning.
Theme park projects require highly skilled specialist suppliers and the amount of work currently in the pipeline across the world often places them in an advantageous negotiating position to set their own terms and conditions.
Life-cycle costsOperational expenditure (OPEX) costs for theme parks are significant and must be both carefully considered and costed accurately. Employee costs make up the largest proportion of the OPEX with landscaping ride maintenance and spare parts utilities cleaning and decorating and material costs all contributing to these ongoing expenses.
Live shows are another major attraction at theme parks but they are often labour-intensive and operationally costly. Show projection and media on the other hand can be less OPEX-heavy but have a comparatively higher initial capital expenditure. Technology progresses quickly and what began as a dazzling spectacle can soon become dated so the life cycle of the show should be defined and estimated and budgeted for accordingly.
To put the scale of the theme park OPEX into context: at the top end of the theme park spectrum Disneylands daily average operating cost per park is estimated to be $3.25m amounting to $10.68bn per annum split evenly across seven parks and resorts including Florida and Paris. Given the costs involved its clear to see that inaccurate estimating of daily operating costs will have a damaging impact on the parks viability.
Theme parks have much to commend themselves. They can be highly profitable for both the investor and the construction sector and demand is increasing. They offer unusual challenges to the industry and boost local economies and this isnt to be underestimated they make people happy. But whether in the Middle East or anywhere else in the world constructing a theme park is going to require a large investment and project and cost management skills will be key in securing the best value for all stakeholders.
Karl Codd is associate director in Currie & Browns Dubai office enquiries@curriebrown.com