Photo ' 2011 Marcus Lam

Once speeding ahead with major projects, Abu Dhabi has slowed development in recent months.

Eighteen months ago, Ross Ensor at Leo A Daly described the business climate in Abu Dhabi as “a bit like the California Gold Rush.” Backed by oil prices at relatively high levels, the capital of the United Arab Emirates had embarked on an ambitious program of new developments, a rare bright spot as the rest of the world dealt with a crushing recession.

Today, however, with the global economy still weak and political unrest sweeping the Arab world, the mood here is subdued. “What a difference a year makes,” says Ensor, a vice president with the Nebraska-based design firm, which has an office in the Persian Gulf emirate. “Things have certainly slowed down.”

Most significantly, Abu Dhabi announced in October that the marquee projects in its $27 billion Saadiyat Island development, slated to be the emirate’s cultural hub, were stalled. Three flagship museums—branches of the Louvre (by Jean Nouvel) and Guggenheim (by Frank Gehry), along with the Zayed National Museum (by Foster + Partners)—would no longer open between 2013 and 2014, and could be delayed up to five years. Gehry told a Bloomberg reporter in October that construction had come to a halt. “The Abu Dhabi building we’ve been working on in the last five to six years has been stopped, and that’s painful,” he stated.

A week after the setbacks were revealed, Aldar, the developer behind the Saadiyat projects, announced it was laying off 25 percent of its staff. (Earlier in 2011, the Abu Dhabi government had to bail out Aldar, upping its stake in the company from 38 to 60 percent.)

Stories of such retrenchment don’t fit the profile of Abu Dhabi, the world’s fourth-largest oil producer and holder of a sovereign-wealth fund estimated to be worth $500 billion. In recent years, Abu Dhabi—regarded as more judicious than its neighbor Dubai—has embarked on initiatives to diversify its economy, including boosting its tourism sector. In 2008, Abu Dhabi unveiled its sweeping Plan 2030, which outlined massive undertakings, such as Saadiyat Island and the zero-emissions mini city, Masdar Headquarters. Other big projects included Yas Island, with a Formula 1 racetrack and Ferrari World amusement park (both completed); and Sowwah Island, featuring a new central business district and full-service hospital. The building spree was expected to yield 3,000 hotel rooms, many of them housed in high-end resorts.

But the emirate is now reprioritizing its spending, and moves to scale back high-profile projects have forced design firms operating here to cope with construction setbacks and even delays in payment. “Times are tough,” says Fares Kekhia, managing director of the multi-disciplinary design firm Otak, which opened its Abu Dhabi office in 2006 and is working on several master plans. “We’ve been awarded a number of projects whose contracts have not been executed, or which have been canceled. Most of our projects face delay.” In turn, the firm has been forced to cut its headcount.

The slowdown has also hit Atkins’s Middle Eastern division hard, which recently announced a 3.7-percent profit-drop for the first half of its fiscal year. Its Abu Dhabi projects include a waterpark on Yas Island and a new headquarters for the International Petroleum Investment Company, both under construction.

“A lot of this is a coming-back-down-to-reality,” says Ahmad Alanani, a senior executive at the Dubai office of Exotix, an investment bank. Abu Dhabi was spending billions on development, he says, but the return on investment was looking increasingly shaky. With the Eurozone in distress and the American economy facing a double-dip recession, Abu Dhabi is pulling back the reins.

Plus, the emirate is competing for world-class status with Dubai, 140 miles to the northeast. “Abu Dhabi hasn’t really captured the imagination of international tourists,” says Alanani. “Changing conceptions takes a lot of time and a hell of a lot of money.” The emirate’s goals will be tough to achieve, unless it’s willing to finance projects out of its own coffers.

That seems unlikely. Abu Dhabi’s Tourism Development & Investment Company, the quasi-governmental entity heading up many big projects (including Saadiyat Island), had its budget slashed by 28 percent in 2011, to $3.6 billion. Architects say the Saadiyat delays will deal a major blow to the region. “Why Abu Dhabi has slowed down the museums is beyond me,” says Steven Miller, the Middle East regional manager at Perkins Eastman. “It’s what keeps them on the map.”