Despite its abundant sunshine and gentle sea breezes, Valencia is no Mediterranean beach resort. Inhabitants of Spain’s third-biggest city identify more with the orange-growing hinterland than the expansive shoreline. Like Barcelona, its larger neighbour to the north, Valencia grew up as a light industrial and agricultural centre, whose port, while essential to trade and development, was popularly viewed as the entry point for invaders, diseases and immigrants.

Barcelona’s residents rediscovered their dockside thanks to massive urban renewal in preparation for the 1992 Olympic Games. Now, Valencia is turning to face the sea, courtesy of a world-class sporting event.

“There have always been plans to redevelop the port area,” says Jorge Bellver, head of urban planning at the Valencia city council. “But it took the America’s Cup to force us to dust them off.”

At the core of this redevelopment is Port America’s Cup, the dedicated competitors’ base carved out of a disused section of the city’s large container terminal. Created at a cost of 350m, it features a 700-berth leisure craft marina with protected exit channel, and a public promenade dotted with restaurants and bars, ending in a raised walkway extending 800m out to sea. Overlooking the canal is the Veles e Vents, a sleek four-storey building designed by architects David Chipperfield and Fermin Vázquez, with entertainment and viewing areas able to handle 20,000 people.

When the America’s Cup management team hands the harbour back to the city in September, officials will begin work on an ambitious redevelopment scheme taking in neighbouring industrial, residential and brownfield sites. Two design proposals – one from the Franco-Spanish team of José María Thomás and Jean Nouvel, and the other from German studio GMP – are being considered. Both envisage a mix of residential, commercial and recreational space aimed at attracting both the European yachting set and local residents.

Although driven by the need to repay a €500m loan, the project is also an attempt to extend the life of the city’s association with the America’s Cup, says José María Gil Suay, a consultant to the government consortium formed to co-ordinate public works in the area.

“Avoiding the usual post-event blues is almost impossible,” he says. “But if people see there are long-term benefits, [this] will be short-lived.”

The corporate world has taken notice. Although sailing remains a minority sport, sponsors have been piling in from all quarters to take advantage of the extensive media exposure and growing popular interest in the event to promote their brands.

Valencia has also taken full advantage of the fact that the Cup is being contested in Europe for the first time since the original race in 1851. This in itself has proved a big draw for sponsors willing to pay between €2.5m and €25m to associate with one of the teams or the competition as a whole.

The redevelopment scheme and the role of big business in the Cup have not been free of criticism. Some activist groups see the event as simply an excuse for local authorities to bulldoze run-down residential zones adjoining the port. Public housing estates in the Cabanyal zone immediately north of the port would be razed to make way for “neighbourhoods for wealthy young professionals and entrepreneurs”, according to a posting on Eutsi.org, a left-wing website.

City authorities, however, insist there are no such plans. Property expropriations have so far been limited to a row of privately owned terraced houses, which were torn down to make way for a carpark. After the event, there are plans to erect a council sports centre on the site.

“It’s not in our interests to be forcibly relocating low-income families and senior citizens,” says Mr Bellver. “The America’s Cup will come and go, but the city has to remain a city for the people.”

Indeed, one study says that more than 70,000 jobs – including in public works – can be directly attributed to the event.

Meanwhile, an imposing €500m arts and science park, designed by local architect Santiago Calatrava, has helped convert the city from a rarely visited regional backwater into Spain’s fastest growing tourist destination. Close to the old quarter, there are plans to bury ugly railways ducts and related infrastructure to create much-needed green space. And, to the north-west, work is under way on Valencia Football Club’s new 75,000-seat stadium.

With an enlarged airport and one of Spain’s most important trade fair spaces, Valencia is also emerging as a major new European destination for business conventions and congresses.

“One thing that Valencia has that other Spanish and European cities don’t is room to spread out,” says Fernando Encinar from Idealista.com, Spain’s leading online property search site. “It makes the job of re-invention so much easier.”

Jose Salinas, head of the regional tourist board, adds: “Valencia has successfully reinvented itself as a centre for cultural and business tourism.... The America’s Cup will put it on the map of top-league Mediterranean cities.”

Mark Mulligan is the FT’s Madrid correspondent

Paul Betts is the FT’s European business correspondent based in Paris