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Construction costs rising in Middle East as recovering commodity prices bolster investment
Source: Camargue on behalf of Turner & Townsend , Author: Posted by BI-ME staff
Posted: Thu April 11, 2019 1:37 pm

UAE. After a period of stagnation, the cost of construction in the Middle East is set to pick up in 2019 as improving commodity prices shore up fresh investment and development activity, new research from global professional services firm Turner & Townsend has found.

Bringing together data and experience from 64 markets worldwide, the company’s International Construction Market Survey 2019 reveals the previously stagnant construction markets of Muscat, Riyadh and Doha are showing signs of awakening due to improved oil revenues and economic diversification programmes. 

The price of construction in Doha and the United Arab Emirates will rise 2.0 percent this year, up from 0.1 percent and 1.5 percent respectively during 2018.  In Qatar, preparations for the 2020 World Cup – including building seven new stadiums – plus major transport projects such as the expansion of Hamad International airport and new Metro rail are driving an uptick in construction, while market confidence in the UAE is being buoyed by significant projects in Dubai and large-scale infrastructure investment in Abu Dhabi. 

Doha remains the most expensive city to build in across the region at US$2,420.60 per m2. However, with average construction costs almost half that (US$1,288.00 per m2), Riyadh is expected to see the greatest construction cost inflation in the Middle East in 2019 at 5.0 percent – outstripping the average global construction cost inflation of 4.1 percent forecast for this year.  This comes as a number of major, mixed-use projects start on site, including Al Widyan, supported by ongoing works to King Abdulla Financial District and coupled with the recent government stimulus package to develop the entertainment sector.

The cost of building in the Middle East is still lagging considerably behind other key locations in the global rankings.  After a -1.0 percent fall in construction prices during 2018, Muscat sits 44th in the league table, with an average cost of construction (US$1,314.10 per m2) equivalent to just a third of that in New York City (US$3,958.30 per m2).

This year San Francisco has overtaken New York as the most expensive city in which to build worldwide (at US$4,482.70 per m2), and they are followed by London (US$3,790.10 per m2), Zurich (US$3,756.90 per m2) and Hong Kong (US$3,749.00 per m2).

Overall, two-thirds of the markets surveyed by Turner & Townsend reported a labour skills shortage, but the muted levels of construction demand in the Middle East in recent years means the crisis isn’t yet being felt as acutely as in other global markets.  The UAE and Doha are in balance and Muscat and Riyadh are two of only five markets worldwide to report a surplus of construction trade labour.

Adam Ralph, Director and Head of Real Estate, Middle East at Turner & Townsend, commented: “The rallying of oil prices in the short-term has provided fresh impetus and opportunities in the region, but ultimately it is diversification of the economic base away from oil and gas that is set to be the key driver of construction demand across the Middle East in the long term.

Government-backed infrastructure projects and economic development programmes are starting to invigorate the construction market and attract strong private sector investment, such as the Duqm Special Economic Zone and related US$2.6bn freight railway line in Oman.  After charting a relatively flat course, activity levels in the region are beginning to show some promise.

The mood in the sector may be cautiously optimistic, but it also comes with a healthy dose of realism. In the UAE particularly, investment is re-aligning towards more viable projects in contrast to some of the more outlandish proposals mooted in recent years.  With the climate increasingly cost-sensitive, driving innovation and better performance on projects will be key to managing risk effectively and delivering attractive investment returns.”

Globally, the report highlights a strong construction market, with 28 percent of markets surveyed classes as ‘hot’ or ‘overheating’. 

At the same time, Turner & Townsend warns of the industry’s exposure to wider economic pressures.   The report calls for greater investment in technology and new ways for working to address historic low productivity in construction – enabling greater control of costs that can unlock and sustain investment across global markets.

Turner & Townsend’s International Construction Market Survey analyses input costs – such as labour and materials – and charts the average construction cost per m2 for commercial and residential projects.

Photo: For illustration purpose only  
 
About the International Construction Market Survey
Compiling data from Turner & Townsend teams in 64 global markets, the International Construction Market Survey gives an in-depth analysis of construction costs – and what’s driving them – around the world.

It measures input costs for materials and labour to calculate the average cost per m2 across 27 construction types, including high-rise apartments, city centre offices, hospitals, schools, warehouses and shopping malls.

All local construction costs have been converted into US dollars to allow accurate cost comparisons to be made between construction markets in widely diverse economies.  The report also uses the Purchasing Power Parity methodology to determine the relative value of different currencies, and location factor approach, which takes into account factors such as labour productivity, market heat and tender margins.

About Turner & Townsend
Turner & Townsend is an independent professional services company specialising in programme management, project management, cost and commercial management and advisory across the real estate, infrastructure and natural resources sectors.

With 108 offices in 45 countries, we draw on our extensive global and industry experience to manage risk while maximising value and performance during the construction and operation of our clients’ assets.

For more information, please visit www.turnerandtownsend.com

 

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