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Saudi Arabia ‘top-performing’ market as construction across Middle East recovers

05 Oct. 2021

High construction costs, disruption in supply chains and skilled labour shortages are quickly becoming the biggest barriers of regional and global industry growth.

Author: Construction Week

The Middle Eastern construction activity continues to be influenced by government response and handling of the COVID-19 pandemic. Traditional growth sectors have contracted, with COVID-19 accelerating growth in emerging sectors.

Rising costs of construction, supply chain disruption and skilled labour shortages are quickly becoming the biggest barriers of regional and global industry growth.

As per Turner & Townsend’s International Construction Market Survey 2021, Dubai and Riyadh still remain in the average to medium construction cost bracket globally, with Tokyo, Hong Kong, San Francisco and New York retaining the top spots on the list.

Construction supply chain competition has increased, which is an indicator of likely cost pressures being experienced. COVID-19 has prompted a significant shift in tendering conditions for regional construction markets.

Riyadh was shown as ‘overheating’, with Doha and Dubai both ‘warm’ and Abu Dhabi ‘lukewarm’, while Muscat was described as ‘cold’. On the ground, there is lukewarm sentiment across most of the region, with Saudi Arabia heating up, while Oman’s cold snap is expected to continue for at least the short term. Saudi Arabia has continued to forge ahead with its Vision 2030 plans, with a specific focus on ‘mega projects’.

Not only has the Middle East been heavily impacted by the loss of migrant labour due to the pandemic, but it also faces ongoing political and legislative challenges that are impacting construction. One of the most significant impacts that the COVID-19 pandemic has had on construction markets is on the availability of construction labour.

International border closures have meant that foreign labour has not been available or has been very limited. This has a significant impact on the Middle Eastern construction markets that are highly dependent on migrant workers. Recently, the market sentiment has become more optimistic, and labour availability will reach healthy levels once key international borders open, which will drive intra-country migration.

Overall, Middle Eastern construction performance saw output fall in the region due to COVID-19. Qatar experienced an output slip of 4%. UAE experienced an estimated drop of almost 5%. Oman’s construction sector suffered a double-digit drop in output.

Currently, the Middle East is at a 7.1% average profit margin. Profit margin growth will remain subdued over the next year due to material cost inflation and supply chain disruptions. It will take a minimum of one year for the regional economic activity to return to pre-pandemic levels.

Regionally, much will depend on vaccinations and reducing rates of infection. Qatar and the UAE are leading the vaccine race, while Oman lags behind the global average.

Much of the world is experiencing a building boom, as pandemic-related restrictions recede. The prevailing theme in the Gulf States is to build sustainable economies that are less oil-reliant. There has been a strong focus on transport and the power and utilities sectors in the region. The rhetoric for greener energy production is also increasing, with solar as a key focus area for Saudi Arabia, UAE, Oman and Qatar, as well as hydrogen production.

Commenting on the report, Hudson Fountain, Head of Real Estate, the Middle East at Turner & Townsend said: “Major social, economic and environmental transitions continue in the Middle East as it seeks to create a more sustainable future. Construction will play a key role in enabling these ambitions".

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