Analysing the UAE construction and transport projects pipeline

27 December 2020
Past trends will be no indicator of future performance as Covid-19 and real estate oversupply bite down hard on the UAE and wider regional construction industry

This article is extracted from the report 'Construction Megatrends'

All data sourced in October 2020 

For two decades, the UAE has been the biggest construction market in the Middle East in terms of construction contract awards. 

With more than $443bn of awards on building and infrastructure projects, the UAE has accounted for nearly 41 per cent of the value of all construction contracts in the GCC since 2004. Saudi Arabia, the regionís biggest economy, has been a distant second, with about $291bn of awards, about 26.5 per cent of the market.

But past trends are not reliable indicators of future performance, and behind the headlines are indicators that suggest that the outlook for the UAE construction is precarious, with Dubaiís real estate market being a particular concern.  

Private investment in Dubai real state sector has been the primary driver of UAE construction. Since 2004, Dubai has accounted for about nearly 57 per cent of all construction contracts in the UAE, with 81 per cent of those coming on real estate projects. 

Dubai real estate projects have accounted for over 46 per cent of all construction contracts awarded in the UAE over the past 16 years, and 19 per cent of GCC awards.

Dubai vs Abu Dhabi

With about $147bn of awards since 2004, the UAEís second biggest construction market is Abu Dhabi. Over the past 16 years, Dubai has seen about $14.6bn of construction contracts awarded every year on average, compared to about $8.7bn a year in Abu Dhabi.

Leadership, in terms of the annual value of construction awards, has switched between the two emirates however. While Dubai has maintained the highest level of awards overall, Abu Dhabi held the dominant position for three years from 2009-2011 following the 2008 global financial crisis.

Dubai construction recovered in 2011 when political instability across the region drove Middle East money into Dubai property. And when oil prices collapsed in 2016 and government spending on projects shrunk across the region, Dubai bucked the trend on the back of Expo2020 investment on tourism and real estate projects.        

Even before the impact of Covid-19 in 2020, however, the wheels already had started to come off Dubaiís property juggernaut. Growing oversupply of high-end residential and commercial property in the emirate saw investment yields start to fall in 2018 before the pandemic triggered a precipitous collapse in construction contract awards in 2020.

In the first nine months of 2020, a mere $2.8bn of construction contracts were awarded in Dubai, leaving the emirate set for its worst year on record, and Abu Dhabi regaining poll position with $5.7bn of awards.    

The way ahead 

The UAE is likely to lose its status as the regionís biggest construction market in 2020. In the first nine months of 2020, Saudi Arabiaís $8.1bn of construction contract awards is close to the UAEís $9.3bn, and with work accelerating on Vison 2030 gigaprojects such as the Red Sea Project, the kingdom is set to overhaul the UAE.  

With $559bn-worth of active construction and transport projects planned, Saudi Arabia also has the biggest pipeline of future construction opportunities. The UAE has about half of the pipeline value with about $288bn of planned projects.

An additional concern for the UAE construction is that the $125bn pipeline of future projects in the UAE is low compared to the $145bn of projects in execution, suggesting a shrinking market. 

Set against this however, are the $86bn of construction and transport projects that are on hold. Some of these projects could be quickly revived if market conditions improve.

Construction in the UAE is shifting from privately developed real estate projects towards government-sponsored infrastructure and transport schemes. About 45bn of infrastructure projects are planned in the UAE. Many are strategically important to the national vision. 

With government finances under pressure, focus is falling on finding alternative financing mechanisms such as public private partnerships (PPP) to deliver these projects.

Download your copy of the report here

This report is produced under the MEED Mashreq Construction Partnership. To learn more about the report or the partnership, log on to: www.meedmashreqindustryinsight.com

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