Capacity crunch in construction sector hits Abu Dhabi developers

13 June 2008
Major awards and strategic alliances cause shortage of contractors that is set to hinder future projects.

A string of major awards and alliances between developers and contractors in Abu Dhabi are using up virtually all spare contractor capacity in the capital.

Developers tell MEED shortages in capacity could hinder future projects and that the capital will struggle to attract new entrants to the market.

The local/Lebanese Arabian Construction Company (ACC) secured the latest large contract earlier this month, after being selected by local Sorouh Real Estate to build the Gate District at Shams Abu Dhabi.

The AED6.5bn ($1.7bn) contract involves the construction of six mixed-use towers.

It followed just a week after Sharjah-based Tameer Holding formed an alliance with the local Al-Habtoor Engineering Enterprises, South Africa’s Murray & Roberts Contractors (Middle East) and Al-Rajhi Contracting for the AED7bn Tameer Towers. Al-Habtoor also won the AED1.2bn contract for the Sorbonne University campus in May.

The three projects take the value of work secured by the four biggest contractors in the capital, Al-Habtoor, ACC, Arabtec Construction and Al-Jaber Group, to more than AED22bn in the past year.

The majority of large deals have been with major Abu Dhabi developers such as Aldar Properties, Sorouh Real Estate, and the Tourism Development Investment Company (TDIC). Given the large number of projects planned by these clients, it is likely that more work will follow for the contractors. In some cases the relationships have been formalised through partnerships.

The combination of full order books and alliances that tie up spare capacity is causing concern.

“Abu Dhabi has a real problem when it comes to attracting construction companies,” says one Abu Dhabi-based contractor. “There is a real lack of facilities. There is not enough office space in the city, no available labour camps and no accommodation for staff. The city is stretched to the limit.”

With a limited pool of contractors capable of taking on big projects, smaller private developers could find it difficult to compete for resources.

“It is my job to make sure we get contractors to work on our projects, and we have done that by using innovative procurement techniques,” says one major Abu Dhabi-based developer.

“It is not my responsibility to find contractors for every project in Abu Dhabi.”

The size of the projects in the capital is another barrier to entry.

Unlike Dubai, where projects are often single tower developments, many of the schemes in Abu Dhabi are large mixed-use developments.

“For a smaller project it is not unreasonable to bring in someone new and then expect them to mobilise in 60 or 90 days,” explains the contractor.

“For a contract that exceeds $1bn the field is very limited.”

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