Overall, it has been another good year for the Gulf’s construction industry. Contractors have continued to achieve double-digit growth, and more projects have been announced. But unlike previous years, there is now a real concern that the good times are coming to an end.
For now, the fundamentals remain good. According to Gulf Projects tracker MEED Projects, there are still $1.9 trillion worth of construction projects under development in the Gulf, and some of the region’s biggest projects have been launched this year.
Once again, the UAE is leading the charge. By mid-October, it had just over $1 trillion worth of projects under development.
The majority of these are in Dubai, which has launched three major schemes this year: Dubai Properties’ $54bn Sheikh Mohammed bin Rashid Gardens; the $38bn Nakheel Harbour & Tower; and the emirate’s biggest project to date, Meraas Development’s $95bn Jumeira Garden City.
There have also been a series of major contract awards, including a $790m contract to build the Trump International Hotel & Tower, and the estimated $1bn plus contract to excavate the first phase of the 80-kilometre-long Arabian Canal.
Dubai remain’s the region’s busiest construction market, but its position is being challenged by Abu Dhabi, where a growing number of contract awards have been made as the raft of projects that were launched in 2005 and 2006 move on site.
Over the past two years, $33bn worth of contracts have been awarded in Abu Dhabi, and another $57bn worth are expected over the next 18 months as the emirate develops into a market capable of challenging Dubai.
Doha also showed signs of renewed activity after a lull following the Asian Games. In the second half of the year, it tendered several key building projects along the corniche, including a series of super-high-rise towers.
But the sleeping giant remains Saudi Arabia, where growth is starting to accelerate but is still some way off matching the rapid growth experienced by its smaller neighbours.
Nevertheless, the kingdom is moving ahead with the $27bn King Abdullah Economic City and contractors are working on the first building packages. This project alone will transform the market, but it is also a sign of things to come. A total of six economic cities are planned, as well as regeneration projects in Jeddah and Riyadh.
Riyadh’s King Abdullah Financial District will play a key role in the kingdom’s ambition to remodel itself as a diverse economy. Emerging from a plot of land in the Al-Khozama district measuring 1.6 square kilometres, the development aims to become the
Middle East’s financial centre, housing 43,000 workers, and is a crucial part of the city’s regeneration plans.
As these projects are rolled out over the coming year, the kingdom will become the region’s largest construction market by far.
Busier markets place greater demands on resources, which means cost increases, and like previous years, construction costs, including labour and raw materials, increased sharply in 2008 – at a rate of about 1.5 per cent a month over the first half of the year.
However, over the summer, commodity prices began to soften as the global economy slowed.
Steel prices fell and as the year progressed, other, more local products, such as cement, followed suit.
Although some contractors and clients that had purchased commodities in bulk earlier in the year lost out on the fall in prices, a return to more market-driven prices and cost certainty has generally been welcomed by the industry.
The global economic slowdown is having a major impact. Cash-starved banks are unable to finance projects, and softening real estate prices mean that even if the bubble does not burst, it will at least deflate. This is already happening in Dubai, where the real estate market is moving to a position of oversupply.
Many contractors and consultants privately admit that they welcome a slowdown. “A slowdown will enable us to grow at a sustainable rate,” says one Dubai-based contractor. “We have been growing too fast and welcome an opportunity to consolidate.”
But the fear is that the market could come to a complete halt. In Dubai, the Palm Deira development has been put on hold as developers reassess the market, and as the impact of the credit crunch worsens, the same is expected on private sector-funded projects in the Northern Emirates, Abu Dhabi, Qatar and Saudi Arabia.
To avoid these pitfalls, contractors are now focusing on government clients and larger private developers.
Some developers are venturing outside the region for new business. In April, Dubai-based Arabtec Construction was awarded a $2.72bn contract to build Russia’s tallest tower in St Petersburg, seeing off competition from Europe and the Far East.
This trend is expected to continue as regional contractors gain more high-rise experience from tower projects in the UAE and
other Gulf states.