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Mideast construction costs set to rise by up to 7pc, says report

DUBAI, February 20, 2024

Construction costs are set to increase across the Middle East region this year amid fresh challenges for the construction industry in the form of inflation, according to a report published by Currie & Brown, world-leading provider of cost management, project management and advisory services. 
 
Building costs in the UAE will surge by 2-3%, and Saudi Arabia by 5-7% in 2024, following an increase of 3% and 7% respectively last year. 
 
Increases will challenge construction firms, which will need to develop new processes and capabilities to keep costs under control and projects on track. 
 
The findings are shared in Currie & Brown's report How to Navigate 2024: Balancing Challenge with Opportunity.
 
To help organisations navigate uncertainty and be more cost effective, the report advises project teams to act in the following areas:
 
*Adopt new ways of working, such as modular construction. This will help reduce the impact of local skills and materials shortages, giving greater certainty on construction costs. 
*Close collaboration between developers, consultants and contractors will also lead to greater clarity on schedules so that skilled labour can be secured early.
*Incorporate sustainability at every stage. Firms need to consider the carbon impact of projects at every stage of development to make sure these will meet current and future standards. Doing so will reduce the need for organisations to make further investments down the line. They will also benefit from operational efficiencies sooner, reducing the cost and whole life carbon impact of their estates.
*Embrace digitisation. From AI to advanced data analytics, digital technologies are offering new ways to enhance project ROI and predict and manage future challenges. Organisations must be open-minded to the potential of new technologies and work together to apply them where they will add the most value to projects.
 
Doug McGillivray, Managing Director, Southern Gulf, said: "2024 will bring fresh challenges for the construction industry, but these also present opportunities for firms and their clients. By considering sustainability, embracing digital technologies, and developing new ways of working, both will benefit from operational efficiencies."
 
"This will help mitigate the impact of construction cost increases now and in the future, while creating better, sustainable built environments for all," he stated.   
 
The Middle East is not alone in experiencing spiralling construction costs. Currie & Brown predicts cost increases across every one of its operating regions in the year ahead. The extent of these varies from market to market, but common drivers are clear: 
 
According to Currie & Brown, inflation remains the primary challenge for the construction industry and dominant driver of cost increases. 
 
Towards the end of 2023, inflation appeared to be easing. However, the situation remains changeable across the Gulf, with inflationary pressures persisting. Unpredictable price swings continue to challenge developers in the region, although this is offset by the stability in the current oil price, it stated.
 
Sustainability rules are tightening across the Gulf. With COP 28 being hosted in Dubai at the end of last year, the region has seen a renewed focus on sustainability. 
 
While compliance with new regulations may drive up costs in the short-term, longer-term decarbonisation will go together with operational cost reduction, said the expert.
 
Also skills and materials shortages are driving up costs across the region, it stated. 
 
Strained supply chains and competition between the UAE and Saudi Arabia to attract skilled staff from outside the region continue to be a challenge. With new projects being announced on a weekly basis, the pressure on both supply chains and recruitment continues to grow, said the report.
 
Currie & Brown pointed out that the geopolitical turmoil, including the ongoing Israel-Palestine conflict and instability in countries like Syria and Yemen, continues to generate uncertainty for the Gulf construction sector. 
 
The full impact, it stated, is yet to be understood. However, continued disruption to Red Sea trade routes, and consequent cost increases due to insurance and extended journey times, may push up inflation.
 
McGillivray said: "Cost escalation continues to be a significant challenge for the construction industry, but it is nothing new. Since June 2023, the price of raw materials, including steel, cement and concrete have, increased in both the UAE and Saudi Arabian markets."
 
"As an industry we need to work with our clients to develop solutions to deal with this long-term trend. What can we do now to address cost drivers and give them greater certainty in the future? This is where focusing on long-term trends makes all the difference," he added.-TradeArabia News Service



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