Saturday 13 July 2024
 
»
 
»
Story

Giga-projects boost Mideast investments; supply chain capacity hit

RIYADH, 23 days ago

The Middle East’s ambitious giga-projects and state-backed developments are driving construction activity across the region. This rapid investment, paired with inflation falls and economic diversification, continues to attract global talent while also impacting supply chain capacity, according to global professional services company Turner & Townsend.
 
The international construction market survey (ICMS) 2024 report from Turner & Townsend shows that rising demand, particularly in the Kingdom of Saudi Arabia (KSA), is pushing up construction costs.
 
Riyadh is the region’s most expensive city to build in at $2,593 per sq m, as the Saudi capital benefits from accelerated growth. 
 
Both domestic and foreign funds are capitalising on state-backed initiatives such as NEOM, the futuristic Saudi city, and the 2030 Vision. At the same time, construction cost inflation in the city is easing from the highs of 7% seen in 2023, but forecasted to remain high at 5% through 2024. 
 
Demand is in part being fuelled by the significant increase in construction in sports, leisure and hospitality as the country gears up for Expo 2030 and the 2034 Fifa World Cup - a five-star luxury hotel in the city now costs an average of $4,798 per sq m. 
 
KSA has also been trying to attract global corporate occupiers with the price of an average high-rise CBD office in Riyadh now standing at $2,266 per sq m.
 
Skilled labour shortages are also keeping costs elevated as KSA suffers from a distinct shortage of skilled labour that is vital to deliver its most ambitious programmes.
 
The talent and resources needed for giga-projects in the country are also stretching overall supply chain capacity across the Middle East.
 
Doha is the second most expensive market in the region at $2,096 per sq m. However, following the high output in the lead up to the 2022 World Cup, construction cost inflation is projected to fall from 3.5% in 2023 to 2.5% in 2024. 
 
This reflects softening construction demand in the region, with investment and skilled talent being drawn to nearby Saudi Arabia, it stated. 
 
Neighbouring Dubai has an average cost to build of $1,874 per sq m. With a growing population and continued high tourism rates activity in the residential development and hospitality sectors continues at pace, supported by relatively low labour costs. 
 
The consistency of investment in the market, as foreign visitors and skilled migrants come to holiday or live in the metropolis, means Turner & Townsend is predicting construction cost escalation at a high rate of 5% through 2024.
 
In the face of potential labour bottlenecks across the Middle East, Turner & Townsend is advising clients to prioritise identifying the right procurement strategies and establishing innovative ways of working and digital techniques, in order to battle the capacity crunch and get more for less.
 
Mark Hamill, the director and head of Middle East real estate and major programmes, at Turner & Townsend, said: "Over the past year, we’ve seen the Middle East continue to be a hub of major growth and investment as the region aims to move beyond its economic dependence on oil. The stand-out story is the accelerated development of KSA, where vast ambitions are being realised via projects like The Line, King Salman Park and Diriyah Gate."
 
"Despite the KSA leading the pack in terms of activity in the Middle East, there remain considerable real estate opportunities in the UAE and Qatar as inflation cools. Nevertheless, with labour capacity being stretched across the region, clients will need to review their procurement and contracting models to help mitigate supply chain disruption and maximise the potential opportunities on offer," he added.
 
Globally, the ICMS report’s survey of 91 global cities shows the US continuing to dominate the rankings of the most expensive places to build, with six US cities in the top ten. 
 
New York has retained its position as the most expensive market to build in for the second year running at an average cost of $5,723 per sq m.
 
Worldwide deglobalisation trends and nearshoring prompted by supply chain disruption and geopolitical tensions are seeing growth and investment in manufacturing, especially in emerging international markets such as Malaysia, Indonesia, Nigeria, Brazil and Mexico.
 
Labour constraints remain a significant inflationary factor globally, and all but three of the 91 markets surveyed reported an impact from a shortage of skills.-TradeArabia News Service



Tags:

More Construction & Real Estate Stories

calendarCalendar of Events

Ads