Parts of the Gulf are again hosting the biggest building sites on earth. A raft of reports published in recent weeks confirm that the construction sector is growing strongly in Qatar, the UAE and Saudi Arabia, but reveal that growth elsewhere in the region is more piecemeal. Residential and business accommodation again lead the way but there is a remarkable level of transport infrastructure being developed, either for international events, or in the form of long delayed projects that have finally been sanctioned.
By Neil Ford
According to Citi’s MENA Projects Tracker, $2.5 trillion of projects are under development or actually under construction across the Middle East and North Africa (MENA) region. Of these, 90% are in the Gulf and 60% are in just two countries: the UAE and Saudi Arabia. By sector, just over $1 trillion of this total is being invested in MENA real estate projects and $812bn in infrastructural schemes. The scale of this investment can be seen in comparison with the $376bn that is being spent on the lynchpin of the regional economy: oil and gas. The report’s author, Farek Soussa, commented: “There is a heavy bias in the UAE towards real estate projects, while infrastructure projects dominate in Qatar. The oil and gas sector is of greatest significance in Algeria, while Jordan is spending most on power and water.”
Even after 20 years of rapid economic growth, Qatar is experiencing the biggest construction boom in its history in preparation for the 2022 FIFA World Cup. Transport infrastructure, hotels and stadia are being developed at a combined cost of $200bn in preparation for the first World Cup ever held in the Middle East. However, the country has decided to reduce the number of stadia that will be constructed from 12 to eight. Bidders were required to provide 12 modern arenas in order to cope with the number of group matches. The decision is likely to add to the controversy over Qatar being awarded the Rising costs
Similar shortages are also likely to become apparent in the UAE. According to a survey carried out by consultants Deloitte, Dubai will have a shortage of half a million construction workers by 2015. The results demonstrate that the emirate’s construction sector has fully recovered from the fallout of the global economic crisis. Work on many projects that had been suspended has now resumed and preparations are being made to commence work on shelved schemes.
The shortage is already apparent at all levels, from architects, engineers and project managers, down to labourers. On a smaller scale, Dubai is also planning for a major global event. It has secured the right to host World Expo 2020 and as a result new hotels are being built in preparation for the event. The government estimates that D12.54bn ($3.39bn) will be invested in projects associated with the exhibition. The government of Dubai has set a target of doubling the emirate’s hotel bed capacity by 2020. The event, which was won in the face of competition from Izmir in Turkey, Sao Paulo in Brazil and Yekaterinburg in Russia, will last six months and so the demand for hotel rooms will be far more sustained than for the Olympic Games or World Cup. This will be the first time that a World Expo has been held in the Middle East.
Simon Townsend, the business development manager at DTZ, confirmed rising costs. He said: “Competitive forces are ensuring that the construction costs do not differ emirate by emirate and in fact in many cases the same main contractors are being used for the projects. Material prices such as for concrete are continuing to rise and as such construction costs are seeing increases; many developers are becoming more cost-sensitive as sales prices, especially for off-plan, are locked in and any variances will impact their profit margins.”
The director of MEED Projects, Julian Herbert, added: “2013 showed some of the most promising growth in the construction sector since 2010, with especially strong figures in the residential and mixed-use sector of the industry. This is a positive sign of increased investment in the UAE’s economy, both from developers and from property investors – the large number of residential project awards alone demonstrates that there is a rising demand for such buildings, indicative of a growing population. The UAE is well on track to returning to the levels of investment last seen in 2008, with 2014 expected to be even better.” According to property consultancy Jones Lang LaSalle, average rents in Dubai rocketed by 23% during the first quarter of this year.
This recovery was evident in the sale of all available units at the Viceroy Dubai Palm Jumeirah, at the base of the Palm Jumeirah. Construction work on the $1bn project, which China State Construction Engineering Corporation began last May, will provide 222 Viceroy Residences, 479 rooms and suites. The SKAI Holdings’ project has attracted a great deal of attention because of its unique financing model. Investors buy hotel room or suites, which are then leased back in exchange for 40% of the room revenue. This obviously incorporates a level of risk but the developers currently estimate the annual rate of return at 12%.
The government of the UAE predicts that foreign direct investment (FDI) will reach $14.4bn this year, up from $12bn last year, finally returning to pre-crash FDI levels. At least two-thirds of this FDI will be made in the construction sector, with Chinese companies accounting for a rapidly increasing proportion of investment. Nasser Saidi, the former chief economist at the Dubai International Financial Centre, told journalists: “That is the most significant change: east is moving west. Developed market investment into developing markets is being replaced by emerging markets going into other emerging markets.”
Saudi Arabia’s Bin Laden Group was due to begin construction work on Kingdom Tower in Jeddah on the Red Sea as The Middle East went to press. Although the record for the world’s tallest building has been broken regularly over the past 20 years, Kingdom Tower will make history as the world’s first one kilometre high building, overtaking the current record-holder, the Burj Khalifa in Dubai. The precise height of the new structure has not been publicised, possibly so that it can be adjusted if a taller tower is planned before its scheduled completion in 2018.
At such great heights, the project will require the use of ground breaking technology, such as high pressure pumps to transport the concrete to the highest floors. With a total price tag of $1.23bn, it will require 80,000 tonnes of steel and 500,000 cubic metres of concrete. Kingdom Tower will be the centrepiece and first phase of Kingdom City, a vast new district of Jeddah that is being developed by Jeddah Economic Company (JEC) and designed by Prince Alwaleed bin Talal’s Al Saud’s Kingdom Holding Company. Total construction costs are estimated at SR75bn ($20bn) spread over three phases. While jumbo projects garner most of the headlines, some investment is also being made in lower cost housing. In late April, Arabtec announced that it was in talks with the government of Abu Dhabi to build low cost social housing schemes. The company has already secured one of the biggest construction contracts in the world: to build 1m low cost homes for the government of Egypt at a cost of $40bn and it is hoping to use this experience to secure similar, although smaller contracts in the Gulf states.
An initial public offering of 40% equity in Arabtec’s construction subsidiary is being considered for next year. Arabtec chief executive, Hasan Ismaik, said: “We have a special solution for low cost housing both inside and outside the UAE. There are a lot of employees who earn perhaps Dh5,000 or Dh4,000 a month. They want to bring their families here. There is a big need for low cost apartments with low rents.” Costs would be kept down by building on cheaper land further from the capital.
David Dudley, the head of the real estate consultancy JLL’s Abu Dhabi operations, said: “The uncertainty in the property market of past years is gone, and there is stability in the price growth. There’s job security to boot and these factors are prompting a growing pool of investors and owner occupiers to buy.The planned stock in the marked investment zones is more than adequate to take care of the projected growth in population.” A series of investment zones with more attractive terms of investment for foreign firms have been created in Abu Dhabi.
Port, airport, road and rail schemes are also benefiting from renewed investment. Work began on the Small Boat Harbours project in Kuwait in April. Turkish firm STFA is building the facility next to Al Ahmedi Harbour under a $490m contract and is due to finish work by mid-2017. STFA is undertaking the work for Kuwait Oil Company, an offshoot of the Kuwait Petroleum Corporation. At least 2.5m tonnes of quarried rock will be used to build the 4 km breakwater, while 12,000 concrete blocks will be used to build the 2.5 km quay wall. Apart from construction work, the contract including dredging and landscaping work.
The new harbour could encourage waterfront residential development in the area, akin to that taking place in Abu Dhabi. The Abu Dhabi Marina, which is being developed by Bloom Properties, is taking shape at Al Bateen. A 200 room five star hotel is being built, plus retail units, business accommodation and 225 residential apartments. A spokesperson for Bloom commented: “Abu Dhabi Marina by Bloom Properties will host luxurious residences, executive serviced apartments, hotel, cafes and restaurants and offer a cleverly interwoven design offering spectacular views of the Arabian Gulf, Marina, and the city.”
One of the biggest infrastructural projects in the region is Riyadh’s long awaited underground system. Six rail lines are being developed with a combined length of 176 km to serve electric, driverless trains. Construction work on the venture officially began at the start of April. The government hopes that the system will give poorer citizens greater freedom of movement, while the continued ban on women driving should also generate a high proportion of female customers. Family carriages will be provided on each train, but it remains to be seen what restrictions will be placed on male family members from using these carriages. The first train is scheduled to run in 2019. The success or otherwise of the venture will have implications for another planned underground system, in Mecca. With the transport, leisure and residential sectors of the construction industry all performing well, it will be interesting to see how long the boom can be sustained this time around.