Saudi bucking downbeat construction industry trend

Soft demand and margin deterioration likely to continue as market experiences downturn
Saudi bucking downbeat construction industry trend
By Gavin Gibbon
Tue 18 Jun 2019 10:19 AM

Construction activity in Saudi Arabia remains robust, with a sharp increase in new business enquiries and workloads in Q1, according to the latest RICS Middle East Construction and Infrastructure survey results.

The report read: “This solid pipeline of new activity appears to support the outlook for an increase in workloads over the next 12 months, as well as headcount, as 68 percent of respondents stated to increase hiring over the year.”

However, the outlook for Oman and the UAE was less positive with respondents in the first quarter noting tight margins, competition and soft demand.

“With the oil prices remaining comparatively subdued, the survey indicates macroeconomic backdrop to have contributed to some of the downbeat sentiment during the first quarter. However, with supply tightening up due to the US sanctions and a drying up global spare capacity, oil prices have potential to increase over the next quarter, ultimately acting as a catalyst for the more optimistic workload outlook over the next twelve months, particularly in Saudi Arabia. Headline workloads (in net balance terms) are also expected to increase in the UAE (15 percent) over the next year, although at a more modest pace,” read the report.

Tender price predictions for building and civil engineering over the next twelve months in Oman and the UAE indicate a decline, with more than 70 percent of survey participants citing competition and a lack of demand as a constraint on activity.

Further margin deterioration is also expected over the next year in the region, apart from Saudi Arabia. Respondents reported this might be due to increased cost of materials and the difficulty of passing the increase on to clients - more than 90 percent of contributors in Oman and the UAE reported financial constraints as a drag on activity.

The Middle Eastern market also experienced a pullback in private commercial and industrial workloads. However, this was not the case for infrastructure workloads, of which roads and water and utility projects workloads were noted to have increased regionally this quarter.

Respondents reported a decline in work on infrastructure projects in Oman, with work on airports, road, rail and harbours/ports all declining during the first quarter. A majority survey participants in Saudi Arabia, Oman and the UAE also noted the need for new projects over the repair and maintenance of existing infrastructure.

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