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Fri 2 Jun 2017 12:59 AM

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Revealed: the cost of construction in Gulf countries

New report says the UAE has been identified as a warm market in 2017 with Expo 2020 expected to influence construction costs

Revealed: the cost of construction in Gulf countries
(MARWAN NAAMANI/AFP/Getty Images)

The fall in the price of oil has pushed construction margins down in the Gulf and wider Middle East region and forced companies to reduce prices in order to win work, according to new research.

Professional services company, Turner & Townsend, said in its latest International Construction Market Survey 2017 that increased investment in innovative technologies and new construction methods are needed to boost productivity in the sector.

The report analyses input costs – such as labour and materials – and charts the average construction cost per square metre for commercial and residential projects in 43 markets around the world.

The cost of building in the Middle East is considerably lower than in other global capitals, with Doha ranking the 15th most expensive place to build at an average cost of $2,367 per sq m, while the UAE and Muscat are placed 26th ($1,726) and 30th ($1,397) respectively. 

The report said that while 2016 saw construction value in the Gulf region down by nearly a third on 2015, making it the worst year since the global financial crisis in 2009, the UAE has been identified as a warm market in 2017 with Expo 2020 Dubai expected to influence construction costs.

It added that industry costs in the UAE are expected to rise by 2 percent in 2017 compared to 3.5 percent globally.

In contrast, construction markets in Muscat and Doha are identified as cold, with no increase in costs expected in Muscat and a rise of 1.5 percent in Doha. Both markets are suffering from intense competition among contractors for little work.

Globally, at $3,807 per sq m, New York is the most expensive city in which to build followed by San Francisco ($3,549) and Zurich ($3,528).

Of the cities assessed by the study, 58 percent are identified as ‘warm, hot or overheating’ – where the market is characterised by a high number of projects and intense competition for physical resources and labour that drives up prices.

Alan Talabani, regional managing director – Middle East, Turner & Townsend, said: “The low price of oil, and therefore government revenue, remains the single most important factor affecting current and future investment decisions in the region.

“In the Middle East there is a need to drive greater efficiencies across construction projects against the backdrop of low commodity prices. Contractors and clients in the region need to embrace innovative technologies and maximise automated construction, as well as use data analytics and better programme management to unlock savings.”

In March, research by data analysts BNC said the value of ongoing urban construction projects across the GCC has exceeded the $1 trillion mark.

Across the GCC, more than 12,200 buildings are under construction (worth $448 billion), with a further 204 urban megaprojects ($297 billion) also underway.

The report said that of 21 percent of planned projects in the GCC are on hold, valued at $494.9 billion.

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