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Middle East construction market feels effects of falling oil prices
Source: Turner & Townsend , Author: Posted by BI-ME staff
Posted: Thu May 18, 2017 12:35 pm

UAE. The fall in the price of oil has pushed construction margins down in the Middle East and forced companies to reduce prices in order to win work, according to new research by professional services company, Turner & Townsend.

The International Construction Market Survey 2017 (ICMS) calls for increased investment in innovative technologies, new construction methods and better use of data to boost productivity in the sector.


The report analyses input costs – such as labour and materials – and charts the average construction cost per m2 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 US$2,367 per m2, while the UAE and Muscat are placed 26th  ($US1,726 per m2) and 30th(US$1,397 per m2) respectively. 

Globally, at US$3,807 per m2 New York is the most expensive city in which to build followed by San Francisco (US$3,549 per m2 and Zurich (US$3,528 per m2).

Of the cities assessed by the study, 58 per cent 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. 

While 2016 saw construction value in the Gulf down by nearly a third on 2015, making it the worst year since the global financial crisis, the United Arab Emirates is identified as a warm market in 2017 with the Expo 2020 Dubai expected to influence construction costs. 

Industry costs in the United Arab Emirates are expected to rise by 2 per cent in 2017 compared to 3.5 per cent 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 per cent in Doha.  Both markets are suffering from intense competition among contractors for little work.

Alan Talabani, Regional Managing Director – Middle East, Turner & Townsend, commented: “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.”

About the International Construction Market Survey
Compiling data from Turner & Townsend teams in 43 global markets, the ICMS gives an in-depth snapshot of construction costs – and what’s driving them – around the world.

It measures average input costs and calculates the average cost per m2 of building a range of construction projects, including high-rise apartments, city centre offices, hospitals, schools, warehouses and shopping malls.

All local construction costs have been converted into US dollars to allow accurate cost comparisons to be made between construction markets in widely diverse economies.  The report also uses the Purchasing Power Parity methodology to determine the relative value of different currencies, and location factor approach, which takes into account factors such as labour productivity, market heat and tender margins.

About Turner & Townsend
Turner & Townsend is an independent professional services company specialising in programme management, project management, cost management and consulting across the property, infrastructure and natural resources sectors.
With 90 offices in 38 countries, we draw on our extensive global and industry experience to manage risk while maximising value and performance during the construction and operation of our clients’ assets.

For more information, please visit www.turnerandtownsend.com

Photo: File photo

 

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