Is there a positive outlook for construction sector in GCC? Is there a positive outlook for construction sector in GCC?
Now Reading
Why the outlook for the GCC’s construction sector is upbeat

Why the outlook for the GCC’s construction sector is upbeat

Ambitious schemes linked to development, diversification and sustainability are favourable factors for the construction and real estate sector

Avatar

Much of the world is facing challenging times amid the acceleration in inflation and the resulting tightening in monetary policy, which is fuelling recessionary fears. However, the picture in the Gulf remains brighter for now at least. This is something that has been highlighted in recent economic updates from the International Monetary Fund as well as by several other well-regarded forecasters.

In contrast to the severe downgrades to growth being pencilled in for many of the larger more mature economies, such as the US, Japan and much of Europe (as well as China), the likes of Saudi Arabia, UAE, and Qatar are only seeing very marginal adjustments to macro projections, if any at all.

Favourable factors
This relatively upbeat environment in this geographical area, fuelled in no small part by rising oil prices, also appears to be underpinning the generally favourable backdrop for both the real estate and construction sectors across much of the Gulf region. This is a clear message emanating from the feedback to the latest round of RICS (Royal Institution of Chartered Surveyors) market surveys which I oversee. Now just to be clear, these surveys are based on sentiment rather than hard data, but they are, nevertheless, viewed by many policymakers and multilateral organisations as lead indicators of emerging trends in both sectors.

Significantly, from what we are hearing, the tone of responses from those members working in the commercial real estate market in this region is distinctly upbeat, both from an occupier and investor perspective. Partly off the back of this, the current levels of development activity remain generally strong with key forward-looking metrics suggesting this pattern will continue into 2023.

Leading the way
Given the economic narrative already touched upon, the strength of the feedback received from Saudi Arabia to our questionnaires is perhaps unsurprising. We produce two aggregated indices from the surveys which are designed to provide an overarching picture of the state of the industry, and the story is the same in both. Saudi Arabia is head and shoulders ahead of all others in terms of the RICS Construction Activity Index and it also has the strongest reading for the RICS Commercial Property Sentiment Index, out of the 40 odd countries included in the report.

The raft of huge developments underway, including Neom and The Red Sea Project, continues to drive RICS current workloads indicators which are running strongly, not just for infrastructure, but also for private residential and non-residential activity. But the huge amount of construction does now appear to be presenting some challenges with capacity in the contracting market increasingly stretched. This is showing up most acutely around labour shortages; around three-quarters of respondents to the Global Construction Monitor (GCM) from Saudi Arabia identified this as an issue holding back activity.

Disaggregating a little further, the concern around labour extends through a range of professional disciplines to skilled trades. That said, the ambitions of the kingdom represented through the drive of the Saudi sovereign wealth fund (Public Investment Fund) is very visible in the expectations element of our results. This points to an acceleration in workloads looking ahead rather than a slowing in momentum.

The other interesting aspect of the insight we are receiving from Saudi Arabia is the sheer strength of demand to take up what is being built. Just to put this in some perspective, the aggregated read for occupier demand (it is measured in a net balance format) rose from +53 per cent to +65 per cent between Q1 and Q2 of this year. By way of contrast, the headline global number slipped from +12 per cent to +5 per cent while in the US market, the metric while still solidly in the positive territory has retreated from +37 per cent to +26 per cent. Significantly, the appetite both to take up space and acquire real estate is being reflected in the belief of contributors that both capital values and rents are heading higher.

A steady pace
The economic story in the UAE is not far short, and the country has the potential to show greater resilience through 2023, if oil prices do begin to slip back a little as seems plausible. The latest RICS GCM suggests that the construction sector in the Emirates is continuing to grow, albeit at a relatively moderate pace for now. However, this is anticipated as likely to quicken looking ahead with strong numbers not just in the infrastructure space, but also for residential and non-residential development. This chimes with the government’s plans to strengthen industrial, transportation and energy infrastructure as highlighted in its key announcement last autumn. Encouragingly, much of this is interlinked with the pledge to push towards carbon neutrality.

Interestingly, we are being told labour-related issues are less of a challenge in the UAE than elsewhere. Only around one-quarter of respondents to the monitor noted this as a problem; slightly more (one-third) did acknowledge difficulties in recruiting some skilled trades personnel. However, the main obstacles identified by contributors are around the cost of building materials as well as financial constraints.

Qatar and FIFA

As far as Qatar is concerned, a decade of high-intensity development linked to the FIFA World Cup 2022 is now drawing to a conclusion and this is perhaps inevitably also reflected in a flatter trend in our feedback (signalled most clearly in the RICS workload metrics). That said, the infrastructure read is still pointing to moderate growth. A broadly similar pattern is evident in the expectations data helped by projects that form part of the Qatar National Vision 2030. Interestingly, finance-related issues have been raised by almost nine in ten respondents, which may help to explain why contributors are a little cautious about the outlook away from big infrastructure work.

In summing up, what is clear from our feedback is that despite differing challenges across the region, as with the macro numbers the outlook for the construction sector in the Gulf remains generally positive. Ambitious schemes linked to development, diversification and sustainability are being reflected in the RICS surveys which suggest industry workloads will continue to grow strongly and, significantly, that profitability will prove solid despite specific challenges in each of the countries that I have touched on.

Simon Rubinsohn is the chief economist at the Royal Institution of Chartered Surveyors

You might also like


© 2021 MOTIVATE MEDIA GROUP. ALL RIGHTS RESERVED.

Scroll To Top