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Giga-projects drive Saudi Arabia’s construction boom amid global interest, study finds

RIYADH: Saudi Arabia’s state-backed initiatives, including NEOM and Vision 2030, are boosting growth in the construction sector, attracting substantial domestic and international investment, an analysis has shown.

In its latest report, global consulting firm Turner & Townsend pointed out that construction activities are also being driven by the Kingdom’s preparations for EXPO 2030 and the 2034 FIFA World Cup.

This comes as Saudi Arabia became the leader in global construction activity for the first quarter, with the Kingdom having $1.5 trillion of projects under way, according to a report released earlier this month by the services firm real estate JLL.

JLL’s analysis further highlighted that the Kingdom accounted for a 39% share of total construction projects in the Middle East and North Africa region, valued at $3.9 trillion.

“The standout story is the accelerated development of Saudi Arabia, where vast ambitions are being realized through projects such as The Line, King Salman Park and Diriyah Gate,” said Mark Hamill, director and head of real estate and major programs in the Middle East. at Turner & Townsend.

The Line is a linear smart city currently under construction in Saudi Arabia’s $500 billion NEOM megacity, while King Salman Park is a 4,102-acre large-scale public park and urban neighborhood that is being developed in Riyadh.

The report highlighted that despite political uncertainties, substantial investment is driving growth in the Gulf region as countries seek to diversify beyond traditional energy sources.

This comes as Turner & Townsend ranks the Kingdom as the 19th most expensive country to build globally, in stark contrast to the US, which dominated the top 10.

The report also noted that construction cost inflation in Riyadh is easing from highs of 7.0% seen in 2023, but is expected to remain high at 5.0% through 2024.

The review also highlighted Saudi Arabia’s efforts to attract global corporate occupiers through its Regional Headquarters Program.

He added: “This scheme encourages companies to launch offices in Saudi Arabia and there are cost advantages for office investment, with a high-rise central business office in Riyadh costing a relatively low $2,266 per square metre.”

The UK-based company also pointed out that Saudi Arabia is also facing a shortage of skilled manpower, which is essential to materialize and carry out construction activities as planned.

“The lack of skilled labor also keeps costs high, as Saudi Arabia suffers from a distinct lack of skilled labor, which is vital to delivering its most ambitious programs. The talent and resources required for in-country giga-projects also expands overall supply chain capability in the Middle East,” the report said.

Regional perspective

According to the report, Qatar’s capital Doha is the second most expensive market in the region at $2,096 per square meter.

However, following high output in the run-up to the 2022 FIFA World Cup, construction cost inflation is expected to decline from 3.5 percent in 2023 to 2.5 percent in 2024, the study said.

On the other hand, Dubai has an average construction cost of $1,874 per square meter, supported by high tourism activity and the development of the residential sector.

“The UAE has been a hot spot for tourism in the region in recent years, and its relatively low construction cost compared to Western markets makes it still an attractive place to build centers and facilities for international visitors,” it said in relation.

He added: “In Dubai, residential development is supporting the local market as the city aims to support its growing population. Its attractiveness as a market is underpinned by its relatively low construction cost.”

On the other hand, Abu Dhabi is the fourth most expensive market in the Middle East at $1,844.2 per square meter.

Hamill noted that there are considerable real estate opportunities in the UAE and Qatar as inflation cools.

He added: “However, with labor capacity stretched across the region, clients will need to review their procurement and contracting models to help mitigate supply chain disruption and maximize the potential opportunities on offer.”

Global perspective

The report showed that global construction pipelines will grow this year, but skills shortages could remain a major concern.

“The global housing market is emerging from a challenging period of inflationary pressures, volatility and disruption. Our sector has proven resilient and the focus on building new approaches to procurement and developing the supply chain to drive efficiency and productivity is opening up new opportunities in many markets,” said Neil Bullen, managing director, global real estate at Turner & Townsend.

He added: “Customers need to understand where labor bottlenecks may constrain their capital investment programs and work collaboratively with the supply chain to understand how best to mitigate risk at delivery.”

The US dominated the ranking of the most expensive places to build, with six cities in the country taking their places in the top 10.

New York retained its position as the most expensive market to build for the second year in a row, at an average cost of $5,723 per square foot, followed closely by San Francisco at $5,489.

Zurich came in third, overtaking Geneva in the rankings, with an average cost of $5,035 per square meter. Geneva, which ranked fourth, averaged $5,022 per square meter.

The US cities of Los Angeles, Boston, Seattle and Chicago ranked fifth, sixth, seventh and eighth respectively in the list.

From Asia, Hong Kong ranked ninth with an average cost of $4,500, followed by London at $4,473.

The report also highlighted that the implementation of technology in the construction sector could help overcome various challenges faced by the industry.

“Accelerating digitization also presents a huge opportunity, but this requires us to keep up with the demand for skilled labor, and persistent shortages risk limiting potential growth,” Bullen said.

He added: “As interest rate cuts become an increasing possibility for many markets and pent-up investor appetite can be unlocked, capacity could be tested further.”

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