2014 - ECHarris - ME_International Focus_Summer 2014_Updated Sept

8/10/2019 2014 - ECHarris - ME_International Focus_Summer 2014_Updated Sept

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UAES CONSTRUCTIONMARKET REMAINS STRONG,WHILST ECONOMIC GROWTHREMAINS STEADY

After a timid year, the United Arab

Emirates economy is showing real signs

of recovery and prospective growth.

The IMF concluded that the UAEs real gross domestic

product (GDP) growth will remain firm and at the same

level as 2013, driven by on-going momentum in non-oil

activity. UAEs activity picked up over the past year with

residential prices soaring above 20 percent following the

launch to market a string of megaprojects. Abu Dhabis

oil production is predicted to rise; however, oil prices are

expected to fall moderately. In the meantime, Dubais GDP

growth is expected to rise over 5 percent due to Expo2020

preparation, but further growth and soaring rents could

increase UAE inflation to over 4 percent for the coming12 months.

Looking ahead, the acceleration in construction activity

along with manufacturing, tourism and trade are key drivers

of growth for UAEs market.

Construction sector

The UAEs construction sector appears to be returning to

near full-capacity, with a number of major megaprojects

in the pipeline and the increase in social infrastructure

spend. The UAEs construction sector remains dominated

by the Emirates of Abu Dhabi and Dubai as both act as

the countrys drivers of growth. Dubais real estate market

is looking stronger and more sustainable with Abu Dhabis

market remaining stable through the first and second

quarters of 2014. However, a growing pipeline of projects

in the capital may increase construction spend in the latter

half of 2014 and early 2015. Sharjah is progressing in size

as an influx of individuals from the Arab Spring further

populate the city, which may boost social infrastructure and

infrastructure spend. The activity in the Northern Emirates

retains a focus on resort style hospitality projects as demand

in the hospitality sector continues to grow.

The UAEs construction sector appearsto be returning to near full-capacity, with

a number of major megaprojects in the

pipeline and the ramping up of social

infrastructure spend.

Paul Maddison, Partner, EC Harris

EC Harris Research | International Focus on United Arab Emirates | Summer 2014


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2013 saw a rise in spend in both the infrastructure and

tourism sectors, specifically due to the expansion of airports,

ports and roadways. As for 2014, the construction sector

looks forward to the preparations of Expo2020, which

will continue to build further demand in real estate and

infrastructure. The volume of announced and planned

projects in the UAE in 2014 is expected to be valued at US$

315 billion and as of May 2014, US$ 212 billion worth of

construction projects are currently under construction. It is

forecasted that the value could increase to US$ 730 billion

by the end of 2014.

Looking ahead, 2015 is expected to be the year in which the

UAEs construction industry returns to solid growth.

The UAE government has demonstrated its commitment to

economic diversification and is building on its attractiveness

as an investment destination. A strong construction sector

is needed to maintain this progressive development. The

UAEs rapid growth, urbanisation and young population will

continue to fuel demand across leisure, infrastructure, real

estate and utilities sectors. However, with GCC markets, such

as Qatar and KSA, undergoing similar diversification and

investment programs, the UAE will face stif f competition for

resources from its neighbouring economies and the global

market recovery.

Although 2013 was a tepid year, the UAE construction sector

is now on track and set to see significant growth in the latter

half of 2014 and beyond.

Abu Dhabi Spotlight

Abu Dhabi has maintained its steady and reliable growth

pattern in line with their 2030 Vision. Most of the vital

projects in the emirates of Abu Dhabi are in the maturingstage such as Yas Mall, KIZAD, Abu Dhabi Midfield

Terminal, Reem Island, Etihad Rail, The Louvre and New

York University at Saadiyat Island to name a few and the

remainder are either under study, in design phases or

already tendered and awarded.

Government-led spending is likely to continue shaping

the market due to a greater focus on social infrastructure,

infrastructure and utilities projects; however they are also

investing significant funds into real estate and tourism to

further diversify Abu Dhabis economy beyond oil and help

generate sustainable growth.

The residential market is still showing a shortage in high

quality units which has helped maintain the markets

growth over the last year.

New supply in the hotel sector has slowed down, which

has helped the recovery of the sector as occupancy rates

fell last year.

The retail sector has seen delivery of a significant volume

of space and is set to deliver even more in the coming

year, which has forced developers to be more creative in

trying to secure tenants.

Abu Dhabi ports expect a year-end spike in traffic as

projects boom in the emirate. Many large manufacturing

companies are increasing their capacity over the next year

due to the improved import and export opportunities as

a result of the new port which again will further stimulate

growth in the emirate.



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Dubai Spotlight

After a positive 2013, Dubai continues to show signs of

economic growth and increases in project activity in the

infrastructure and real estate sectors. According to the

Dubai Statistics Centre, Dubais economy grew by 4.5

percent in 2013, with growth expected to be around 5

percent in 2014. With a pipeline of projects developing,the focus is now on completing implementation plans and

securing the necessary resources prior to the construction

phase.

Developers are now starting to witness an increase in

costs, as the supply and demand dynamic which had kept

prices low during the economic downturn, is now turning

to an equilibrium with contracting organisations no longer

willing to tender on reduced prices. Following the Expo

2020 win, the current focus is on evaluating existing and

projected developments across the emirate. Whilst there

has been limited impact so far in 2014 the Expo 2020master plan is due to be submitted in Q3 of 2015 and it is

expected that primary and secondary development activity

will accelerate around that time.

Passenger traffic in Dubai airport increased to 66 million

people in 2013, a 15.2 percent increase from 2012. At that

rate Dubai airport is expected to overtake Heathrow in

2014 as the busiest airport in the world, according to the

Wall Street Journal, with the emirates tourist numbers

increased by 10 percent to 11 million people in 2013.

Furthermore, the application for new trade licenses

recorded an increase of 12 percent while real estate

transactions jumped 53 percent to over $64.3 billion. Theseincreases reflect the strength of the UAEs tourism and

real estate sector, in addition to the surge of international

investment within Dubai.

The strong tourism and business demands have led to

retail businesses evaluating their existing assets, with major

expansion and refurbishment programmes now ongoing in

several of the emirates super regional retail malls. Hotel

developments continue at pace with demand for rooms

remaining high well considered and positioned hotelsremain as sound revenue generating investments. Hotel

refurbishments are becoming common place with several

of the older hotels undergoing refurbishment to maintain

their place in the market, as the number of hotel rooms is

set to double by 2020. The Dubai Tourism and Commerce

Marketing Board reports tourism accounted for nearly

20 percent of GDP in 2013 and is forecasted to increase

between 7 to 9 percent through to 2020.

As the population continues to rise, the residential

rental market is likely to adjust. The market has seen a

significant increase in rent during the first half of 2014,however this is expected to remain steady from the second

quarter through to the end of the year. While government

spending is expected to increase as the city further

develops its power, water and transport infrastructure

many of the leading developers are now refocusing on

Dubai, particularly around the mixed use residential

and commercial space. As the emirate sees an influx of

international investment, there will likely be an increased

demand from blue chip companies for premium office

space.

The Expo 2020 is a key contributing factor to a number of

affluent economic signs, which are likely to help the UAEachieve its 2021 Vision Master plan.



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Mixed use: Residential / Commercial

Mixed use: Hotel / Commercial

Mixed use: Hotel / Serviced apartments

Retail: Shopping malls with basement / car parking

Commercial: Higher than 20 floors with basement parking

Commercial: Up to 20 floors with basement parking

Detached villas

Residential Apts: Higher than 20 floors with basement parking

Residential Apts: Up to 20 floors with basement parking

Hotels: 5 star with basement car parking



0 400 800 1200 1600 2000 2400 2800

Construction Prices

UAE tender prices continued to fall throughout 2013 endingthe year on a negative 4 percent. However, there has been

a significant upturn since the announcement of the Expo

2020 at the end of 2013 and according to the EC Harris

Construction Cost Index, 2014 is set to rise by 4 to 5 percent

over the duration of the year and approximately 6 percent

for 2015.

In support of this statistic, we have witnessed an increased

number of projects being re-energized due to viability being

re-evaluated, and there are a number of large developments

both within the property and infrastructure sectors, which

are due to be awarded this year.

Consumer price index hit an all-time high this quarter

as consumer confidence rises as the improving state of

economy boosts personal finance and job prospects;

however in contrast, commodities have steadily reduced

over the last 12 months with the largest reductions being in

copper (-13 percent), cement (-36 percent) and rubber (-19

percent).

First Quarter 2014 costs (/m)

Crude oil has been less volatile over the last 12 months

and has only marginally reduced by 1 percent over the

same period. This is key for the UAE as 25 percent of its

GDP is based on oil & gas outputs, despite the countrys

dependence on this commodity reducing slightly due to

successful efforts at economic diversification for instance,

aviation, travel and tourism now account for 28 percent of

GDP.

Cost ( per m2)



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2011 2012 2013 2014

Economy Generally (forecast)

GDP growth (%) 4.9 4 3.2 4.4

Consumer price inflation (%) 0.2 1 1.7 1.85

Unemployment rates (%) 4.5 4.6 4.2 4

Investment (annual % movement) 1.2 2.2 - -

Interest rates (%) 1.0 1.0 1.0 1.0

Construction Industry

Cement consumption (annual % movement) 1.6 4.1 1.4 3.9

Construction tender prices (%) -7.5 2.9 3.2 3.7

Materials costs (% movement) 5.0 1.0 -4.0 -3.0

Labour rates (% movement) 10.0 -5.0 3.0 6.0

Value of projects planned or underway ($bn) 660 590 650 730

Outlook

A year ago most market watchers were looking forward to ayear of recovery. However, as 2013 progressed, expectations

had to be progressively trimmed as the forecasted

growth was considerably slower on the uptake with a

noteworthy increase only starting following the Expo2020

announcement in Dubai.

Over the last quarter barely a week goes by without a new

major property development being unveiled. The Dubai

Government has also stated that all new and existing

construction projects are going to be fast-tracked to be

ready for the Expo2020, which will further strengthen the

construction market over the following years. However,the UAE will face stiff competition for resources from its

neighbouring economies and the global market recovery

and as a result, alternate procurement options need to be

considered in order to mitigate this pressure and protect

the UAE growth plans.

In addition, health and safety, welfare and human rights

issues are increasingly being considered as the profile of

the development grows with clients increasingly considering

the matter and reviewing their own social responsibility and

reputational risks.



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EC Harris Research | International Focus on United Arab Emirates | Summer

8907JUL14EC

Contact

Paul Maddison

Partner, Head of Cost and Commercial UAE

[email protected]

Stewart Cash

Partner, Head of Client Service UAE

[email protected]

Chris Seymour

Head of Property and Social Infrastructure UAE

[email protected]

Terry Tommason

Head of Property and Social Infrastructure Middle [email protected]

echarris.com/research

2014 - ECHarris - ME_International Focus_Summer 2014_Updated Sept

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