UAE construction sector flourishes despite global challenges, holds $590 billion project pipeline: Report – Economy Middle East

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$3.9 trillion is the estimated pipeline value of unawarded construction projects in MENA from 2024-28

Amidst persistent inflation, elevated interest rates, and geopolitical tensions worldwide, the Middle East and North Africa (MENA) region anticipates an impressive $3.9 trillion total value of unawarded construction projects. The UAE claims a significant share at 15 percent, according to a report by real estate industry firm JLL.

The UAE stands out with a substantial project pipeline valued at $590 billion in the regional market. Residential projects account for $125 billion (21 percent), while mixed-use projects represent $232 billion (39 percent), as stated in JLL’s latest UAE Construction Market Intelligence Report. These figures are based on insights gathered from industry sources and experts.

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Dubai, the dominant leader in the UAE’s real estate market, experiences a noteworthy surge of 21 percent year-on-year in sales and rental prices. In the first quarter of 2024 alone, approximately 10,000 residential units were delivered, with an additional 25,000 units scheduled for completion by year-end, bringing Dubai’s total residential stock to 754,000 units.

In Abu Dhabi, 1,600 units were delivered in Q1 2024, and another 6,000 units are in the pipeline for the rest of the year. The capital city recorded moderate annual increases of 5 percent in sales prices and 2 percent in rental rates, with its total stock expected to reach 294,000 units in 2024.

Read more: Dubai’s residential segment thrives with 24.7 percent annual growth in Q1 2024: Report

Hotel room expansion

The hospitality sector in Dubai witnessed the addition of 2,000 hotel rooms in Q1 2024, primarily focusing on the 5-star category. Furthermore, an estimated 5,000 keys are expected to be added in 2024, bringing the total hotel room count in Dubai to 160,000. In Abu Dhabi, approximately 500 keys will be added, resulting in a total of 34,000 hotel rooms.

Tripled value of awarded projects in 2023

JLL maintains an optimistic outlook for the UAE, as the country nearly tripled the value of awarded projects in 2023 compared to the previous year. According to MEED Projects, a regional projects tracker, the value of these projects reached $87 billion, reflecting the country’s commendable progress towards economic diversification and investment goals.

Laura Morgan, market intelligence lead MEA, Project & Development Services at JLL, expressed confidence in the UAE’s construction market, citing resilience and promising growth prospects across all sectors. While the sector faces challenges such as rising land and construction costs, the strong uptake of new projects is expected to alleviate pressure and sustain growth throughout 2024.

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Laura Morgan, market intelligence lead MEA, Project & Development Services at JLL. (Photo Credit: JLL)

According to Oxford Economics, the UAE is poised for a 3.8 percent GDP growth in 2024, up from 3 percent in 2023, with a projection of 3.9 percent growth in 2025. Despite a slight dip in the S&P Global purchasing managers index (PMI) to 56.9, the construction sector remains in robust growth territory, as reported by Emirates NBD Research.

Increase in construction activity despite financial constraints

JLL’s forecast predicts a tender price inflation (TPI) of 3 percent in 2024 for the UAE, taking into account historical construction price trends, prevailing market conditions, the project pipeline’s value, and external factors that may impact construction prices. The report also suggests that developers in Dubai may explore the possibility of developing smaller-sized units and projects in secondary areas to address rising costs.

The RICS Global Construction Monitor notes an increase in construction activity despite financial constraints caused by rising material costs and occasional shortages. Factors influencing the current UAE construction market, as identified by the RICS report, include market competition, demand dynamics, material-related delays, project financing, and the adoption of digital construction processes.

Impact of shipping and transportation on construction rates

According to the latest data from the World Bank, oil prices are projected to average $81 per barrel in both 2024 and 2025, while base metal prices are expected to decline by 5 percent in 2024. Local construction rates are heavily influenced by price fluctuations in shipping and transportation, particularly due to the increased reliance on imported materials like glazing, facade systems, and timber. Freight shipping prices rose significantly from March 2023 to March 2024, with the Drewry Index surpassing $3,000 per 40-ft container, compared to $1,800 previously.

Global steel production to rebound in 2024

However, JLL’s analysis indicates that material availability is currently stable, and the medium- to long-term outlook predicts improvements in local manufacturing capabilities. The World Steel Association (WSA) estimates a 1.9 percent growth in global steel production in 2024, following a 1.6 percent  decline the previous year, with steel demand expected to rebound in the Mena region in 2024, driven by mega projects and the residential sector.

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