The cost of construction in the Middle East is set to pick up in 2019 after a period of stagnation, according to new research.

Global professional services firm Turner & Townsend said improving commodity prices will shore up fresh investment and development activity in the region.

Its International Construction Market Survey 2019 revealed that the previously stagnant construction markets of Muscat and Riyadh are showing signs of awakening due to improved oil revenues and economic diversification programmes.

It added that the price of construction in the UAE will rise 2 percent this year, up from 1.5 percent during 2018. 

The report noted that market confidence in the UAE is being buoyed by significant projects in Dubai and large-scale infrastructure investment in Abu Dhabi.

It added that Riyadh is expected to see the greatest construction cost inflation in the Middle East in 2019 at 5 percent – outstripping the average global construction cost inflation of 4.1 percent forecast for this year. 

This comes as a number of major, mixed-use projects start on site, including Al Widyan, supported by ongoing works to King Abdulla Financial District and coupled with the recent government stimulus package to develop the entertainment sector.

The cost of building in the Middle East is still lagging considerably behind other key locations in the global rankings. After a 1 percent fall in construction prices during 2018, Muscat sits 44th in the league table, with an average cost of construction equivalent to just a third of that in New York City.

Globally, San Francisco has overtaken New York as the most expensive city in which to build worldwide, followed by London, Zurich and Hong Kong.

Overall, two-thirds of the markets surveyed by Turner & Townsend reported a labour skills shortage, but the muted levels of construction demand in the Middle East in recent years means the crisis isn’t yet being felt as acutely as in other global markets. 

It said the UAE is in balance while Muscat and Riyadh are two of only five markets worldwide to report a surplus of construction trade labour.

Adam Ralph, director and head of real estate, Middle East at Turner & Townsend, said: “The rallying of oil prices in the short-term has provided fresh impetus and opportunities in the region, but ultimately it is diversification of the economic base away from oil and gas that is set to be the key driver of construction demand across the Middle East in the long term.

“Government-backed infrastructure projects and economic development programmes are starting to invigorate the construction market and attract strong private sector investment, such as the Duqm Special Economic Zone and related $2.6bn freight railway line in Oman. After charting a relatively flat course, activity levels in the region are beginning to show some promise.

“The mood in the sector may be cautiously optimistic, but it also comes with a healthy dose of realism. In the UAE particularly, investment is re-aligning towards more viable projects in contrast to some of the more outlandish proposals mooted in recent years. With the climate increasingly cost-sensitive, driving innovation and better performance on projects will be key to managing risk effectively and delivering attractive investment returns.”

Globally, the report highlighted a strong construction market, with 28 percent of markets surveyed classed as ‘hot’ or ‘overheating’.

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