Middle East Biannual Construction Market Report 3Q/4Q 2024
Saudi Arabia
Economy and political context
Saudi Arabia’s economic transformation continues at pace as it looks to diversify its output away from oil under Vision 2030.
While non-oil growth earlier in the year indicated some moderation in economic activity, the economy grew 2.8% in the third quarter year-on-year, according to preliminary government data released last month, supported by an increase in non-oil activities.
According to S&P Global, the development of megaprojects and associated investment will continue to be a significant factor in growth over the next five years. However, its effect on GDP will be somewhat constrained by the rise in imports of construction materials and dependence on external suppliers.
After an upward trend in 2022, year-on-year inflation peaked at 3.4% in January 2023 before declining to 1.6% in May 2024, aided by a strengthening nominal effective exchange rate (NEER).
According to data from the General Authority for Statistics, inflation climbed to 1.7% in September 2024 — the highest since May 2024 and up from 1.6% in August. This rise was primarily driven by a 9.3% surge in housing, water, electricity, gas and other fuels.
Materials and labour
The job vacancies market has been robust over the last couple of years as contractors and developers seek the labour needed to bring megaprojects to completion.
According to data from Revelio Labs, the number of active job postings peaked this year at a considerable 889,000 in June.
The demand for skilled construction professionals across various roles is unlikely to slow in the short term as the Kingdom looks to diversify under Vision 2030.
Average materials pricing has been relatively stable over the last year. Increases can be noted in the price of timber rising 3% year-on-year.
Timber and materials for finishes have all had supply chains hit and costs rise, along with concrete experiencing ups and downs.
The Middle East has plenty of domestic production capacity and localising the supply chain can help mitigate risks to an extent. However, overseas imports are still vital in satisfying the requirements of development plans across the region. The demand for skilled construction professionals across various roles is unlikely to slow in the short term as the Kingdom looks to diversify under Vision 2030.
Labour supply issues were experienced by 29% of respondents, while the majority (71%) did not. The influx of skilled workers is vital for tackling skill gaps and ensuring a diverse talent pool, which is crucial for adapting to the changing needs of Saudi Arabia’s economy.
Eight in ten respondents noted increased labour rates over the last six months. As demand for high-skilled local, foreign and expatriate workers rises, competitive pay packets will likely continue, with contractors continuing to open new regional headquarters in the Kingdom.
Tendering and contracts
Illustrating the buoyancy of Saudi Arabia’s construction industry, 76% of respondents said tender opportunities increased in the previous six months. Meanwhile, 72% anticipate opportunities growing in the next six months.
The latest RICS Global Construction Monitor shows Saudi Arabia as the strongest-performing nation globally, with a Construction Activity Index (CAI) of +61.
Maintaining market capacity will be crucial if new orders are to be fulfilled while minimising the risk of costs escalating due to a supply and demand imbalance.
Respondents were split equally between saying if they or their supply chain had or had not declined a tender in the last six months.
For those that did decline, the majority (67%) said this was due to the combination of factors such as lack of capacity and project risk profile.
Contractors’ ability to deliver a project on time, health and safety issues and design changes can all impact project viability. It is important, therefore, to ensure that projects are de-risked as much as possible before tender and that risk transfer is fair.
Just over three-quarters of respondents said overhead and profit margins are over 10%. Due to the demand for contractors, they can be selective and bolder with fees from a wide workload containing high project values. Higher profit levels should, in turn, help the industry continue to upskill and innovate.
Neom Bay Airport, Saudi Arabia – Gleeds provided Cost Estimating services.
Construction tender price inflation forecasts
Global tensions ranked as the biggest threat to the industry, posing risks across the supply chain and adversely affecting costs.
The Red Sea crisis has seen a -85% drop in the average number of deep-sea port calls in 2024 compared to last year, according to data from Sea Intelligence.
Investor confidence followed in second place, where any slowing in uptake by international investors in providing finance for current or future megaprojects could impact viability.
Most respondents (72%) forecast tender opportunities increasing in 2025 compared to 2024.
Development pipelines appear robust across various sectors as Vision 2030 takes shape and projects throughout the Kingdom go from the drawing board out to tender.
Figure 32
Inflation forecasts table
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