Middle East Biannual Construction Market Report 3Q/4Q 2024
United Arab Emirates
Economy and political context
According to the latest data from the Federal Competitiveness and Statistics Centre, the UAE’s economy started the year strong — growing by 3.4% year-on-year in the first quarter of 2024.
The preliminary data from the statistics authority shows that trade activities made the biggest contribution to non-oil GDP at 16.1%. Ranking third, construction and building activities experienced a growth rate of 6.2%, in line with several development projects initiated by the UAE government in early 2024. Strong foreign demand for real estate is also helping the construction industry contribute to economic growth.
The 'We the UAE 2031' vision, which includes raising the country’s GDP to AED 3 trillion by the next decade, is diversifying the economy away from oil dependency and investing in future-oriented industries.
The International Monetary Fund projects overall real GDP to grow by about 4% in 2024.
The CPI figures show inflation flatlining in recent months, with the Central Bank of the UAE revising its inflation forecast for the country this year to 2.3% — down from its previous projection of 2.5%.
The downward revision results from smaller-than-anticipated rises in commodity prices, income levels and rental rates.
Next year, inflation is expected to average around 2.3% — primarily influenced by the non-tradeable portion of the consumer basket.
Materials and labour
According to the latest data from Revelio Labs, active construction job postings appear slightly up on last year, reaching a two-year peak of 137,000 in June 2024.
Skills shortages are prevalent in the UAE and the wider Middle East. Some professionals in the region have noted that there is fierce competition for talent and resources from Saudi Arabia, which is currently experiencing a construction boom.
Just over three-quarters of respondents (77%) said they had not experienced labour supply issues in the previous six months.
However, a more even split on labour rates emerged, with 55% saying they had increased. Competition for skilled labour is seeing some firms offering higher than market average incentives, partly to get delayed projects back on track as promptly as possible.
Tendering and contracts
Respondents largely (60%) said tender opportunities increased in the last six months, whereas 37% said they remained the same.
A similar split emerged in the forecast for the next six months, as 60% said opportunities would increase compared to 30% deeming them to remain the same.
According to the latest RICS Global Construction Monitor, the UAE continues to see robust growth in construction activity — recording a Construction Activity Index (CAI) reading of +54.
A slight majority of respondents (60%) said they or their supply chain had declined a tender in the previous six months. Half of respondents said this was due to a combination of factors such as lack of capacity and the project risk profile.
As new tenders come to market, not being selective risks adding further pressure on already stretched resources. Pain/gain mechanisms can also be considered to foster a collaborative project environment.
Just over two-thirds of respondents (68%) said typical contractor overhead and profit margins were 10% or higher in the current market.
With a strong appetite for new development, companies are well-positioned for growth. However, it's essential to navigate capacity issues and strategically invest profits into futureproofing the business for long-term success.
Montrose Hotel and Residential Apartments – Gleeds provided EA / CA / Client rep and Quantity Surveying/Cost Management services.
Construction tender price inflation forecasts
Global tensions were ranked as the number one threat to the construction industry. The UAE's status as a leading business and financial centre in the Middle East relies heavily on its image as a beacon of prosperity and stability in a region often marked by turmoil.
Houthi attacks in the Red Sea and the possibility of the Strait of Hormuz closing risk leading expatriates and foreign investors to reconsider the stability of the UAE for conducting business in the industry and making investments.
Materials and labour cost escalation ranked second, as the demand for both is expected to continue rising. For instance, EMSTEEL — the largest public steel and building materials business in the UAE — expects up to a 10% rise in sales this year.
A slight majority (53%) of respondents forecast tender opportunities increasing in 2025 compared to 2024, with 40% expecting them to remain the same.
With ‘We the UAE 2031’ set to see government capital expenditures on various projects, the construction industry will be a key enabler for infrastructure development as well as catering to the demand for new residential real estate.
Figure 43
Inflation forecasts table
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