As part of the second series of cost data presented by Rider Levett Bucknall, we provide an overview of current construction activity across the Middle East , Asia and Oceania and highlight the more active countries where opportunities for civil engineering works are emerging. Partner Ian Sandland reports.
Prior to the recent unrest, the kingdom’s finance minister stated that it planned to spend £8.8bn over the next two years on social services, but continuing unrest and instability has inevitably impacted. Economists had forecast that Bahrain’s property market would recover towards the end of 2011 or in 2012, but this is likely to be pushed out further as a consequence of the political situation.
Oman’s construction industry was valued at £23bn in 2010 and is expected to grow at an average annual rate of 5.8% between 2010 and 2014. The government plans to spend £70bn during the eighth Five-Year Plan period between 2011 and 2015 in the sultanate, with a thrust on infrastructure development, education and health sectors.
The plan also strives to enhance economic diversification by focusing on the development of sectors such as tourism, industry, agriculture and fisheries, and widen the provision of work opportunities for the national workforce.
Government expenditure on the education and health sectors is set to grow by 55% and 88% respectively. £741M is allocated for improving water supplies and £2bn for new roads. The continuation of increased government spending on infrastructure projects looks set to see a new influx of workforce
to the capital.
Kuwait’s economy is dominated by the oil sector, which accounts for about 60% of its nominal GDP and contributes 95% of the government’s revenues. Kuwait has commenced its Kuwait Vision 2035 development plan and is planning to spend £69bn on a large number of mega infrastructure and energy projects. The economy of Kuwait is expected to grow by 4% in 2011, up from 3% in 2010. The property market will continue to remain flat until later in 2011 and may also be affected by regional political tensions.
In 2010 Qatar had the world’s third highest GDP per capita, estimated at £47,000, a 24% increase on 2009. The main drivers for the rapid growth come from the increase in production of liquified natural gas (LNG), oil and petrochemicals. Once LNG production targets are met at the end of 2011, the growth rate is expected to reduce to a more modest 3% to 4% per annum from 2012 to 2015. Economic diversity is fundamental to securing long-term stability in the local economy.
In 2006 the mining and quarrying sector, which includes oil and gas production, accounted for 59% of Qatar’s GDP, but reduced to 46% in 2009. Qatar’s strong public sector spending in the non-oil sector is evidenced by projects which are currently in progress or under design.
In addition, with the announcement of Qatar as the host nation for the 2022 FIFA World Cup, it is no surprise that there is considerable optimism within the construction market. With an estimated associated spend in the region of £31.5bn, there is much to be done in a short period of time.
Abu Dhabi is witnessing massive economic and social development, due to the balanced development policy adopted by the government. Its undersupplied property market will be relieved by a number of high rise residential blocks due for completion in 2011. Several large office and hotel sector projects will be delivered to the market during 2011, increasing the supply by over 25%, Oversupply issues in the property sector will, however, take a number of years to reach a balanced state.
Dubai accounts for around 80% of the United Arab Emirates’ (UAE’s) non-oil trade. Although it is premature to quantify the local business impact due to the uprisings in the Middle East North Africa region, Dubai is being viewed as a safe haven, with its stable situation as an entry point into the Middle East.
Tourism arrivals in the UAE are estimated to rise between 10% and 18%, while trade and port activities are anticipated to grow between 10% and 25%. Dubai’s real estate sector will remain under pressure in 2011, with
occupancy levels dropping due to new supply stocks coming onto the market. A general easing of lending conditions by banks will inject more liquidity into the markets and will result in an increase in sales activity in 2011.
In the office sector, vacancy rates will continue to increase and retail malls continue to show vacancies of up to 30%. In the hotel sector, occupancy rates in Dubai have stabilised and are now set to increase, due to the fallout from trouble spots in the Middle East.
Saudi Arabia possesses about 20% of the world’s proven petroleum reserves, ranks as the largest exporter of petroleum and plays a leading role in global petroleum body OPEC. The petroleum sector accounts for roughly 80%of budget revenues, 45% of GDP, and 90% of export earnings.
The kingdom is encouraging the growth of the private sector to diversify its economy and employ more Saudi
nationals. Diversification efforts are focusing on power generation, telecommunications, natural gas exploration, and petrochemical sectors.
Roughly 5.5M foreign workers play an important role in the Saudi economy, while Riyadh is struggling to reduce unemployment among its own nationals. Saudi officials are particularly focused on employing its large youth population.
A key economic issue at present is the supply of affordable housing and accommodation for Saudi and foreign nationals. Estimates for the number of new homes required in the kingdom range from 1.5M by 2015 to 4.5M over the next 15 years.
Infrastructure in the form of transportation and energy generation also needs to be addressed.
Increased government spending on key infrastructure projects paved the way for the construction sector’s strong recovery in 2010.
Construction activities in the infrastructure sector will continue to provide strong support to the construction industry in Hong Kong in the coming two to three years.
Costs of basic construction materials have continued to rise, while labour costs are expected to further increase as the shortage in skilled workers becomes more acute. Contractors in general are more selective in bidding. It is anticipated that tender prices in the coming 12 months will continue to increase at a magnitude not less than that in 2010.
Construction activities have picked up significantly in the past few months and are expected to remain at the current level throughout this year.
As basic construction material prices continue to increase, the rising trend of construction costs is expected to continue throughout the remaining months of 2011.
Construction activities in most major cities have remained stable. With high inflationary pressure and continuous increases in labour wages, it is likely that the moderate upward movement of construction costs in key cities will continue in the coming months.
Despite the continued influx of capital investment in the resources sector, Australian construction, along with much of the economy, remains in a holding pattern.
Public sector work is diminishing, while access to finance and a softening in residential demand is hampering growth in the private sector as developers struggle to get projects to market.
The strength of the Australian dollar is driving down the costs of imported materials and damping increases in labour and raw materials costs.
The outlook for New Zealand remains subdued due to poor domestic conditions and high vacancy rates in commercial properties. Investment intentions have stalled as profitability hinders firms’ ability to invest.
The short term outlook is soft but will be boosted in the medium term as demand returns and post-earthquake reconstruction commences.
Emerging from the recession
In the Middle East high oil prices are having a positive influence on activity. Saudi Arabia has seen large increases in Government spending including infrastructure. Lending to the private sector also grew and rises in the cost of key materials are evident, as demand outstrips supply.
The recent Middle East unrest has also had a positive effect in the United Arab Emirates, with hotels experiencing higher occupancy rates as people avoid regional hotspots.
The over-supply of apartments and offices in Dubai is being offset by under-supply in Abu Dhabi, although this will change once Abu Dhabi stock is delivered, bringing rental levels much closer to Dubai and reducing the need for people to live in Dubai and commute to Abu Dhabi on a daily basis.
Asia’s construction industries have come through the financial crisis in relatively good shape. The bursts of building cost inflation seen in the first half of the year have given way to more restrained escalation as markets respond to, for example, government-led cooling measures in China.
Alongside the earthquake in New Zealand and its inevitable consequences, we must also highlight the tragic earthquake and tsnunami that rocked Japan.
This has had a major impact on the world’s third largest economy and has severely affected its construction industry.
● Lance Taylor is chief executive at Rider Levett Bucknall