Saudi was the strongest performer across the GCC in terms of the total value of construction project awards by year-end 2020. The Saudi construction market is anticipated to grow by 2.9% in 2021, according to a JLL November construction report.
Tender price inflation
JLL tracks Saudi tender price indices growth at 4% year-on-year (yoy) for 2021 and a forecast of 4.5% for 2022. Ongoing supply chain disruptions as a result of the pandemic continue to present challenges for developers and contractors alike in both existing and future planned contracts.
Commodity & material trends
Metal prices reached a 10-year high, with copper increasing by 89% (May 2020 to May 2021) and iron ore by 116% as production cuts were aligned with reduced demand. JLL anticipates that commodity prices, especially steel, will decrease from recent highs during the end of 2021 and into 2022.
Construction contracts include an amount for preliminaries or site general requirements costs. Typical examples of these costs are management staff, site office accommodation, main items of plant and equipment, power, water, temporary supplies, bonds, insurances, and other fees. Over recent years, JLL has observed a steady increase in the duties and levies applied to both employers and employees.
As the construction market in Saudi heats up with mega and giga-projects coming online, clients are already starting to court regional and international contractors. The involvement of these contractors is likely to increase standards in both safety, quality, and management, all impacting the staffing of construction projects and hence a further upwards pressure on main contract preliminaries.
GCC construction market overview
The GCC construction equipment market is expected to grow at a CAGR of over 7.34% and reach a volume of 100,000 units by 2027 and revenues of $3.7 billion by 2027.
The GCC construction sector has a strong pipeline of projects across transportation infrastructure such as airports, railroads, highways, ports, and construction of new cities throughout GCC countries, especially Saudi, which is planning to spend $300 bn on new infrastructure, including massive passenger rail networks and a new airport for Riyadh.
It has been estimated that there are $1 trillion worth of megaprojects being developed across the region: from malls with ski slopes to record-breaking towers, and projects devoted to sustainable living.
NEOM, the Kingdom’s flagship project, the Red Sea Project, and Qiddiya, the capital of entertainment, are some of the key projects shaping the country’s tourism ambitions and helping to transform its landscape.
UAE projects such as the Hatta Master Development Plan have become an integral part of the Dubai 2040 Urban Master Plan, which aims to transform Hatta into an attractive local and international destination for business, investment, and tourism. Another project, the Etihad Rail, will run from Ghuweifat on the western border with Saudi to Fujairah on the UAE’s eastern coast.
The construction industry looks to utilize a range of technologies, in addition to AI, to help advance projects in the future. Technologies such as 3D printing augmented and virtual reality, blockchain, drones, and the Internet of Things (IoT) all look set to revolutionize the sector across the region.