As costs increase, construction companies in the UAE and Saudi Arabia are turning to AI, modular construction, and sustainability to address the challenges.
According to a report by project management specialists, Currie and Brown, construction costs are poised to rise in the UAE and Saudi Arabia this year.
In 2024, construction costs in the UAE are expected to see a 2-3% increase, while in Saudi Arabia, the rise is projected to be between 5-7%, following respective increases of 3% and 7% in 2023.
This upward trend in costs will present challenges for construction firms, necessitating the development of new processes and capabilities to manage costs effectively and ensure the successful completion of projects.
UAE and Saudi construction costs
The insights are presented in Currie and Brown’s report titled “How to navigate 2024: Balancing challenge with opportunity.”
To guide organizations through uncertainty and enhance cost-effectiveness, the report suggests that project teams take action in the following areas:
1. Embrace innovative work approaches, such as modular construction, to mitigate the impact of local shortages in skills and materials, ensuring more certainty in construction costs. Collaborative efforts among developers, consultants, and contractors will also bring about clearer schedules, enabling the early securing of skilled labor.
2. Integrate sustainability at every project stage. Companies should assess the carbon footprint of projects throughout development to ensure compliance with current and future standards. This approach reduces the need for additional investments in the future and provides operational efficiencies sooner, thereby decreasing the overall cost and carbon impact of their properties.
3. Embrace digitalization. From artificial intelligence to advanced data analytics, digital technologies offer novel ways to enhance project return on investment and anticipate and manage upcoming challenges. Organizations should be receptive to the potential of emerging technologies and collaborate to apply them where they can contribute the most value to projects.
Doug McGillivray, Managing Director for the Southern Gulf, expressed that the construction industry will face new challenges in 2024, but these challenges also bring opportunities for both companies and their clients.
By prioritizing sustainability, adopting digital technologies, and innovating work processes, operational efficiencies can be achieved by both parties. This approach not only helps offset the current and future increases in construction costs but also contributes to the creation of improved, sustainable built environments.
The escalating construction costs are not unique to the Middle East. Currie and Brown anticipate cost increases across all their operational regions in the upcoming year. While the extent of these increases varies from market to market, inflation remains the primary challenge and a significant driver of rising costs in the construction industry.
Towards the close of 2023, there seemed to be a slight easing of inflation, but the situation is dynamic in the Gulf region, with persistent inflationary pressures. Developers in the area continue to grapple with unpredictable price fluctuations, although the stability in the current oil price provides some balance.
Sustainability regulations are becoming more stringent across the Gulf, with Dubai hosting COP 28 at the end of the previous year, leading to a renewed emphasis on sustainability in the region. Although compliance with new regulations may temporarily raise costs, the long-term trend of decarbonization aligns with a reduction in operational costs.
A rise in costs is being fueled by shortages in skills and materials throughout the region. The construction industry is grappling with strained supply chains, and there is intense competition between the UAE and Saudi Arabia to attract skilled professionals from outside the region, posing an ongoing challenge.
The continuous announcement of new projects on a weekly basis is further intensifying the pressure on both supply chains and recruitment efforts.
Doug McGillivray emphasized, “The construction industry is consistently facing the significant challenge of cost escalation, a situation that is not new. Since June 2023, the costs of raw materials, such as steel, cement, and concrete, have increased in both the UAE and Saudi Arabian markets. As an industry, collaboration with our clients is essential to develop solutions for managing this long-term trend. Addressing cost drivers and providing greater certainty for the future requires a focus on long-term trends.”
