REGIONAL OVERVIEW

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Demand continues to swell across Middle Eastern hubs

Efforts to diversify economies across the Middle East are fuelling robust construction demand, even as the giga projects adjust to changing market trends. From corporate office and data centres to tourism and residential, this is creating a new wave of opportunities. But with this comes a capacity challenge, which is putting pressure on costs.

The relatively low construction costs in the Middle East compared with other global regions are helping maintain the growth in demand across several sectors. The average cost per m² in Riyadh, the most expensive local market, is US$3,112 – well below markets like London at US$5,385.

This is not to say the appetite for work across the region is without challenges. As a limited pool of workers is increasingly stretched across a rising number of large-scale projects, many companies are dealing with skilled labour shortages. Every Middle Eastern market is reporting that these are having a large or major impact on project delivery. Coupled with a scarcity of key materials' availability, this is pushing up prices, with construction cost escalation forecast to be 5.0 percent through 2025 in major markets Riyadh, Abu Dhabi and Dubai.

Breakdown data

Data: Tendering conditions

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Data: Key challenges

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Data: Supply chain

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Data: Labour

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Data: Digital (BIM)

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Top performing sectors

Major mixed-use development

Residential and social housing

Transport and mobility (road, rail, airport and ports)

Sectors on the rise

Ongoing nation-building and national programmes aimed at diversifying economies away from oil and gas means major mixed-use developments remain strong. This is reflected in our survey which found this to be the top-performing construction sector region-wide in terms of activity levels. King Salman Park, set to be the world’s largest urban park, is one such project contributing to the quality of life for visitors and local people.

The data centre boom is also accelerating in the Middle East. Sovereign wealth funds like the Kingdom of Saudi Arabia’s (KSA) Public Investment Fund, the United Arab Emirates’ (UAE) Mubadala and Qatar’s Investment Authority are funnelling billions into the projects as part of long-term national strategies. In KSA, for example, the expansion is being underpinned by Vision 2030 and the national digital transformation mission and supported by greater public and private sector collaboration. The Public Investment Fund’s launch, for example, of HUMAIN, a company dedicated to the country’s AI infrastructure, reflects the country’s ambition to lead in resilient, AI-optimised data centre ecosystems.

INSIGHT "The data centre boom is also accelerating in the Middle East."

However, as markets like this grow, they are straining availability of specialist materials and skills. Lead times are lengthening – generators for projects in Dubai, for example, can take over 41 weeks to procure.

To help alleviate some of these bottlenecks, closer partnerships with local manufacturers can lower the dependency on global supply chains. This remains a major issue, with 75 percent of Middle Eastern markets reporting some instability and moderate supply chain delays.

Likewise, given the limited number of international top-tier contractors operating in the region, local upskilling is especially important and more could be done with local training to boost the talent pool.

Forces at play on a market level

The Middle Eastern market is changing as economies in the region grow and develop. April’s World Economic Outlook Update forecast KSA as the third fastest growing economy in 2026 (after China and India). Over recent years, KSA has become one of the most active construction markets in the world. In our international ranking, Riyadh averages at almost US$500 per m² higher than the next most costly market in the region.

Mining is emerging as a hot sector in KSA, which holds an estimated US$2.5 trillion of untapped mineral reserves. As both private and public investment in the sector builds, so does the need for warehouses to store the mined materials – but at 98 percent occupancy, Riyadh is close to full warehousing capacity. To unearth the full potential for growth in mining, as well as in wider sectors, there is pressure on local industrial and logistics to meet demand and help the region scale up its self-sufficiency.

KSA’s neighbouring market Qatar is grappling with a challenging environment, as it faces global economic and geopolitical headwinds and increased competition for a narrowing pool of projects after the completion of flagship programmes in recent years including the 2022 FIFA World Cup. There are still lots of opportunities in sports and leisure as Qatar places an emphasis on tourism, but a downturn in activity in other construction sectors is reflected in its construction cost escalation forecast, which is set to remain at 1.0 percent – significantly below the rest of the region – in 2025.

Diversification is being seen in other markets within the Middle East too. In the UAE, the IMF reported that the non-oil economy recorded a growth rate of 6.2 percent in 2024, and its highest-ever annual GDP contribution of 54.7 percent, driven by manufacturing and finance. This economic security is providing the platform for residential development to grow, with demand surging as the population booms and new residents move into the region.

Capitalising upon opportunities

Across the entire Middle Eastern construction market, there is clearly a wealth of opportunity. Mixed-use, hospitality and residential schemes are making the region a destination of choice for tourists and residents. KSA alone is set to invest over US$ 550 billion in new travel destinations over the next six years, making it the world’s largest investor in the sector. Delivering these plans against capacity challenges across the region will ensure companies are able to leave a positive legacy, both on the economy and the Middle East’s growing population.

Clients must decide how they want to work with their supply chain moving forwards. This involves collaborating with partners to put the right operating models in place and finding the balance between building local skills and drawing on global expertise.

Delivery also depends on keeping control of costs. There’s a significant opportunity to innovate through digital tools to address labour shortages and save money by making teams leaner. Our survey showed a majority of clients in KSA now investing in digital transformation. In addition, considering different delivery models, such as PMC, will help set up each project to be deliverable, ensuring the region’s ambitious programmes come to fruition.