Regional overview

Middle East

⏱ 3 min read

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Nation-building at giga-scale

Author: Mark Hamill, Regional Real Estate Lead, Middle East

Despite an unsettled political backdrop, rapid levels of investment are driving growth in the Gulf as countries look to diversify away from conventional energy. ‘Giga-projects’ are attracting global talent, while stretching supply chain capacity.

With central bank interest rates beginning to fall from the highs of previous years, state-backed developments and giga-projects as part of various nation-building initiatives are continuing to drive construction activity across Gulf states.

According to the IMF’s World Economic Outlook, GDP in the Middle East region is forecast to rise by 2.8 percent in 2024 and 4.2 percent in 2025 – representing a positive trajectory, especially relative to other emerging markets. This has been buoyed by the huge number of opportunities in major mixed-use, sports, leisure and residential development.

Current tendering condition

Future market outlook

State-backed initiatives driving growth

The standout story across the region has been the accelerated growth in the Kingdom of Saudi Arabia (KSA). KSA, which by our data ranks as the world’s 19th most expensive country to build in, has seen remarkable investment as both domestic and foreign funds look to capitalise on state-backed initiatives such as NEOM and the Government’s wider 2030 vision. This has led to a growth of the major mixed-used development sector as schemes like The Line, King Salman Park and Diriyah Gate begin to take shape.

KSA is gearing up for EXPO 2030 and the 2034 FIFA World Cup by building in the necessary capacity, while also making overtures to global corporate occupiers through its Regional Headquarter Programme. This scheme encourages companies to launch offices in KSA and there are cost advantages to office investment with an average high-rise central business district office in Riyadh costing a relatively low US$2,266 per m².

The UAE has been a hotspot for tourism in the region in recent years and its relatively low cost of construction, when compared with Western markets, still makes it an attractive place to build the hubs and amenities for international visitors.

In Dubai, residential development is buoying the local market as the city aims to support its growing population. Its attractiveness as a market is bolstered by its comparably low cost of construction with high-rise apartment buildings costing US$1,334 per m².

Data centres are an emerging sector – owing to the vast areas of land, easy access to financing and increasing demand for digital infrastructure as the Middle East expands.

There has been a marked increase in construction in sports, leisure and hospitality in KSA and the United Arab Emirates.

How do you think supply chain will perform in the coming 12 months?

Approximately, how has programme length changed over the past 12 months?

Understanding the pinch points

Across the Middle East, however, there are factors that are restraining its collective plans. KSA is suffering from a distinct shortage of skilled labour that is vital in delivering the country’s giga-projects.

The draw of activity in KSA contrasts with a comparable softening of market conditions in other regional capitals. As a result of this easing of demand, average labour prices in Doha have fallen slightly over the past year, with the overall rate of construction cost inflation lessening from 3.5 percent in 2023 to 2.5 percent in 2024.

Abu Dhabi has felt a similar phenomenon, seeing its own average labour costs nudge down slightly and its rate of overall construction cost inflation plateauing.

Our survey has indicated that clients in KSA have found the shortage of skilled labour to be one of the greatest challenges for the country.

Paving a pathway to success

Innovation in procurement is one route to addressing bottlenecks by attracting a wider pool of contractors into a market that remains dominated by larger firms.

Overall, there is a need for clients to think strategically about supply chains and investments and to integrate greater collaboration in their contracting models.

With inflation expected to come down and capacity potentially levelling out, there may be a more balancing of activity across the region. Even still, businesses should be thinking about how they can get more from less through advanced techniques and digital strategies.