The Middle East’s ambitious giga-projects and state-backed developments are driving construction activity across the region. This rapid investment, paired with inflation falls and economic diversification, continues to attract global talent while also impacting supply chain capacity.
The International Construction Market Survey (ICMS) 2024 report, from global professional services company Turner & Townsend, shows that rising demand, particularly in the Kingdom of Saudi Arabia (KSA), is pushing up construction costs.
Riyadh is the region’s most expensive city to build in at $2,593 per square meter, as the Saudi capital benefits from accelerated growth. Both domestic and foreign funds are capitalizing on state-backed initiatives such as NEOM and the 2030 Vision. At the same time, construction cost inflation in the city is easing from the highs of 7% seen in 2023, but is forecasted to remain high at 5% through 2024.
Demand is in part being fuelled by the significant increase in construction in sports, leisure, and hospitality as the country gears up for EXPO 2030 and the 2034 FIFA World Cup – a five-star luxury hotel in the city now costs an average of $4,798 per square meter. KSA has also been trying to attract global corporate occupiers with the price of an average high-rise CBD office in Riyadh now standing at $2,266 per square meter.
Riyadh is the region’s most expensive city to build in at $2,593 per square meter
Skilled labor shortages are also keeping costs elevated as KSA suffers from a distinct shortage of skilled labor that is vital to delivering its most ambitious programs. The talent and resources needed for giga-projects in the country are also stretching overall supply chain capacity across the Middle East.
In the face of potential labor bottlenecks across the Middle East, Turner & Townsend is advising clients to prioritize identifying the right procurement strategies and establishing innovative ways of working and digital techniques, to battle the capacity crunch and get more for less.
Skilled labor shortages are also keeping costs elevated
Mark Hamill, director and head of Middle East real estate and major programs, at Turner & Townsend, commented: “Over the past year, we’ve seen the Middle East continue to be a hub of major growth and investment as the region aims to move beyond its economic dependence on oil. The standout story is the accelerated development of KSA, where vast ambitions are being realized via projects like The Line, King Salman Park, and Diriyah Gate.
“Despite the KSA leading the pack in terms of activity in the Middle East, there remain considerable real estate opportunities in the UAE and Qatar as inflation cools. Nevertheless, with labor capacity being stretched across the region, clients will need to review their procurement and contracting models to help mitigate supply chain disruption and maximize the potential opportunities on offer.”
The standout story is the accelerated development of KSA
Globally, the ICMS report’s survey of 91 global cities shows the US continuing to dominate the rankings of the most expensive places to build, with six US cities in the top ten. New York has retained its position as the most expensive market to build in for the second year, running at an average cost of 5,723 per square meter.
Worldwide deglobalization trends and nearshoring prompted by supply chain disruption and geopolitical tensions are seeing growth and investment in manufacturing, especially in emerging international markets such as Malaysia, Indonesia, Nigeria, Brazil, and Mexico. Labor constraints remain a significant inflationary factor globally, and all but three of the 91 markets surveyed reported an impact from a shortage of skills.