UAE Quarterly update July 2024

PROPERTY & CONSTRUCTION

Within this quarterly update for the period ending June 2024, we outline the most recent data on the construction market and how these trends impact the UAE construction sector.

As of Q2 2024, the International Monetary Fund (IMF) forecasted economic growth of 2.5 per cent across the GCC regions. This represents an increase from 0.5 per cent in 2023. The moderate growth in 2023 was attributed predominantly to the reduction of oil production. The same IMF report outlines that non-oil sectors across the GCC are showing robust growth, driven by an upsurge in domestic demand, enhanced gross capital inflows and the execution of structural reforms aimed at diversifying economies beyond oil dependency.

As of Q2 2024, the Central Bank of UAE projects GDP growth of 3.9 per cent for 2024, largely reflecting the strong performance of the non-oil sector, down from the previous estimate of 4.2 per cent. The same Central Bank of UAE report outlines that growth forecasts are driven mainly by tourism, transportation, financial and insurance services, construction and real estate and communications sectors, while the extension of oil production cuts during 2024 partially moderate the overall growth.

According to Emirates NBD, the UAE enjoyed the fastest non-oil growth in the GCC region last year, at 6.2 per cent GDP, and while Purchasing Managers’ Index (PMI) survey data indicates that momentum has slowed a little in the first half of this year, it remains well in expansion territory. Official data shows that private consumption was the key driver of economic growth in the UAE last year, although this was supported by public sector consumption, as well as investment. However, Emirates NBD expects private consumption growth to moderate this year as consumers face higher costs of living (particularly housing), as well as higher interest rates on their loans.

As of Q2 2024, Emirates NBD also outline that the UAE’s PMI cascaded to 54.6 in June 2024 from 55.3 in May 2024. Emirates NBD note that this is well above the neutral 50.0 level and continues to indicate robust growth in the private non-oil sector, but nevertheless there is evidence that the pace of expansion is softening and this was the lowest reading since February 2023.

MEED reported that the UAE saw $9.8bn worth of deals awarded in June 2024, which is more than the $2.4bn contract awards recorded in May 2024. The oil and gas industry again led the value of deals signed in the UAE.

Source: International Monetary Fund, Central Bank UAE, Emirates NBD and MEED

Although the UAE’s market is somewhat sheltered from the double-digit inflation factors experienced post-pandemic, up to 2023 in other nations, there is still a cause for concern in 2024.

Historically, tender returns are sluggish to reflect price increases as tender periods can be prolonged across price hike cycles and tenderers look to keep historic norms in a bid to be more competitive.

Taking a look at the forecasts for 2024, price increases are anticipated to fluctuate throughout the year as ongoing market volatility continues. In addition, as top tier contractors focus attention on the intensifying and potentially lucrative KSA market, the UAE’s construction sector is likely to see less competitive and risk adverse pricing for larger scale works. This may require tendering entities to re-evaluate tender scoring mechanisms away from traditionally skewed lowest price awarding of contracts.

As global inflation and fiscal burdens continue their journey at rates greater than those experienced in the UAE, further pricing pressures are likely to emerge. In consideration, AECOM forecasts that the UAE TPI has the potential to increase between 3.5-5.0 per cent in 2024, as global market volatility continues to be sustained.