Dubai’s construction sector gets boost after strong Q1

Dubai’s construction sector is expected to improve this year after a pickup in activity and project awards in first quarter, analysts and industry experts told Argaam.

A total of $6.6 billion worth of new contracts were awarded during the quarter, marking the highest level since Q1-2014, according to new data released by Middle East Economic Digest (MEED).

This figure represents 66 percent of all awarded projects in the United Arab Emirates, and 60 percent of all construction deals in the GCC region over the same period.

Improved Sentiment

The major driver for this pick up in project launches is sentiment, according to Craig Plumb, head of research at JLL MENA, which always has a major influence on the Dubai real estate market.

“There is an increasing feeling that 2016 will represent the bottom of the cycle, particularly for residential real estate and that prices and rents will pick up again from 2017 onwards,” Plumb said.

The picture, however, is much different in Abu Dhabi and throughout the rest of the Gulf, as project markets remain sluggish amid declining oil prices.

Contract spending in Saudi Arabia is down when compared to last year, as the government attempts to settle delayed payments to contractors, which has been mounting in recent months.

Mega Projects on the Horizon

Large portions of new contracts are related to large-scale projects, which fall under Expo 2020 plans, such as the expansion of the Dubai Metro.

“Expo 2020 is definitely one of the reasons as it directly and also indirectly drives the demand for key infrastructure and supporting development needs,” Nishit Lakhotia, head of research at Bahrain-based Securities & Investment Company (SICO) explained. 

Other major projects in the pipeline include the $1 billion tower at Dubai Creek Harbour, led by Dubai-listed Emaar Properties. Simply dubbed “The Tower,” it is expected to be taller than Burj Khalifa. Emaar is also in the planning stages for a major retail center that would be larger than Dubai Mall.

“Currently, there is a lot of new investments in social infrastructure projects, as well as in hotels, education, and healthcare,” Ed James, director of analysis at MEED Projects told Argaam. “Population growth and the government’s strong commitment to maintain investments in the emirate will also support performance going forward.”

Project Delays Possible

Despite renewed confidence, analysts are still cautious. Major challenges remain, as well as economic issues that could possibly de-rail some projects.

“We do expect to see continued project delays.  The biggest challenges facing the construction industry in 2016 will be access to funding and the strength of end user demand,” Plumb said, adding that “less than one third of all announced residential supply has actually materialized in Dubai in recent years.”

Lakhotia says the emirate is still not immune to the impact of lower oil prices. He warned of a “material slowdown in activity” if oil prices don’t rebound to a level of $50-$60 per barrel, and added that the possibility still remains that “low liquidity will take its toll on the sentiments.”

Write to Joumana Saad at joumana.saad@argaamplus.com