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Saudi Giga-projects continue increasing construction costs

Article-Saudi Giga-projects continue increasing construction costs

Aerial view of Riyadh's business district along Fahad Road.jpg
Saudi Arabia's giga-projects drive up construction costs, especially in Riyadh, impacting the MENA region. Turner & Townsend suggests digital innovations to manage challenges.

Saudi Giga-projects continue increasing construction costs

Giga-projects in Saudi Arabia are ramping up construction costs. This is according to reports from Turner & Townsend, a global professional services company. These ambitious projects, backed by the state, are increasing construction activity in the Middle East. As a result, supply chains are being affected by the generated demand.

INCREASING CONSTRUCTION COSTS IN RIYADH

Riyadh stands out as the region’s priciest city to build in, averaging $2,593 per m2. The city benefits from rapid growth, driven by initiatives like NEOM and the Saudi Vision 2030. Construction cost inflation will most likely remain high at 5% through 2024, down from 7% in 2023.

Panoramic view of Riyadh city just before sunset

FACTORS INCREASING DEMAND & COSTS IN SAUDI CONSTRUCTION

The demand for construction is increasing due to EXPO 2030 and the 2034 FIFA World Cup projects. These events are driving growth in sports, leisure, and hospitality infrastructure.

Costs are also rising because there aren't enough skilled workers. Saudi Arabia lacks the necessary workforce with the skills needed for its projects.

The country's challenges include delivering these projects on time and within budget. So this situation highlights the urgency of addressing the skilled labour shortage.

CONSTRUCTION COSTS ACROSS THE MENA REGION

Doha follows Riyadh at $2,096 per m2, with construction cost inflation expected to decrease from 3.5% in 2023 to 2.5% in 2024. Yet, Dubai averages construction costs of $1,874 per square meter. This is due to active investment and relatively low labour costs.

Mark Hamill, director at Turner & Townsend, emphasizes Saudi Arabia’s rapid development too. He sees ongoing real estate opportunities in Saudi Arabia, the UAE and Qatar as inflation cools.

MITIGATING RISING CONSTRUCTION COSTS

Turner & Townsend helps clients in the Middle East with procurement strategies. They recommend using innovative digital construction and proptech techniques. These will help handle labour constraints and improve project results.

GLOBAL CONSTRUCTION TRENDS & PERSPECTIVES

Globally, the ICMS report shows that New York remains the most expensive city to build in at $5,723 per m2. The US dominates the rankings, with six cities in the top ten.

Supply chain disruptions are causing companies to move manufacturing closer to home. This is a trend known as nearshoring. So this shift is increasing investment in emerging markets such as Malaysia, Indonesia, Nigeria, Brazil, and Mexico.

Globally, labour shortages are pushing up construction costs and contributing to inflation. The ICMS report, which surveyed 91 cities, found that all but three of the cities face these rising pressures.

CONSTRUCTION COSTS CONTINUE PRESENTING PROBLEMS

In short, Saudi Arabia's giga-projects are driving up construction costs, especially in Riyadh. This trend is also seen across the MENA region. Turner & Townsend recommend proactive procurement strategies, digital innovation, and proptech solutions. These approaches help manage labour shortages and improve project outcomes in the face of these challenges.

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