Market overview

UAE market overview

S&P Global’s PMI report , released in January 2024, indicated that the UAE's economy saw its second-best growth in four and a half years. The country witnessed a 3.8 percent expansion in Q2 2023, primarily driven by robust non-oil sector growth and declining oil production. This growth was accompanied by a record-high non-oil trade of AED3.5tn, reflecting a 12.6 percent increase compared to the previous year.

The UAE's commitment to economic diversification and growth is evident through initiatives like the Dubai Economic Agenda (D33) – a comprehensive strategy which aims to fortify the UAE's position as a leading global hub for investment and trade. By leveraging advanced technologies like artificial intelligence and fostering partnerships with global stakeholders, the UAE is poised to continue to attract significant foreign direct investment.

Source: Turner & Townsend survey

Inflation

In May 2022, the UAE Federal Competitiveness and Statistics Authority noted that inflation stood at 2.5 percent, before surging to 6.8 percent in the second quarter of the same year. By September 2023 inflation stood at 3.8 percent.

While inflation has as a result increased the cost of construction due to fluctuation in the prices of raw materials, the UAE’s real estate has been less impacted compared to other nations.

That said, on a global scale, The World Bank predicts that tight monetary policies, a robust US dollar and a slowdown in economic activity will contribute to maintaining subdued inflation rates in 2024.

UAE construction market overview

Against a backdrop of slowed economic growth, the global construction sector has grappled with both high inflation and high interest rates, which in turn has put constraints on investor sentiment. By contrast, the Middle East construction industry continues to defy global trends.

The regional construction industry had a busy year in 2023 and continues to be on positive trajectory; it is expected to grow at a significant compound annual growth rate (CAGR) of over 6.3 percent from 2023-2030. This growth hinges on strategic investments in transport infrastructure, renewable energy, housing, industrial and tourism projects.

The UAE construction market is projected to grow from US$41bn in 2024 to US$50.40bn by 2029, with a projected CAGR of 4.26 percent during the forecast period (2024-2029).

Highlights from our survey of construction professionals across the UAE showed:

A perceived increase in market activity in 2023 compared to the latter part of 2022 noted by the majority of respondents

A significant portion (25 percent) reported a perception of market stability, with only six percent observing a cooling trend.

The majority of respondents (85 percent) employed by developers perceived a warming market, showing a slight decrease from 93 percent in the previous survey conducted in 2022.

The noticeable increase in market activity in the UAE construction sector during 2023 compared to the latter half of 2022 suggests a substantial uptick in construction projects, both underway and planned, leading to a more favourable outlook for the industry moving forward.

“On the back of the high oil prices over the last two years, there appears to be a re-investment of local funds into the UAE market. Equally, the UAE consistently attracts foreign investors at a consistent pace.”

Anonymous Turner & Townsend survey respondent

Pioneering ventures

Throughout 2023, the UAE introduced a plethora of new ambitious real estate projects, examples of which include:

The US$3.5bn Ramhan Island project by Mohamed Alabbar.
The US$20bn Oasis project by Emaar.
Azizi Development’s US$8bn Venice project in Dubai South.
Palm Jebel Ali, an ambitious mixed-use, sustainable-focused community development, designed to accommodate an estimated 35,000 families.
Aldar Properties’ US$2bn Balghaiylam Abu Dhabi residential project, which aligns with the Abu Dhabi government’s strategy of leveraging public-private partnerships for affordable housing. The project underscores the residential sector’s vibrancy and expansion within the Emirate.
Wynn Resort, Ras Al Khaimah, the first integrated resort in the MENA, is located on Al Marjan Island. Planned to open in 2026, the multibillion-dollar resort will house more than 1,000 rooms, a luxury spa, multiple restaurants and lounges, alongside a wide range of entertainment venues and gaming areas.
MAG Keturah Reserve, a luxury residential development located in District 7, Mohammed Bin Rashid Al Maktoum City, inclusive of townhouses, villa plots, apartment complexes, hotels, workspaces and educational institutions.

Pipeline and recovery

In Q3 2023, construction activity in the UAE surged to a five-year peak for new business inquiries, as reported by the latest findings from the Royal Institution of Chartered Surveyors (RICS) global construction monitor.

Looking back to Q4 2022, in the face of a global economic downturn, the UAE real estate sector defied the trend and demonstrated impressive resilience.

Recovery in the real estate sector continued during 2023, with renewed interest in long-term projects such as Palm Jebel Ali and Dubai Islands by Nakheel, indicating a positive market sentiment. Emaar Properties also resumed work on its Dubai Creek Tower project, previously paused since the completion of its concrete pile cap works in 2018. The development is now undergoing redesign and is anticipated to commence construction in late 2024.

By Q4 2023, the Dubai real estate market saw a significant increase in residential capital gains, reaching its highest level in 10 years. The ValuStrat Price Index showed a year-on-year increase of 19.9 percent.

Developers continue to launch new housing and residential projects to meet the UAE’s growing population. Around 80,000 units were under construction in 2023 across Dubai and Abu Dhabi (Reidin data Analytics).

Strategic transition in 2024

While the real estate sector will always be prominent in Dubai’s overall construction landscape, the market is poised for a transformative shift in 2024, redirecting its focus to pivotal major public infrastructure projects such as:

The Deep Tunnels Portfolio, which involves developing deep-gravity sewage tunnels and treatment plants across the emirate, utilising recycled water distribution systems.
The recommencement of Al-Maktoum International Airport expansion project, which aims to increase the airport’s capacity to 260 million passengers a year by 2050.
The construction of Dubai Metro's Blue Line, which will serve as an extension to the existing Red and Green lines and connect to The Dubai Creek Harbour development in Ras al-Khor.

The Dubai Government's budget statement for 2024 emphasises this forthcoming transition and shift in construction dynamics.

The UAE’s Infrastructure Strategy is focused on inclusiveness and integration in energy and infrastructure at the national level, to enhance the country's overarching competitiveness.

Abu Dhabi infrastructure developments

Abu Dhabi is also undergoing major infrastructure developments such as upgrading roads, implementing a light rail transit system and redeveloping Mina Zayed port.

The Abu Dhabi Urban Structure Framework Plan, commonly referred to as Plan Abu Dhabi 2030, details the city's development strategies in accordance with the Abu Dhabi Economic Vision 2030. This extensive plan presents key guidelines for improving communities, constructing infrastructure and transportation networks and bolstering the economy.

Navigating headwinds

Despite the UAE construction sector performing well compared to other global locations, the industry has still somewhat struggled with challenges stemming from inflated supply chain prices, marginable stability in shipping freight rates and limited capacities caused by global economic volatility.

While the UAE's construction pipeline continues to pick up momentum, stakeholders acknowledge the common pressures and challenges typical to UAE projects and are progressively turning to technology to leverage opportunities, drive profitability and ensure timely project delivery.

When asked to express opinion regarding market disruption anticipation over the next 12 months, 50 percent of respondents we surveyed expressed confidence in the absence of significant disruptions, 34 percent voiced concerns, with an additional 16 percent refraining from comment.

Source: Turner & Townsend survey

Of those surveyed, 34 percent anticipated disruption:

Supply chain constraints were cited by 73 percent of respondents, with 64 percent noting geopolitical factors as noteworthy.

highlighted resourcing constraints and 45 percent mentioned concerns about project financing.

Scheduling apprehensions emerged as a concern for 27 percent of respondents.

Less than 10 percent of respondents identified the implementation of digital technology, net-zero legislation and further pandemic-related impacts as factors likely to cause disruption in the near future.

Source: Turner & Townsend survey

The findings suggest a twofold concern within the construction industry. Firstly, apprehension regarding potential disruptions in the market over the next 12 months. This sentiment stems from various factors, primarily centred around challenges in the supply chain, geopolitical uncertainties, resource availability and financing issues for upcoming projects. These concerns indicate a perceived vulnerability within the industry, reflecting worries about the stability of future operations and project execution.

Secondly, there's an interesting contrast in market sentiment. While half of the respondents remain optimistic, a significant portion, 34 percent, express apprehension. The complexity of the market landscape and differing perspectives show the need for adaptive strategies.

In addition to the mentioned market constraints, several survey participants highlighted that the warming trend in the industry has resulted in a shrinking pool of available contractors. With contractors currently engaged in ongoing projects, there has been a noticeable decrease in bidding activity for new ventures.

“The tightening of the contracting pool is leading to increased competition, potential delays and cost escalations. Limited bidding activity may also impede the industry's ability to maintain consistent growth and expansion, thereby influencing overall market dynamics.”

David Griffiths Director, UAE Real Estate Lead, Turner & Townsend

Cookie Policy