Ambitious Saudi Giga-Projects Drive Middle Eastern Construction Boom

According to Turner & Townsend‘s 2024 International Construction Market Survey (ICMS), a global professional services company, highlights that ambitious state-backed developments and giga-projects are propelling construction activities across the Middle East. The surge in investment, coupled with inflation reductions and economic diversification, is attracting global talent but also straining supply chain capacities.

Saudi Construction Costs

The report indicates that the rising demand in the Kingdom of Saudi Arabia is elevating construction costs. Riyadh leads the region with construction costs at $2,593 per m², benefiting from rapid growth. Both domestic and foreign investments are leveraging state-backed initiatives like NEOM and Vision 2030. Although construction cost inflation in Riyadh has eased from the 2023 peak of 7%, it is forecasted to remain high at 5% through 2024.

This demand surge is partially driven by increased construction in sports, leisure, and hospitality sectors as the country prepares for EXPO 2030 and the 2034 FIFA World Cup. The average cost of building a five-star luxury hotel in Riyadh is now $4,798 per m², while the price for a high-rise CBD office stands at $2,266 per m². However, the shortage of skilled labor is keeping costs elevated, as the country struggles to meet the demands of its ambitious projects.

The need for talent and resources for these giga-projects is also stretching the overall supply chain capacity across the Middle East. Doha ranks as the second most expensive market in the region at $2,096 per m². Following the high construction output leading up to the 2022 World Cup, inflation is expected to decrease from 3.5% in 2023 to 2.5% in 2024, reflecting a softening in demand as investment and skilled labor migrate to Saudi Arabia.

In neighboring Dubai, the average construction cost is $1,874 per m². The city’s growing population and high tourism rates continue to drive activity in residential development and hospitality sectors, supported by relatively low labor costs. Consistent market investment, fueled by foreign visitors and skilled migrants, is expected to result in a 5% increase in construction costs through 2024.

Strategic Recommendations

Turner & Townsend advises clients to prioritize procurement strategies and adopt innovative digital techniques to navigate potential labor hold-ups and maximize efficiency.

Mark Hamill, director and head of Middle East real estate and major programs at Turner & Townsend, noted: “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 stand-out story is the accelerated development of KSA, where vast ambitions are being realised 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 labour capacity being stretched across the region, clients will need to review their procurement and contracting models to help mitigate supply chain disruption and maximise the potential opportunities on offer.”

Global Construction Trends

The ICMS report, surveying 91 global cities, reveals that the US continues to dominate the rankings of the most expensive places to build, with six US cities in the top ten. New York retains its position as the most expensive market globally at an average cost of $5,723 per m².

Worldwide deglobalisation 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.

Labour constraints remain a significant inflationary factor globally, and all but three of the 91 markets surveyed reported an impact from a shortage of skills.