A glimpse on the rise of mega projects
Posted on 18th December 2015 in Articles
The Mohammad Bin Rashid (MBR) City, a ten-year, multibillion-dirham project, is one of the most expensive projects under construction in the region. The mixed use project is set to become home to Mall of the World, the world's largest retail destination, and a family leisure entertainment complex that is being built in partnership with Universal Studios. Mega projects such as this are creating enormous opportunities for contractors, sub-contractors, suppliers, and manufacturers in the Middle East. The Ventures Onsite report, GCC Major Building Projects, outlines the top 30 projects set for construction in the region over the next two decades, noting that a third of these major developments are yet to appoint a main contractor.
Lapita hotel in Dubai Parks and Resorts is the first of its kind in the region / Image Credit: Archives, gulfnews.com
''Mega projects are creating immense opportunities not only for the construction sector, but also for the economy of the country as a whole,'' explains Mibu John, Director of Syndicated Research at Ventures Onsite. ''The UAE's construction industry gained much of its momentum during the construction peak in 2006-08, especially due to such mega developments as the Palm Jumeirah, Saadiyat Island, Dubai Sports City, etc. These mega projects will have a mix of various projects within — residential, commercial, retail, educational, recreational, hotels, hospitals, etc.''
In the Ventures Onsite report, the value of the top 30 mega projects in the region is estimated at $340 billion (Dh1.25 trillion). ''A third of these projects have yet to appoint a contractor, but the overall demand that these projects are creating for skilled engineers, project managers, building materials, heavy vehicles and construction machinery alone is enormous,'' says Josine Heijmans, Event Director for The Big 5 2015, the largest construction exhibition in the Middle East. ''This has an impact across the entire supply chain, creating local jobs and economies. On top of that, the increased focus on the environment is creating a demand for green building materials and regulations that is enabling Dubai to live up to its ambition of becoming a pioneer of green construction.''
Master-planned communities such as Mohammad Bin Rashid City, Bluewaters Island or the more recently announced Dubai South have direct and indirect impact for the industry as well as the economy. ''These mega projects, which are scheduled to span decades to be completed, will go through several phases, including a planning and design phase, a bidding process, execution of construction phase and procurement,'' says John. ''Each of these stages will require a range of professionals and workforce members to supervise and execute.''
John says the mega developments have helped stimulate the job market, creating opportunities for consultants, contractors, manufacturers, suppliers and service providers, which in turn will provide work for companies further down the supply chain. ''Most of these projects will require specialist services, which will create opportunities for specialist international companies to set up shop in the region,'' says John. ''In addition to job creation for nationals as well as expatriates, another direct impact is the infrastructure development for the area [being developed].''
Developers in the country have in the past ensured that project designs offer a mix of elements, which has led to some of the mega projects becoming architectural marvels such as the Palm Jumeirah or the Burj Khalifa. Others have enhanced their uniqueness such as the museums on Saadiyat Island and the F1 circuit in Yas Island. According to John some of the architectural landmarks have become important attractions that support other industries such as tourism.
Furthermore, communities and properties close to or easily accessible to the mega projects have enjoyed price appreciation and are bound to boost their market visibility and footprint.
According to the GCC Construction Industry Report 2015 by investment banking firm Alpen Capital, the UAE accounted for the biggest share of projects last year at $525.6 billion (Dh1.93 trillion) followed by Saudi Arabia ($407.8 billion), Kuwait ($123.6 billion), Qatar ($113.8 billion) and Oman ($29.6 billion). Going forward, part of the Gulf region's strategy to attract more investments in the construction sector is by hosting global expos and showcasing itself as a preferred tourist and investor destination. The marketing led initiatives are expected to help the industry grow at a compound annual growth rate of 11.3 per cent from $91.5 billion in 2013 to around $126.2 billion by next year. The ongoing efforts to reduce the GCC's dependency on hydrocarbons have resulted in an increase in capital investment (as a percentage of the GDP) in the construction industry. This increase is expected to be channeled towards meeting the high construction demand across the region.
''Mega projects in the GCC represent projects that either enable the achievement of goals as per each country's economic vision strategy, or represent the development required to host international events such as the World Expo 2020 in Dubai and the 2022 Fifa World Cup in Qatar. The general theme of each country's economic vision is overall development across key sectors such as infrastructure, business, tourism, education, hospitality, health care and retail, which also translates to more opportunities for construction companies.
Out of these sectors, infrastructure, business, affordable housing and health care represent a common ground for all countries. Other sectors will experience varying levels of development based on the economic blueprint adopted by each country. For example, Saudi Arabia is focusing on developing its religious tourism, economic mix-use zones and industrial sectors. The UAE is focusing on the hospitality, leisure tourism and retail sectors. Qatar is focusing on sports tourism, while Bahrain and Oman are focusing on leisure tourism.
Mega projects have been announced in the form of economic cities (mix-use), industrial zones, medical cities, airports, seaports, metro/rail and roads networks, mall developments, affordable housing and leisure developments such as theme parks and museums, says Sanjay Bhatia, Managing Director of Alpen Capital.
According to the Emirates NBD Research — Dubai Economy Tracker, construction activity expanded at a slower pace in October, but the index reading of 56.1 was higher than the entire economy, and well above the neutral 50-level, pointing to a robust growth in output in September. The report goes on to state that new work rose at a solid rate, although the index slipped to 57.2 from 60.7 in September.
Employment also rose at a faster rate in the construction sector, compared to the entire economy. However, margins remain under pressure, with output prices declining at a faster pace in October relative to September, while input costs rose more sharply. ''The price discounting evident in the construction sector survey is consistent with anecdotal evidence of increased competition for new work and renegotiation of contracts for large projects,'' according to the report.
With the region's strategic location serving as a transit hub between the East and West, the GCC is playing host to a number of international events, which in turn opens opportunities in related sectors such as real estate, tourism, retail, hospitality and construction. This as mixed use mega projects will continue to play a pivotal role in defining the construction landscape of the region. This growth is also marked by a slew of international players aggressively competing for the share of opportunities in the GCC construction industry, standing to benefit through reduction in risk, easier execution of projects and domain expertise.
Michael Heywood, Strategic Director at Atkins, says the steady transition of the Middle East property market from individual properties and iconic buildings to large-scale integrated developments has significantly changed the relationship between client, consultant and contractor.
''It has brought us together more closely than ever before, creating one of the most exciting, challenging and dynamic markets in the world,'' says Heywood. ''It is an exciting time of adaptation and new relationships.''
This transition has not been without its challenges. The size and scope of major property opportunities goes hand-in-hand with the pressures of government-backed funding and the programme expectations of ambitious national visions. ''One could describe this transition as a maturing of the market, and I would not disagree with that, but it is also true to say that end-user expectation is also changing, with strong demand for healthy living, great spaces, integration and flexibility,'' says Heywood.
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