The upturn is being sustained by a profusion of upcoming projects

As of April 2014, the total value of construction projects under way or in the pipeline in the UAE stood at $727bn, according to estimates from the Middle East Economic Digest (MEED), making the country the second-largest construction market in the GCC. Some 36% of this amount was made up of mixed-use developments, followed by residential (33%) and commercial (11%).

Companies operating in Abu Dhabi are set to benefit from a project pipeline replete with opportunities across a range of sectors in the coming years. MEED said in December 2013 that the emirate would award $30bn in construction projects by 2020. This did not include infrastructure works, which bring the figure up to $100bn, including $25bn in oil and gas projects and $20bn in transport infrastructure and chemical works.

Market Cycle

In current prices, sector GDP was Dh85.4bn ($23.2bn) in 2013, equivalent to 9% of Abu Dhabi’s total GDP and 20% of non-oil GDP. According to Statistics Centre - Abu Dhabi (SCAD), the construction sector grew by 0.6% in real terms over the course of the year, following growth of 0.6% in 2012 and 1.6% in 2011, and down from more rapid expansion of 9.7% and 32.3% in 2010 and 2009, respectively.

These figures suggest that the industry had reached, or was close to, the bottom of the construction cycle in 2013. Al Rumaithy Investment Group board member Rashed Ahmed Al Rumaithy told OBG that the industry was now poised to enter a period of expansion. “Having emerged from a five-year period of stagnant growth, the construction sector in Abu Dhabi is at the beginning of an upward swing thanks to new ventures and the reactivation of stalled projects. This growing momentum is expected to set a healthy trend for the coming four to five years.”

Against this backdrop of growth, the industry is facing a high degree of competition, which is putting more pressure on profits; although, Al Rumaithy told OBG, “Margins on average stand between 5% and 10%. However, companies are developing efficiency gains after the bidding process to push those margins further.”

One potential concern for the industry as it begins to move into an upswing is that the falling price of oil – as of late January 2015 it had dropped to just over $50 a barrel, from a peak of over $110 in July 2014 – could see a reduction in government-backed projects, leading to a drop-off in work for the sector. However, Sanyalaksna Manibhandu, research manager at National Bank of Abu Dhabi Securities, said that such a scenario was unlikely to develop in either the emirate or the wider UAE. “The government has a very large sovereign wealth fund and the capacity to raise fiscal debt to fund capital projects. So, in the short term, construction projects high on the priority list, and for which work has begun, such as infrastructure-related ones, will be continued. There would probably be a reassessment of projects that have not gotten off the drawing board, not because of a lack of funding, but because it is prudent to reassess things when key variables, such as the oil prices, change substantially,” he told OBG.

State-Backed Company

Among the major players in the sector is Arabtec. Although headquartered in Dubai, where it is the largest construction firm, the Abu Dhabi government became its main shareholder in November 2014, when state-owned Aabar bought a 16% stake in Arabtec from its former CEO, Hassan Ismaik, raising its share to just under 35%. Following the sale, media reported that Ismaik also intended to sell his remaining 11% stake in the firm.

Since the emirate began building up a significant stake in the firm in 2012, Arabtec has secured several major contracts in Abu Dhabi, including construction of Louvre Abu Dhabi and, as part of a three-company consortium, a major new terminal at Abu Dhabi International Airport. Its largest project is in Egypt; in March 2014 the firm announced it had reached an agreement with the Egyptian military to build 1m homes across 13 sites provided for free by the army, at a cost of $40bn. According to the initial plan, building work was due to begin in the third quarter of 2014, with the project to be completed by 2020. In September 2014 the firm announced that it had almost completed the planning and design phase, and that it had “made positive progress and results in its discussions with the concerned authorities in Egypt in order to commence the project as soon as possible”.

In 2013 the company launched a real estate development arm, Arabtec Properties, which in April 2014 announced plans for real estate projects worth $3.8bn, including three in Abu Dhabi. However, by June – before construction work had begun on any of them – it was reported that all of the projects had been put on hold.

Transport

The largest building project currently under way outside the energy sector in both the emirate and the UAE is the construction of a new terminal at Abu Dhabi International Airport, the Midfield Terminal Building, by a joint venture between Turkish airport construction company TAV, Greece’s Consolidated Contractors Company and Arabtec. The Dh10.8bn ($2.9bn) facility will include 700,000 sq metres of internal space, making it the biggest building in the emirate. It is expected to be completed in June 2017.

The Midfield Terminal Building will be built around 18 arches, with ceilings of 52 metres in height at their highest points and a roof span of 319 metres at its widest point. The building will require 69,000 tonnes of structural steel, 275,000 sq metres of aluminium cladding and 115,000 sq metres of external glazing, among other materials. The project incorporates an array of sustainable designs, practices and materials, and has a three-pearl Estidama rating (see Real Estate overview).

More large-scale transport infrastructure projects are in the pipeline as well. “We anticipate continued investment by the government to further develop infrastructure as it moves to achieve its 2030 targets. This should sustain growth in the construction sector, despite intensive competition,” Moufid Aswad, general manager for the UAE of CAT International, told OBG.

These projects include the 628-km second stage of the Etihad Rail project, which is expected to come online in 2018. The contracts for the phase were due to be awarded in the second quarter of 2014, but have been subject to delays. Another major project is the planned metro and light rail system, comprising an 18-km metro line and two light rail lines of 20.4 km and 16.2 km, as well as plans for a third 13.4-km circle line and a bus rapid transit system. The Abu Dhabi Executive Council approved funding for the project in March 2012, though a timetable has yet to be announced.

The two largest current road projects are a 62-km road running between Dubai and Abu Dhabi, known as the E311, being built south of and parallel to the existing route, to add capacity and reduce congestion, while the second is a 327-km, Dh2.1bn ($572m) road from Al Mafraq, close to Abu Dhabi City, to Ghweifat, on the border with Saudi Arabia. The two projects together have been divided up between six construction firms and consortia. Other local projects include a nearly Dh300m ($82m) plan to transform the 80-km road between Madinat Zayed and Ghayathi into a dual carriageway, which is due to be completed in 2017.

Energy

Efforts to expand energy infrastructure are among the largest drivers of activity in the industry. The energy sector accounts for the four largest engineering and construction projects under way in the UAE, according to Deloitte’s “GCC Powers of Construction 2014” report – all of which are taking place in or offshore of Abu Dhabi. Two of these are nuclear energy projects – namely the Barakah Nuclear Power Plants 1 and 3, the contracts for which are worth some $3.1bn and $4bn, respectively. In all, four nuclear plants are being built at Barakah in Al Gharbia, by South Korean consortium Kepco. The other two projects in the sector are an engineering, procurement and construction package for an offshore facility for the Upper Zakun oilfield, and an expansion of the Ruwais oil refinery. Refining, nuclear power and gas accounted for four more of the top 10 projects in the emirate (see analysis).

Health, Education & Religion

Several major projects are also ongoing or were recently completed in health and education. Among the most prominent is Cleveland Clinic Abu Dhabi, a multiple-speciality hospital being developed on Al Maryah Island by Mubadala Development Company and the Cleveland Clinic, an Ohio-headquartered hospital firm, and scheduled to open in 2015. The 409,000-sq-metre facility, which is being built by Six Construct and Samsung C&T under a Dh5.65bn ($1.54bn) contract, was originally due to open in 2013, but faced delays due to design changes and logistical challenges related to its location.

Another major project in the health sector is the construction of New Al Ain Hospital. In December 2013 Abu Dhabi General Services Company, Musanada, awarded a Dh4.3bn ($1.17bn) construction tender to a consortium made up of Arabtec and Spain’s Constructora San José. Work on the hospital’s 358,000-sq-metre main building is due to finish by 2018, and the complex as a whole is scheduled for completion by 2020.

In the education sector, May 2014 saw the completion of New York University Abu Dhabi, developed by Mubadala on a 450,000-sq-metre campus on Saadiyat Island. The facility was constructed by Al Futtaim Carillion under a design-and-build contract based on a master plan by Rafael Viñoly Architects. Its completion marked the tail end of a wave of construction in the higher education segment, with Paris Sorbonne University Abu Dhabi, Sheikh Zayed University (both of which are in Abu Dhabi City) and a new campus of UAE University in Al Ain having been completed in 2010, 2011 and 2012, respectively.

Another major project in Al Ain is Sheikh Khalifa bin Zayed Al Nahyan Mosque, which is due to open in 2016 and is being built by Arabian Construction Company (ACC) on a 256,680-sq-metre plot, which will make it one of the largest mosques in the emirate. Work on the project began in December 2013.

Cultural District

In December 2014 a major milestone was achieved in the construction of Louvre Abu Dhabi when the museum’s 7000-tonne, 180-metrewide central geometric lace dome was placed in its final position. Located on Saadiyat Island, the museum will house 9200 sq metres of gallery space, including a 6681-sq-metre permanent gallery. The museum’s first gallery was completed in March 2014 and the building is due to be finished by the fourth quarter of 2015. The contractors on the Dh2.4bn ($653m) project are Arabtec, Constructora San José and Oger Abu Dhabi.

The project is part of the Saadiyat Cultural District, which is being developed by the state-run Tourism Development and Investment Company, and is the largest mixed-use project under development in the Gulf region. The facility, which was designed by Jean Nouvel and will be a universal museum focusing on works from all major historical periods, is the first of several planned for the cultural district, alongside Zayed National Museum and Guggenheim Abu Dhabi. A tender for construction of Zayed National Museum, which will be the centrepiece of the cultural district, was issued in 2013, but as of late 2014 had yet to be awarded. The facility, which will have a built-up area of 66,198 sq metres, has been designed by Norman Foster. Guggenheim Abu Dhabi, designed by Frank Gehry, will focus on contemporary art and culture, and will house 18,000 sq metres of exhibition space.

Housing

The government is in the midst of a major programme of housing development and construction aimed at Emirati citizens, which forms an important element of the Plan Capital 2030: Urban Structure Framework Plan. Local real estate developer Aldar Properties has participated in several major projects under the scheme, including Al Falah (see below).

In 2012 the authorities announced the formation of a new housing authority to oversee the programme, including infrastructure work and coordinating applications for housing, plots of land and loans.

Prominent elements of the programme include a Dh2.7bn ($735m) project to build 12,500 homes for citizens across nine sites, which was announced in January 2013. The Zayed City project to build a second major hub in Abu Dhabi City (see Real Estate chapter) will also see the development of a 1440-ha Emirati residential neighbourhood, including 2723 villa plots in its first stage. In November 2013 government services firm Musanada issued an infrastructure tender for the project, which was first outlined in 2007 under the Plan Capital 2030: Urban Structure Framework Plan.

Major housing construction tenders to have been awarded under the initiative in recent years include a Dh500m ($136m) contract awarded in August 2012 to local firm National Transport & Construction to build 353 residential units at the Al Ghaythi project in Al Gharbia, following the firm’s receipt of a Dh625m ($170m) contract for 433 villas in the same project the previous month. More than 1000 houses built under the third phase of the Al Falah development were handed over to their new owners in August 2013; the project as a whole is for the construction of some 4857 villas on 12.5m sq metres of land.

In April 2014 Musanada said it would soon launch work on a Dh637m ($173m) initiative to build 348 housing units and associated infrastructure at two sites, Al Shuwaib and Al Shuaiba, in Al Ain City.

Workforce

The construction sector is the largest employer in Abu Dhabi by far, accounting for 26% of male employment and 22% of overall employment in 2013, according to data from SCAD. Workers in the industry are overwhelmingly expatriates, with construction accounting for 0.6% of employment of nationals in 2013, compared to 24.5% of expatriate workers (who also substantially outnumber nationals).

Assembling a well-qualified workforce is steadily becoming more difficult, due to factors that include growing construction sector activity in India. This is providing employment opportunities for labourers there without them having to travel abroad. Strong competition for expatriate workers from other GCC states – such as Qatar, which is preparing to host the 2022 FIFA World Cup – is another factor.

As in other GCC countries, working conditions in the sector have attracted some scrutiny and criticism from media and non-governmental organisations. Some of this relates to what critics claim is poor enforcement and a lack of adherence by some firms to existing laws and regulations, in addition to problems arising from the kafala sponsorship system. In November 2014 the UN International Labour Organisation launched an investigation into working practices in the UAE following an issue brought up by the International Trade Union Conference that focused on kafala.

Wassim Merhebi, executive director at ACC, rebuffed these criticisms of health and safety standards in the industry, arguing these were strong, and tighter than in some other parts of the region. “Media coverage of problems has often generalised from individual cases that were rare or one-off incidents; furthermore, health and safety regulations are continuously becoming stricter,” he told OBG. For example, in 2013 Abu Dhabi’s Department of Municipal Affairs launched building codes dealing with safety and fire prevention, among other issues. Aimed at improving construction standards, the codes introduce “a common and transparent set of regulations to govern all construction industry activities throughout Abu Dhabi”.

Outlook

After a sustained downturn following the global financial crisis that began in 2008, the construction industry appears to be entering a period of renewed growth. Manibhandu told OBG he thought the main opportunities for construction and engineering firms in the coming years would be in the hydrocarbons, energy and infrastructure segments, though this is likely to depend on the trajectory of oil. “There are always opportunities in oil and gas, and there are also a number of major upcoming infrastructure projects, such as nuclear power plants and the planned metro system.”