Continued expansion: Infrastructure investment drives sector growth

The UAE overtook Saudi Arabia as the Gulf’s largest construction market in terms of contracts awarded in 2012, with the biggest tender coming from Abu Dhabi for the construction of a new terminal at the expanded Abu Dhabi International Airport. In 2013, the UAE construction market continued to post growth, led by Abu Dhabi’s capital investments in infrastructure, housing and health care facilities. While neighbouring Dubai has made headlines for the ups and downs in its construction sector, on a national level the industry’s focus is set to shift to the capital city. “[Abu Dhabi will] become the centre of the construction boom owing to rising government support,” international research firm RNCOS stated in its “UAE Construction Outlook 2016” report.

UAE Rising

 Contracts awarded by the UAE reached $16.4bn in 2012, 4% more than Saudi Arabia, the GCC’s previous leader in construction awards, according to a 2013 report on the region from international professional services firm Deloitte. The value of the UAE’s construction sector was forecast to grow by 4.5% in 2013, reaching $41bn, and continue to expand thereafter, topping $50bn and 10% of GDP by 2016. Impressive growth in the sector is being fuelled principally by increased government spending on transport and utilities, Deloitte reported. Additionally, the report stated, “A clear regulatory environment and the governing of private sector investments in infrastructure create a favourable investment climate.” Energy and resource projects comprise 19% of planned construction spending, with Abu Dhabi’s nuclear power plant estimated to cost a total of $30bn. Transportation projects account for an additional 13% of total UAE construction projects planned or under way. Abu Dhabi will spend around $6.8bn by 2017 on development of air transport infrastructure, including increasing capacity at its international airport from 12.5m passengers to 47m passengers annually. The $2.9bn tender awarded to a consortium including Turkey’s TAV Airports Holding to construct the Midfield Terminal was the largest single contract awarded in the GCC in 2012. Already under construction, the Etihad Rail project, which will connect the emirates to the region-wide GCC railway network, is valued at almost $11bn. Another driver, residential construction, amounts to 3% of planned UAE construction spending, buoyed by the announcement from the Abu Dhabi Executive Council of an initiative to spend some $2.7bn to replace 12,500 units of national housing that were constructed before 1990.

The Centre Of Development

 Having tendered several large-scale projects in the first quarter of 2013 – including the high-profile Louvre Abu Dhabi – the emirate was on track to replace Dubai as the main driver of the UAE’s construction industry, the Abu Dhabi Chamber of Commerce & Industry reported in April 2013. In the first two months of 2013, Abu Dhabi awarded $1.5bn in construction contracts, nearly double the total of $767m in the fourth quarter of 2012.

Further, in January 2013, the Abu Dhabi Executive Council announced plans to spend Dh330bn ($89.8bn) on development projects over the next five years. The total value of the emirate’s construction sector has been growing over the last decade, and reached Dh87bn ($23.7bn) in 2012, up from Dh26bn ($7.1bn) in 2005, according to figures from the Statistics Centre - Abu Dhabi (SCAD). Growth rates, however, have been somewhat volatile. The value of the construction industry in Abu Dhabi grew 4.4% in 2010, 0.9% in 2011 and 5% in 2012, SCAD data showed.

Return To Health 

Abu Dhabi’s slate of planned or ongoing projects is welcome news for regional companies that have been operating below capacity in recent years as a result of the post-financial crisis global slump. While the industry grew in Abu Dhabi in 2012, the value of infrastructure and construction contracts awarded across the GCC region fell by nearly 18% during the year to $51.9bn compared with the $63.4bn awarded the previous year, according to figures from Middle East Economic Digest (MEED).

“After the highs and lows of recent years, the UAE construction market is now more stable,” said Chris Seymour, head of property for the UAE at EC Harris, told Construction Week Online in January 2013.

In a report on the industry, EC Harris forecast the UAE’s construction sector would return to near full capacity for the first time since 2009-10. Thanks to slackening demand, tender prices fell by 3% in 2011, but stayed stable in 2012. In 2013, prices were predicted to rise by no more than 2%.

With global markets slowly recovering, cement and construction material prices remain softer than during the pre-recession construction boom. Cement firms are only just rebounding from a utilisation rate of less than 50%, Ventures Middle East reported in June. “With the recovery of the markets taking place, developers are recognising that there is a window of opportunity to maximise the benefit of the downturn in construction costs,” Seymour said.

Key Players

 Lower costs and rising demand have boosted the bottom line for the big players in Abu Dhabi. Arabtec Holdings, which was formerly based in Dubai but moved to Abu Dhabi in 2013, was recently awarded the $653m contract for the Abu Dhabi branch of the Louvre Museum. On the back of new UAE contracts, Arabtec posted improved earnings in second and third quarters of 2013, after a tough 2012. Arabtec’s profits hit Dh92m ($25m) in the three months ending in June, compared with a loss of Dh12m ($3.3m) during the same period in 2012.

Leveraging off of its success in the UAE, Arabtec is enhancing its local capacity and expanding regional operations. In September 2013 the firm launched a joint venture with the engineering arm of South Korea’s Samsung, and in October, it took complete ownership of the Emirates Falcon Electrochemical Company, which provides infrastructure, electrical, air conditioning, plumbing and sanitary works for developments in the UAE, Qatar, Saudi Arabia and Jordan.

In a step toward recovery from the lows of the last few years, Abu Dhabi’s two biggest developers, Aldar Properties and Sorouh Real Estate, completed a merger in June 2013 and began trading on the stock exchange as a single entity. Ongoing projects include housing developments for UAE nationals, developments in investment zones which are open to both UAE nationals and foreign expatriates, and hotel and retail projects (see Real Estate chapter). The Al Jaber Group, a privately owned group of companies based in the emirate, is responsible for the construction of many of the Gulf’s major road networks and has built more than 7000 km of road in Abu Dhabi alone.

Abu Dhabi’s construction sector is also attracting a growing number of leading global firms, driven by the limited opportunities on offer elsewhere. Indian firm Larsen & Toubro has racked up contracts to build a new hospital, the Abu Dhabi-Dubai highway and part of the airport expansion project. The firm is setting up an engineering centre in Abu Dhabi, from which it hopes to compete across the GCC. Similarly, Italian firm Impregilo has also set up shop locally, while Samsung, US-based Bechtel and Germany’s Siemens are considering bids for the Abu Dhabi Metro system, among other infrastructure projects. The Consolidated Contractors Company has also focused on the local market, specifically by participating in a joint venture to build the Midfield Terminal Building at the Abu Dhabi International Airport.

Master Plans

 In large-scale mixed-use projects, a government agency or private firm will often undertake the development of an entire district according to the municipality’s master plan. Mubadala Real Estate & Infrastructure, for example, is developing the designated central business district located on Al Maryah Island. In the nearly completed first phase of development, the government-owned investment firm funded construction of the Abu Dhabi Exchange building, four commercial towers, two luxury hotels, a retail district and an international multi-specialty hospital, the Cleveland Clinic Abu Dhabi.

When completed, Al Maryah Island’s Cleveland Clinic will be the largest steel structure in the country, weighing more than 30,000 tonnes. The construction team behind the $1.4bn contract – Belgium’s Six Construct, with a 60% stake, and South Korea’s Samsung C&T, with 40% – also built Dubai’s Burj Khalifa, the world tallest building. Aldar Properties developed the project for Mubadala, and UK-based multinational Aedas designed the structure.

Aldar Properties serves as master developer on a number of significant projects across the capital. Yas Island, the entertainment district that is home to Abu Dhabi’s Formula 1 track, is still under development by Aldar. Sorouh – now merged with Aldar – has acted as the master developer of Al Reem Island’s largest mixed-use commercial, retail and residential community, Shams Abu Dhabi.

New Khalifa City 

Musanada, the public building agency, announced plans in November 2013 to launch construction of New Khalifa City, a capital district designated to serve as Abu Dhabi’s second downtown. The project is set to include housing for 370,000 people, schools, entertainment and sports facilities, along with the bulk of Abu Dhabi’s ministries, embassies and financial institutions, over an area of 49 sq km.

“The project is a major developmental initiative designed to enhance the status of Abu Dhabi as a global sustainable capital city that meets the needs of future generations,” Ali Al Haj Al Mehairbi, Musanada’s executive director for buildings and project management services, told local media in November 2013.

As part of the development, construction of an Emirati residential neighbourhood is planned that will stretch over 1440 ha in the south and south-east of the project area. The neighbourhood will be built in three phases, with Musanada set to issue a tender for the construction of infrastructure in late 2013.

 Hospitality & Tourism 

Government investment in the emirate’s hospitality and culture sectors is driving new construction and the relaunch of projects that were put temporarily on hold during the global credit crunch. “New infrastructure such as hotels and resorts are required for development of the tourism industry in the emirate of Abu Dhabi and construction as one of the enabler industries will contribute to the development and support of the targeted future growth sectors,” stated the “Abu Dhabi Statistical Yearbook 2012” put out by SCAD.

In January 2013 Abu Dhabi National Investment Corporation awarded the contract to build the Fairmont Abu Dhabi Hotel and Apartment Towers, one of the first large-scale hotel projects to begin construction in recent years.

Saadiyat Island 

The Tourism Development and Investment Company (TDIC) is leading the bidding and contracting process for construction of the Saadiyat Island Cultural District, a 2.43-sq-km area that is planned to house three major museums – local branches of both the Louvre and the Guggenheim, as well as the Zayed National Museum, the island’s centrepiece – and a performing arts centre.

In January 2013 TDIC awarded a $653m contract for previously delayed construction of the Louvre Abu Dhabi to a joint venture between Arabtec Construction, Oger Abu Dhabi and Spain’s Constructora San José. The local branch of the Paris institution is scheduled for completion in 2015.

All three museums were designed by celebrity architects before the onset of the global financial crisis. Norman Foster’s Zayed National Museum is now on track to open in 2016, while Frank Gehry’s Guggenheim is set for 2017. TDIC invited firms to prequalify before the end of August 2013 to build the Guggenheim, and in November announced the main construction contracts for the Zayed National Museum and Guggenheim would be awarded in the first and second quarters of 2014, respectively. Arabtec, among others, has bid for both projects.

Housing

The construction of new residential units will drive sector growth in the coming years as the government enhances housing options for nationals and encourages private sector investment. In January 2013 the Abu Dhabi Executive Council announced plans to undertake nine projects to build 12,500 new homes for Emiratis. The projects, implemented through Musanada, the public building agency, will include housing developments in Abu Dhabi, Al Ain and Al Gharbia. Additionally, the Abu Dhabi Executive Council has earmarked Dh3bn ($816.6m) in loans for 1500 nationals to help with the construction of new homes or the completion of existing projects.

Sheikh Hazza bin Zayed Al Nahyan, the vice-chairman of the Executive Council, announced plans in September 2013 to establish the Abu Dhabi Housing Authority, which will be responsible for all housing projects in the emirate. “Having done this, we can provide the present and the future generations with dignified living,” Sheikh Hazza told local media upon announcing the new authority, which he himself will head.

In one of many recent government efforts to improve the quality and availability of housing for Emiratis, the agency will compile a database of the housing needs of all UAE nationals.

Industry & Infrastructure

Expanding investment in industry, both in the hydrocarbons sector and in burgeoning downstream sectors, offers opportunities for local contractors. In April 2013 South Korea’s Hyundai Engineering and Construction (HDEC) and Petrofac International, Abu Dhabi won contracts worth a combined $2.4bn for projects aimed at boosting production at the Satah Al Razboot (SARB) oil field by 100,000 barrels per day (bpd). As part of a strategic initiative spearheaded by the Abu Dhabi National Oil Company (ADNOC), the Abu Dhabi Marine Operating Company plans to add a total of 300,000 bpd in additional production at various offshore fields. ADNOC is currently building two artificial islands, SARB 1 and SARB 2, near wellhead. As part of a $1.49bn project, HDEC will construct processing, storage and export facilities, while Petrofac will lay subsea pipelines and cables under its $515m contract. Three additional contracts will be awarded before the SARB upgrade is completed in mid-2017.

Yasser Nasr Zaghloul, the CEO of National Marine Dredging Company, has seen the hydrocarbons sector account for a growing share of his business. “In the past dredging and land reclamation was driven by island and coastal developments to support the expansion of the real estate sector,” he told OBG. “Now the industry is primarily being driven by the expansion of the offshore oil and gas sector.”

Infrastructure is set to be another growth driver, given plans for public spending on everything from roads and ports to power plants and hospitals. The government is funding construction of roads, rail and metro projects, along with upgrades to sewerage, power and water infrastructure (see analysis).

Rules & Regulations

With the industry expanding, the government has introduced increasingly sophisticated regulations to reduce environmental impact, protect worker safety and enhance overall quality. The government aims for Abu Dhabi City to be one of the top-five municipalities in the world, Ziad Al Tahsh, media expert at the Department of Municipal Affairs (DMA), told OBG.

In pursuit of this goal, the DMA introduced new unified building codes in October of 2013 to set standards on issues from construction safety and fire regulation to sanitation and sustainability. The Abu Dhabi Building Codes tailor to the GCC climate the global standards set by the International Codes Council, the world’s leading building code authority. As of October 2014, it will be mandatory for all government buildings to adhere to the new standards.

Meanwhile, the municipal government requires all new project plans to follow a set of environment, health and safety standards. The city has hosted at least 14 training forums targeted at construction firms and designed to highlight risks to worker safety and promote sound precautions. In May 2013 the municipality held a workshop to educate 700 industry professionals on the midday ban on work in uncovered construction sites during the hot summer months.

In July 2013 local media reported the municipality had issued 220 citations for non-compliance in the first half of 2013. The municipality visited 1190 building and construction sites in 2012, including 54 sweeps of worker accommodations, the report said. The local government sought input from industry stakeholders while crafting the building code legislation and many welcome the new regulations. “The real estate and construction industry here has expanded rapidly in a very short period of time. As the industry continues to mature and regulation catches up, a larger emphasis will be placed on raising pre-qualification standards, which will help drive the sector to greater levels of prosperity,” Saeed Al Mehairi, the CEO of Pivot Engineering and General Contraction, told OBG.

Estidama

 The new building codes are designed to complement the existing sustainability standards set by the Urban Planning Council’s Estidama Pearl Rating System, which rates the local built environment according to environmental, social and energy impact. Administered through the Urban Planning Council, Estidama rates buildings, with five pearls as the maximum rating and one pearl as the minimum required for a building permit. Government buildings must earn two pearls and both the Louvre and the new international airport will be ranked as three-pearl buildings upon completion. While projects can earn points for using locally sourced materials and promoting worker safety, almost half of the measurements are concerned with usage of water and energy resources.

The enhanced regulations have already had an impact, according to the UPC, which performed audits of construction sites and calculated a reduction in waste of about 85% in two years. The system has also helped to improve the quality of the supply chain.

“The Pearl Rating System under the Estidama initiative will help improve the overall quality of building in the emirate,” Pivot Engineering’s Al Mehairi said.

Of the 10.5m sq metres of building and villa development started since Estidama’s implementation in 2010, the majority (5.9m sq metres) are two-pearl projects. Approximately a tenth of development is three-pearl rated and only four buildings have achieved a four- or five-pearl rating.

Beyond The Built Environment

 According to the UPC, the government is considering expanding Estidama to rate the construction and maintenance of infrastructure projects as well. Already, sustainability serves as a guiding principal for contracting beyond the building construction.

“The government has placed a greater emphasis on environmental protection of marine ecosystems,” Zaghloul told OBG. “The government has done a great job in communicating the exact specifications required to meet their guidelines for environmental protection and that makes it so much easier for us as an industry to comply,” Zaghloul added.

New Technologies

 Geographic information systems (GIS), which provide more sophisticated data for decision-making, have become a standard tool in a number of sectors in recent years, including real estate and urban planning. GIS is a computer-based technology that combines the visual clarity of maps with the analytical capabilities of databases.

According to Khaled Al Melhi, the CEO of a mapping and surveying company Bayanat, which was established by Mubadala in 2011, “Two- and three-dimensional GIS data-modelling services will enhance effectiveness across a multitude of sectors by reducing duplication of data collection and maintenance efforts and optimising planning, simulation, and training initiatives and activities.”

GIS can be utilised anywhere geography-based data and information are used, and the technology will add value to both the public and private sectors, from small businesses to large corporations. “The use of cutting-edge geospatial solutions is of considerable added value to both the public and private sectors, as the collection, analysis and management of spatial data will not only strategically support continuous urban development, but it will also accelerate national progress holistically across the fundamental sectors of defence and public safety, energy, transportation and other public services,” Al Melhi said.

Outlook

With a number of large-scale projects under way and in the pipeline, Abu Dhabi’s construction sector looks set for continued growth in the coming years. Government spending is driving much of the expansion, and the state is also placing a particular emphasis on ensuring both the quality and the sustainability of new projects. The emirate’s current investments are intended to lay the foundation for the development of an increasingly diverse economy in the years ahead, and the municipality’s regulations should go a long way towards realising its ambition of making the capital a leading international city.