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Average building costs in Riyadh are currently less than half of New York, but the Saudi capital is one of two markets in a global survey that are ‘overheating’, boosted by strong pipelines and straining under robust activity levels.
As Saudi Arabia makes progress on giga projects towards its Vision 2030 goals and the capital becomes home to the regional headquarters of international companies, a new report by professional services firm Turner & Townsend revealed that Riyadh, along with Canadian capital, Ottawa, is one of two markets in a global survey that it considers as belonging to the overheating category for construction tendering.
Nearby hub Dubai is assessed as ‘hot’, and Abu Dhabi ‘warm’ according to Turner & Townsend’s assessments.
Saudi Arabia has an average build cost in Riyadh currently $2,379 per sqm, the report said, with construction costs higher than Dubai across most sectors, except for prestige car showrooms, where the cost is higher in Dubai at $2,478 per sqm compared with $2,403 in Riyadh.
High-rise offices prestige offices cost $2,136 per sqm to build in Riyadh compared with $1,852 in Dubai, and residential apartments cost $2,003 in Riyadh compared with $1,280 per sqm in Dubai.
Expensive markets
But, the report said, the most expensive place to build in the region is currently Doha, with an average cost of US$2,588 per sqm.
“Qatar has seen sustained cost inflation due to extensive construction activity in recent years to prepare for the FIFA World Cup in 2022. The Doha market is now cooling, following the completion of the competition, with the rate of cost inflation easing from 8.0 percent in 2022 to 3.5 percent in 2023,” the report said, falling to 2% in 2024.
Six out of topmost expensive places for construction are in the USA, with New York City number one, followed by San Francisco, Boston, Los Angeles, Chicago and Seattle, with Geneva, Zurich, Tokyo and Osaka making up the remainder of the top 10. New York currently has an average construction cost of $5,451 per sqm.
Dubai and Abu Dhabi are almost on a par, with an average cost of $1,804 per sqm in Dubai and $1,796 in the UAE capital.
Costs in Riyadh rose by 10% per cent during 2022, establishing an average cost to build of US$2,379, which Turner & Townsend forecasts will rise by 7.5% percent during 2023 and by 5% in 2024.
For Dubai, inflation on construction was at 5% in 2022, is expected to remain at that level in 2023, and fall to 3% in 2024. For the UAE capital, it was at 4.5% in 2022, will fall to 4% this year and again to 3% in 2024, the data showed.
Hot markets for the UAE include luxury development, including for tourism, as well new infrastructure and improved public realm, the report said, with increased prioritisation of sustainable building practices to reduce carbon emissions and protect water resources as the country prepares to host climate conference COP28
“While the development outlook for the Middle East is buoyant, Turner & Townsend has warned that capacity and resource will need to be carefully coordinated to avoid risks to project delivery and offset growing competition for labour,” the report added.
Mark Hamill, director, head of Middle East real estate and major programmes said the abundance of construction work in the Middle East needs to be matched by careful planning to avoid the risk of markets overheating and costs rising.
“Programmes need to focus on intelligent procurement that builds local capacity in the skilled workforce and attracts new market entrants too. This will ensure that projects are creating a capable and resilient supply chains, rather than competing for resources,” he said.
(Reporting by Imogen Lillywhite; editing by Seban Scaria)
