UAE Construction Thrives in Real Estate and Hospitality Sectors

by Anna Fischer

Published 23 May 2024

The Middle East and North Africa (MENA) region anticipates a substantial pipeline of unawarded construction projects valued at around USD 3.9 trillion from 2024 to 2028.

Source: freepik

The projection comes amidst challenges such as persistent inflation, high interest rates, and geopolitical tensions globally. The United Arab Emirates (UAE) is expected to play a significant role in this development, accounting for 15 percent of the total value, as highlighted in a report by JLL, a leading real estate industry firm. ^[?]

Within the UAE, the construction project pipeline is notably robust, with an estimated value of USD 590 billion. Of this, residential projects make up USD 125 billion (21%), and mixed-use projects constitute USD 232 billion (39%). ^[?] These estimates are derived from comprehensive insights from various industry sources and experts.

The UAE Construction Industry Overlook

Despite challenges such as rising land and construction costs, the uptake of new projects is anticipated to support continued growth in the sector. The UAE's economy is expected to grow by 3.8% in 2024, an increase from 3% in 2023, with a further projection of 3.9% growth in 2025. The construction sector, in particular, remains in a strong growth phase, despite a slight dip in the S&P Global purchasing managers index (PMI) to 56.9, as per Emirates NBD Research. ^[?]

The PMI is a tool that shows if the market is growing, staying the same, or shrinking. It is based on surveys from purchasing managers. The goal of the PMI is to give company leaders and investors information about the current and future business climate.

Real Estate Developments in Dubai and Abu Dhabi

Dubai, a key player in the UAE's real estate sector, has seen a remarkable 21% year-on-year (YoY) increase in sales and rental prices. In Q1 2024, around 10,000 residential units were delivered, and an additional 25,000 units are expected to be completed by the end of the year, increasing Dubai's total residential stock to 754,000 units.

In Abu Dhabi, Q1 2024 saw the delivery of 1,600 units, with 6,000 more units anticipated to be completed within the year. The capital city has experienced moderate annual increases in sales prices (5%) and rental rates (2%), with its total housing stock projected to reach 294,000 units by 2024.

Hospitality Sector Growth

The hospitality sector, particularly in Dubai, has also shown significant growth, with 2,000 hotel rooms added in the first quarter of 2024, mainly in the 5-star category. An estimated 5,000 additional keys are expected to be introduced throughout 2024, bringing Dubai's total hotel room count to 160,000. Abu Dhabi is set to add approximately 500 keys, resulting in a total of 34,000 hotel rooms.

JLL maintains a positive outlook for the UAE's construction market, noting that the value of awarded projects in 2023 nearly tripled compared to the previous year, reaching USD 87 billion. This growth is indicative of the country's successful strides towards economic diversification and achieving investment objectives.

Positive Trends and Economic Outlook

JLL forecasts a tender price inflation (TPI) of 3% in 2024 for the UAE, considering historical trends, current market conditions, the value of the project pipeline, and external factors affecting construction prices. Developers in Dubai are exploring the development of smaller-sized units and projects in secondary locations to mitigate rising costs.

Local construction rates are significantly impacted by fluctuations in shipping and transportation costs, especially with the reliance on imported materials. Freight shipping prices have seen a notable increase, with the Drewry Index rising from USD 1,800 to over USD 3,000 per 40-ft container from March 2023 to March 2024.

Material availability is currently stable, and there is an optimistic medium- to long-term outlook for local manufacturing capabilities. The World Steel Association forecasts a 1.9% growth in global steel production in 2024, following a 1.6% decline the previous year. Steel demand in the MENA region is expected to rebound in 2024, driven by mega projects and the residential sector.

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Anna Fischer

Construction Content Writer

Anna has background in IT companies and has written numerous articles on technology topics. Now, building up her expertise in construction and legal regulations, Anna expands the horizons of our blog and delights her readers with insightful articles.

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