As per JLL’s Q4 2022 KSA Construction Market Intelligence Report, Saudi Arabia’s construction industry continues to lead the MENA region despite macroeconomic conditions impacting the sector globally. JLL notes that Saudi Arabia witnessed the highest value of project awards in 2022, which demonstrated its commitment to economic diversification and transforming in line with Saudi Vision 2030.
Construction output growth in KSA is anticipated to rise by 3.2% in 2022, with a further annual average growth rate (AAGR) of 4% between 2023 to 2026 as indicated by Global Data, JLL revealed.
Saudi Arabia has maintained its position as the strongest market across the MENA region with the highest total value of project awards for four consecutive years. As of October 2022, KSA holds a 35% market share with a recorded $31bn worth of contract awards against an overall MENA total of $87bn as tracked by industry reports, the firm said.
In mid November 2022, JLL announced Sean Doherty as Head of Program and Project Management for the MEA.
Saudi Arabia’s pipeline value of unawarded (pre-execution) projects is estimated to be $1.1tn, which includes projects from the study stage through to the main contractor bid. Approximately 70% comprise construction sector projects with residential, cultural, leisure, and hospitality as sub-sector leaders, which is the driving force behind the Vision 2030 strategy.
In the second half of 2022, 13,000 hotel keys are expected to be delivered in Riyadh, Jeddah, and Makkah, accentuating the continuation of the Kingdom’s hospitality sector development, the firm explained.
“Given the volatile market conditions and rising construction material prices, which reached a significant peak during Q2 2022, there is a need for robust mitigation strategies, including a careful approach to contract execution and risk allocation,” explained Laura Morgan, Market Intelligence Lead MEA at JLL.
In late November 2022, PIF subsidiary SEVEN said it would invest $13.3bn into 21 integrated entertainment destinations in KSA.
The top ten contractors in the Kingdom are said to be responsible for $400bn in projects that are currently in the execution stage, accounting for 40% of the total future pipeline value of $1.1tn.
JLL’s market intelligence data also outlined that global economic volatility in the first two-quarters of 2022 created challenges in the local construction market in terms of delivery lead times and instant price increases, with suppliers reluctant to guarantee prices for extended periods of time. In addition, it also indicated improvements from Q2 to Q3 2022, implying that price peaks have passed; however, price increases remain a significant risk due to the correlation to economic factors and observed trends since 2020.
The report also stressed that future construction costs must be balanced against the local market and global economic factors. Though commodity prices are softening or have already flatlined, the Kingdom’s construction sector is heating up, putting pressure on the existing supply chain, and highlighting the need for greater competition to complete the pipeline of projects.
In early December 2022, JLL’s Louise Collins shared her COP27 takeaways and thoughts exclusively with Middle East Construction News.
While inflation projections for the country are relatively soft in comparison to global averages, Saudi Arabia, as well as the wider MENA region, relies on importing construction materials from high inflationary countries, which affects construction material prices, JLL pointed out.
Morgan added, “Moving forward, the construction sector will prioritise development needs that are aligned with evolving trends and demands, with an emphasis on innovation and digitisation playing a significant role within the segment and in powering Vision 2030 projects. That said, the importance and opportunities associated with traditional cost management mechanisms, which can assist developers in establishing budgets during the early stages of procurement in an effort to reduce program delays and support conflict avoidance, cannot be overlooked either.”
From a construction cost perspective, JLL estimates tender price inflation (TPI) has increased by an annual average percentage change of 5% in 2022. The upswing is representative of market factors such as growing contractor and labor demand, commodity, and construction material price fluctuations.
At the 2022 Middle East Consultant Awards, JLL was awarded across three different categories.
Looking ahead, the midpoint TPI forecast represents a potential year-on-year growth of 6% in 2023 associated with the estimated project pipeline value correlated to future demand, according to its intelligence gathered from market sources, the firm concluded.