Middle EastPROPERTY &CONSTRUCTIONHandbook18’19’1

Middle East Property & Construction Handbook 2018/192

AECOMFOREWORDWelcome to the twelfthedition of the Middle EastProperty & ConstructionHandbook. We hope that youwill find our assessment ofthe trends shaping the globaland regional constructionindustry of interest and thisyear’s selection of articlesand cost data of value.This year, we start off byreviewing the global macroeconomic factors thatcategorized 2017 as a betteryear than 2016 for the worldeconomy; a trend set tocontinue in the near term. Betterthan expected performanceof key markets in Europe andthe US supported an uptickin global economic output in2017 and early 2018. Increasedmanufacturing output in Asiaalso played a part. Sectionone contains a detailed reviewof these markets as well asour anticipated trends for theremainder of 2018 and into 2019.In our articles section weexplore three emerging trendsin the construction market. Wereview the adoption of digitalconstruction tools and examinehow modern constructiontechniques are incorporating3D printing and roboticsinto their work flows. Welook at project managementchallenges, and the role of valueand risk management. Lastlywe share our thoughts on theecology of a city, demonstratinghow it is possible to designcities that complement theirecological environments.If you are new to the MiddleEast construction industry,section three will provide youwith insights into procurementroutes, forms of contract inthe Middle East and buildingregulation and compliance. Ifyou are a veteran in the MiddleEast industry, section three willprovide you with a reminder ofkey contract and regulatoryinformation, a good referenceto keep.The handbook concludeswith our reference section,international and regional costdata and a directory of ouroffices in the region.As with previous years we continue toseek feedback in everything we do.Please contact the editors, Marc Gibbons &Tulsi Patel via bi [email protected] further information.3

Middle East Property & Construction Handbook 2018/19Lusail ExpresswayAerial view of 5/6 arches at 5/6 InterchangeImage courtesy of AshghalICD Brookfield PlaceImage courtesy of ICD BrookfieldSarat VillageImage courtesy of Diyar Al MuharraqIl PrimoImage courtesy of Emaar4

AECOMContents01020304Economic round up08Global economicreviewArticles40Digital construction74Procurement routes78Middle East formsof contractReference data92100International buildingcost comparison1051100647Project value and riskmanagement trendsin the GCCReference articlesMajor measuredunit rates0515Global constructionprojectsTypical buildingservices standardsfor officesRegional buildingcost comparison106Major materialprices111Exchange rates22MENA economicreview61Ecology of a city83Building regulationsand compliance102Basis ofconstruction costs107Labour costs104Mechanical andelectrical costcomparison108Middle EastIndices112Weights andmeasuresDirectory of offices115Directory of officesFuture of Infrastructure119Future ofInfrastructure survey5

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AECOM01ECONOMICROUND UPIN BRIEF08Global economicreview15Global constructionprojects22MENA economicreview7

Middle East Property & Construction Handbook 2018/19GLOBALECONOMICREVIEWBetter than expected performanceof key markets in Europe andthe US supported an uptick inglobal economic output in 2017and early 2018. The favorablemarket conditions are likely tocontinue in the near-mediumterm, however downside riskscontinue to outweigh upside risksin the near-medium term outlook.Protectionism, vulnerability offinancial markets and globaltensions are considered the mostsignificant downside risks withinthe outlook.8

AECOMA significant increase in trade levels between 2016and 2017 contributed to the improvement in globaleconomic forecasts for the near term. According tothe World Bank Group, world trade volume increasedby 4.8 percent in 2017 and is expected to grow byanother 4.3 percent in 2018. IMF estimates a growthin exports of advanced economies by 4.2 percentin 2017, well above their growth levels in 2016.The volume of exports in emerging and developingeconomies continued to increase at a higher rate fromtheir 2016 levels. These positive trends are supportedprimarily by increased investment from advancedeconomies and increased manufacturing output inAsia. However, the impact of recent US tariffs may alsofactor in the coming periods.Real GDP growth4.8%6.0%% change y-o-y5.0%4.3%4.0%3.0%2.0%Fig. XX Growth in volume of exports of goods and services1.0%0.0%Fig.Growthin2016volumeof exportsof goods andservicesFig. XX Growth in volumeof XXexportsof goodsand services20152017e2018fWorldAdvanced Economies2019f2020fWorld trade volumeEMDEsSource: World Bank Economic Prospects, June 2018Growth in volume of exports of goods and servicesSource: World Bank Economic Prospects, Jun 2018767655% change y-o-y% change y-o-y% change 0162017e2014 Economies201520152016AdvancedWorldSource: IMF, World Economic Outlook, April 20182018f2019f20162017eEMDEsAdvanced EconomiesAdvanced Economies2020f2017e2018fEMDEs2018f2019f2019f 2020f 2020fEMDEsSource: IMF, World Economic Outlook, Apr 2018Source: IMF, World Economic Outlook, Apr 2018Source:Note: Advanced Economies - United States, Euro Area andJapan IMF, World EconomicEMDEs - Emerging and developing countries in Africa, Asia and Latin AmericaOutlook, Apr 20189

Middle East Property & Construction Handbook 2018/19The global composite purchasing managers’index for the first quarter of 2018 indicatesrising new orders and work backlogs. Thismovement further supports an accelerationof global economic output growth in thenear term. Fiscal stimulus and structuralreforms are currently under review orbeing implemented by many countriesaround the world. In the US, tax reforms andfiscal stimulus plans have helped supportinvestments and could result in improvedmarket sentiment within the US economyand its major trading partners. To furtherdrive investment in their countries, China andIndia have revised their investment policiesallowing foreign companies more autonomyand opportunities to invest. Nigeria, MalaysiaFig. XX GlobalCompositeand Indonesia,amongmany other PMIcountries,have also revised laws and policies aroundcorporate regulations and governmentprocessing time in order to create morebusiness-friendly environments.Global Composite PMI565554535251504948Source: JP Morgan10May 18Jan 18Sep 17May 17Jan 17Sep 16May 16Jan 16Sep 15May 15Jan 15Sep 14May 14Jan 14Sep 13May 13Jan 13Sep 12May 12Jan 1247Source: JP Morgan

AECOMCOMMODITIESCommodity prices strengthened in 2017 with improving trade levels, increased investments and positiveFig. XXfinancialGrowth commoditypricesTheuptick in prices is expected to continue in the near-medium term, albeit at aslower rate than that recorded in 2017. Prices will remain susceptible to changes in global demand, policy,distribution channels, technological advances and geopolitical conditions.Fig. XX Growth in commodity pricesGrowth in commodity prices40%30%20%10%% change y-o-y% change 30%-40%-50%-40%-60%-50%Source: World Bank Economic Prospects, Jun 2018-60%Source: World Bank Economic Prospects, Jun 2018Non-energy commodity price indexOil PriceSource: World Bank Economic Prospects, June 2018Oil PriceNon-energy commodity price indexCommodity indicesIndex, 2005 100200180200Index, 2005 100Index, 2005 1001601801401601401201001208010060 8040 6020 400 9202020202021202120222022Commodity Price Index includes both Fuel and Non-Fuel Price IndicesCommodity Price Index includes both Fuel and Non-Fuel Price IndicesCommodity fuel (includes crude oil, natural gas, and coal)IndustrialInputs uel (includescrude uminum,Iron Ore,Nickel, andZinc,metals)Lead, and n,materialsMetals (includes Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium)Source: IMF: World Economic Outlook. April 2018Source: IMF, World Economic Outlook, Apr 2018Source: IMF, World Economic Outlook, Apr 201811

Middle East Property & Construction Handbook 2018/19Oil pricesThe continued co-operation ofOPEC countries and the nonOPEC oil producers in 2017 ledto a significant improvement inoil prices. OPEC leadership andnon-OPEC members, includingRussia, have signed a roadmape XX. Changes in oil demand growthfor cooperation that extends theexisting frameworkpost 2018,e XX. Changesin oil demandgrowthwithout necessarily limitingthe production levels of theparticipating countries. Increasedproduction of shale oil in the USis expected to be partially off-setby reductions in oil extraction inother regions around the world,including Canada and the NorthSea. Additionally, increaseddemand for oil in developingcountries is expected to counterreduced demand from OECDcountries (mainly advancedeconomies). This balancing actof supply and demand acrossthe global markets supportsstabilization of oil prices in themedium term.Anticipated changes in crude oil supply% change% 2015Figure XX. Changes in oildemand growth-10%20142015Middle East20162017e2018f2019f2020f2016Figure XX.Changes in oil2017edemand growth 2018f2019f2020fEuropeAfricaLatin AmericaUS & CanadaAsia-PacificRussia & CaspianSource: OPEC, World Oil Outlook 2040Middle EastEuropeAfricaLatin AmericaUS & CanadaAsia-PacificRussia & Caspian2. in oil demand growth1.00.50.0- OPEC, World Oil Outlook 20400.5-0.5201720192018201920202021WorldSource: OPEC, World Oil Outlook 2040WorldDeveloping CountriesSource:OPEC, WorldOil Outlook 2040202020212022Developing Countries2022OECDOECDSource: OPEC, World Oil Outlook 204012Source: OPEC, World Oil Outlook 2040

AECOMin Metal Prices40%30%Changes in metal prices40%20%30%10%00%-10%-20%-30%-40%-50%-60%% change y-o-y% change y-o-yChanges in Metal 2019f2018f2020f2019f2020f-20%-30%-40%Source: IMF, World Economic Outlook, Apr 2018-50%-60%Copper, grade A cathode, LME spot price, CIF EuropeanSource:ports IMF, World Economic Outlook, Apr 2018Aluminum, 99.5% minimum purity, LME spot price, CIF UK portsIron Ore, China importIronOre AFines62% LMEFE CIF EuropeanportsAluminum, 99.5% minimum purity, LME spot price, CIF UK portsSource: IMF, World Economic Outlook, April 2018Iron Ore, China import Iron Ore Fines 62% FE spot (CFR Tianjin port)MetalsMetal prices improved in 2017on the back of increasedproductivity and trade acrossmany countries. Pricesremained largely stable in thefirst quarter of 2018, despiterising inventories, due to theanticipated growth in demand.Growths in the manufacturingand industrial sectors across Asiahave helped support prices andavoid any large drop postQ1 2018.The near-medium term forecastshowever are modest due toexpected implementation ofinternational trade barriers. UStariffs on steel and aluminumin the first quarter of 2018helped the US domestic market;however, its full impact on metalprices at a global level is yet to beseen, particularly as the US is aglobal importer. Forecasts for theremainder of 2018 and for 2019remain conservative with analystshesitant to make forecasts insuch a volatile market wherepolicy changes can have asignificant impact on prices.13

Middle East Property & Construction Handbook 2018/19GLOBAL ECONOMIC MARKET Fiscal stimulus plans in majorworld economies, includingthe US and China, andincreased investmentsin emerging markets anddeveloping economies(EMDEs) represent an upwardrisk. If plans for majorprojects and spendingmaterialize, this couldimprove market sentiments,domestic demand andfurther support economicgrowth betweentrade partners.A rise in protectionist policiesposes a downside risk inthe medium term, asincreases in trade barriershold the potential toescalate into trade warsbetween countries andregions. International tradeand financing bodies areencouraging governments towork together rather than insilos to promote a moreinclusive trade environmentthat benefits all. Extreme weather conditionsand climate change posea growing downside riskto the global economy.Natural disasters arebecoming more commonand can result in significanthumanitarian andeconomic losses. Global policy uncertaintyis a measure developed(Davis, 2016) to gauge“uncertainty” sentimentsby measuring the frequencyof articles in domesticnewspapers mentioning“economic policyuncertainty”. The economicpolicy uncertainty (EPU)index recorded its highestreading in a decade at thebeginning of 2017, howeverlater dropped significantly,reflecting an improvement inmarket sentiment. Geopolitical tensions andunrest continue to provideWith increased trade ata downward risk on globalan international level,economic markets as theyrisk of over valuation ofdampen market sentiments,assets increases, particularlyparticularly in countriesin a low volatility financialclosest to areas of, and could resultAdditionally, elections inin sudden marketIndia and certain Latinadjustments. EmergingAmerican countries,economies, particularlyincluding Brazil, Mexico andexport-led economies, needColombia, could furtherto implement structuralimpact their economicreforms that strengthen theirFig XX. Global EPU Index with PPP adjusted GDP weightsgrowth as newfinancial regulations andadministrationsaltercreate financial buffers toFig XX. Global EPUIndex with PPP adjusted GDP weightsgovernment policies.guard against suddenmarket adjustments.Global EPU index with PPP adjusted GDP weights350300Global EPU Index250200150100250US ElectionsUK BrexitIncr