The fall in the price of oil has pushed construction margins down in the Middle East and forced companies to reduce prices in order to win work, according to new research by professional services company, Turner & Townsend.
The International Construction Market Survey 2017 (ICMS) calls for increased investment in innovative technologies, new construction methods and better use of data to boost productivity in the sector.
The report analyses input costs such as labour and materials and charts the average construction cost per m2 for commercial and residential projects in 43 markets around the world.
The cost of building in the Middle East is considerably lower than in other global capitals, with Doha ranking the 15th most expensive place to build at an average cost of $2,367 per m2, while the UAE and Muscat are placed 26th ($1,726 per m2) and 30th (US$1,397 per m2) respectively.
Globally, at $3,807 per m2 New York is the most expensive city in which to build followed by San Francisco ($3,549 per m2 and Zurich ($3,528 per m2).
Of the cities assessed by the study, 58 percent are identified as warm, hot or overheating where the market is characterised by a high number of projects and intense competition for physical resources and labour that drives up prices.
While 2016 saw construction value in the Gulf down by nearly a third on 2015, making it the worst year since the global financial crisis, the UAE is identified as a warm market in 2017 with the Expo 2020 Dubai expected to influence construction costs.
Industry costs in the United Arab Emirates are expected to rise by 2 percent in 2017 compared to 3.5 percent globally.
In contrast, construction markets in Muscat and Doha are identified as cold, with no increase in costs expected in Muscat and a rise of 1.5 percent in Doha. Both markets are suffering from intense competition among contractors for little work.
Alan Talabani, Regional Managing Director Middle East, Turner & Townsend, said: The low price of oil, and therefore government revenue, remains the single most important factor affecting current and future investment decisions in the region.
In the Middle East there is a need to drive greater efficiencies across construction projects against the backdrop of low commodity prices. Contractors and clients in the region need to embrace innovative technologies and maximise automated construction, as well as use data analytics and better programme management to unlock savings.