Research

Construction Cost Bulletin

UAE (Dubai and Abu Dhabi)
Construction costs surge in the first months of 2007
The year 2006 experienced inflation levels in excess of annual cost escalation data received by EC Harris for the last seven years. It is apparent from cost information for the first quarter of 2007, that construction costs are not currently increasing at the levels of 2006. However, despite a slowdown in materials prices in the later months of 2006, construction prices in Dubai and Abu Dhabi in March 2007 were almost 30% higher than in March last year. The figures come from a study compiled by EC Harris, which pulls together price data for key building materials and labour trades in Dubai. The figures were applied to a cost model that reflects their relative importance within the building process. The figures are based on a limited sample of labour rates and materials prices, but nevertheless, the study provides valuable information on the rates that contractors are paying for some of the materials and labour that will form an essential part of their tenders as well as providing guidance on the level of inflation within the Regions construction industry. Although labour rate increases have plateaued, the continued surge in materials prices leads us to expect that prices will rise by 1 1.5% per month for the next 18 months, as the high demands on the industrys capacity continue to keep margins high. This rise is also due to Contractors increasing their levels of overhead and profit recovery, currently ranging between 12% and 15%. On the more complex contracts this figure has been exceeded.

Labour and material costs

Labour rates, which showed considerable movement during the early months of 2006 were, on average, some 20% higher in March this year than a year ago, lead by rate rises for plumber and electricians of more than 25%. Having said that, the rate of rise of labour rates has now slowed considerably and prices for most trades have not moved since the start of the year. The rise in materials prices in the first months of 2006 was followed by a substantial fall over the latter part of the year although prices have since recovered. World oil prices flattened during 2006; although oil prices have since recovered this year, they are just 3% higher than a year ago. One material whose price has steadily increased is steel; the price of steel channels and beams have risen more or less each month and prices are now around 80% higher than in March 2006. Rebar prices meanwhile, are approximately 40% up on a year ago

May 2007

Construction Cost Index - UAE

(Base January 2006 = 100)
150.0

140.0

130.0

120.0

110.0

Labour
100.0

Materials Construction Costs

90.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 06 06 06 06 06 06 06 06 06 06 06 06 07 07 07

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Construction Activity
Construction activity in the UAE continues at a rapid pace with the ongoing construction boom in both Dubai and Abu Dhabi. Demand for a high standard of construction and management/delivery expertise remains at a level which is close to outstripping supply, but it is evident from recent tender returns, that contractors and their supply chains remain focused on delivering for key clients on major developments. Recent commitments by major property developers in the UAE indicate no projected slow down in construction activity over the forthcoming years and it is our opinion that first and second tier contractors will continue to be in very high demand. Speed to market remains crucial to the commercial success of all commercial developments, as does commitment of key suppliers and subcontractors to secure a window of opportunity in the supply chain. It is therefore EC Harris commercial recommendation that those building elements which have long lead items and which are currently subject to price fluctuations, are procured at the earliest opportunity to ring fence the inflationary risk.

These include the following: Cement and aggregate Reinforcement Aluminium works M&E major equipment particularly those containing high elements of copper Cladding and glazing Joinery. It is EC Harris recent experience that cladding subcontractors are pricing at levels beyond current expectations. It is our view that a specialist consultant be procured for the provision of both technical and strategic advice in the procurement of these works. EC Harris continues to monitor commodities markets and market trends for the supply of key construction materials, and can advise clients on a monthly basis on any significant fluctuations.

Mark Prior
Regional Managing Director E mail : mark.prior@echarris.com Mobile: +97 1505597303

Abu Dhabi Office

Peter Titmus
Managing Director PO Box 93540 Abu Dhabi E mail : peter.titmus@echarris.com Tel : +97 126671882

Dubai Office
Simon Light
Director PO Box 23027 Dubai E mail : simon.light@echarris.com Tel : +97 143328004

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