The sustained twenty-year growth of construction in the UAE is amazing. But as oil prices continue to drop, many are fearing a recession is about to hit the business, particularly in the issuing of public sector contracts. So are industry insiders being over-optimistic by claiming otherwise? Luiza Karim profiles one of the most lucrative industries in the UAE
In many countries the construction industry is a volatile one, with economic cycles having a great effect on investment in new construction projects. However, in the UAE, the past twenty years have seen a steady flow of ever-more ambitious construction projects being commissioned. The construction industry in Dubai is unique for this sustained growth.
The race for the skies in the UAE has been enabled through the enormous financial benefits made from the discovery of oil. The government and the private sector regularly commission an incredible variety of ultra-modern high rises. Keen to outdo each other with bigger and better structures, there are now even more weird and wonderful buildings looming on the horizon and according to industry heads, the order books are going to continue to be filled.
“Work looks good for the next 18 months as we have a lot of current projects. New contracts are likely to roll during the course of the year,” said Nigel Poole, contracts manager at Al Habtoor Engineering Enterprises.
Al Habtoor Engineering Enterprises and their South African associate partners Murray & Roberts Contractors (Middle East) are on a roll at the moment, having recently won three major contracts in Dubai.
They were awarded the Dh538 million (US$146.5m) contract to construct the concourse building for Dubai International Airport’s expansion as well as a Dh20 million (US$5m) contract for the fit-out and finishings package at the Jumeirah Beach Hotel.
The consultant and project manager on the airport development is the US’ International Bechtel.
The joint venture company was also awarded the Dh148 million (US$40.3m) contract to construct the Kendah House project. The 155 metre, 39 storey tower block on Sheikh Zayed road will house offices and is scheduled to be ready by the end of 1999.
Most of the projects in the UAE involve foreign architects and consultants who have found plenty of work as business success funded expansion. The availability of space and efficient regulations have meant that architects could turn a rich man’s dream into an extravagant reality. Today’s situation has not altered that much. Business is still booming and land and money are plentiful, both of which are required to sustain the growth.
However, as building regulations are introduced competition between architectural firms is becoming keen, as has competition between contractors and architects.
While the route of owner/client approaching an architect who recommends a contractor has been the standard way, many big projects are often handed directly to a contractor who chooses an architectural company to execute the design.
Architects are still allowed to operate independent of a local partner, unlike contractors who must tie up with a domestic company. This will change by 2005 when architects will have to abide by the same regulations.
In the UAE architects and project consultants take around five per cent of the project cost, but it does vary. In Abu Dhabi, for instance, projects relating to the government-controlled Khalifa Committee have a fixed rate of four per cent.
“Good foreign architects are proving themselves, but there a lot around. Despite the good prospects and the abundance of projects, the competition is stiff,” said Attalah Saeed, principal architect of UK based WS Atkins.
“There is plenty of work this year for large scale projects, such as banks, office towers and heavy civil infrastructure,” said Saeed. As for how many super-projects Dubai can handle, such as the much talked about Jumeirah Beach complex, the super-high Emirates towers and the National Bank of Dubai, there seems to be no end in sight.
“There is enough space to absorb these large buildings in Dubai and although there is a lot of competition among architectural design firms, the good ones are doing well,” said Saeed.
Some government officials argue that the dominance of foreign architects and contracting companies in the Gulf has not benefited locals and subsequently the national economy.
“We know we cannot do without the foreign expertise for our industry but we could have had at least 10 per cent nationals in this industry, if we had tried to achieve it,” said Mohammed Khalifa Al Habtoor, chairman of the Federal National Council. Ahmed Saif Belhasa, chairman of the UAE Contractors’ Association, said that local construction companies should get preference over foreign contractors in government projects.
“If no local company is found able enough to execute the project, they should team up with foreign firms and gain the expertise they need,” he said.
He also called for a bigger role for Gulf-based local contractors so that they can play a role in the building of their economies.
According to Belhasa, 85 per cent of construction contracts are awarded to foreign companies, sidelining Gulf-based contractors as Arab countries spend 80 per cent (US$30 billion annually) of construction revenues on purchasing building equipment and materials from foreign countries.
Western foreign architects retaliate by saying that they only get called in on certain projects or western expatriate residential complexes and that contractors, usually of local origin, yield a lot of power. “There are few local architects as it has not been a popular choice of career. That is changing but obviously it will take time. Many Middle Eastern architects work for Western architect firms as they are among the best,” said Zandi.
Furthermore, large projects are often handed directly to the contractor who either has the design work done in-house or chooses an architectural company to execute the design.
This practice can have severe drawbacks according to John Steiner, director at interior design firm Cityspace.
“If everything is done in-house, there is no incentive to be creative with the design as it might sound controversial and people are afraid of losing work as a result. If architects and interior designers collaborated together there could be more dynamic and better quality buildings,” he said.
Repeated calls have been made by the UAE Contractors’ Association chairman Ahmed Saif Belhasa on the need to introduce standardised construction codes on building materials and practices.
“The absence of a uniform building code for the UAE means that engineers and contractors are not bound by specific regulations, with some using British, European or American codes,” he said.
While many foreign architects interpret this to mean that a UAE construction code will be introduced, few doubt that it will be based on European and US regulations and that it will take years to implement as federal government in Abu Dhabi will have to approve it first.
“I don’t think it’s such an issue as foreign architects follow their own country specifications. We at WS Atkins follow British standards and most of Dubai Municipality’s standards are based on British standards as well,” said Saeed.
There might be a lot of commercial buildings in Dubai but there is not much decent office space, according to Cityspace’s Steiner. Landlords of commercial buildings would benefit financially if they invested more in good office space design and encouraged architects to work closer with interior designers, said Steiner.
The current practice of placing the services, such as the lifts, water and power facilities, and fire escapes, in the centre of the building, leaves little room for flexible space arrangement.
“More floor space could be made available by designing the services on the perimeter of the building and leaving the central area free,” explained Mehdi Moazzen, design director of Cityspace.
“Multinational companies in particular are looking for flexible work spaces where they can expand their activities and actually, there are very few buildings that have large clear spaces without pillars or service areas,” agreed Steiner.
Calling for a design association to be set up in the UAE, Steiner believed that it would give architects and designers the opportunity to discuss current procedures and ways of improving standards.
A common complaint that companies make is working in a building that has several floors of residential flats in them, as it means that services are shared and that the original design is usually made for residential purposes and not commercial.
“I would prefer to have my office in a building that is entirely commercial. I don’t want my clients to come into a building where you can smell food or hear babies crying,” one company manager said, whose office is on Sheikh Zayed road.
“There generally seems to be some confusion as to who the landlord is trying to attract. Many believe that by doing a multi purpose building they are improving their chances of following market demand,” said Steiner.
The question remains whether Sheikh Zayed road is supposed to be a residential neighbourhood or a high flying business area and what the long term plans are, if indeed there are any.
But in the long run, a well constructed and designed sole purpose office block building is likely to make more money as there are few of them, despite the impressive exteriors.
Many companies that set up offices a few years ago with less than a handful of staff have grown and now require more office space but few buildings can provide an additional floor and new premises are sought. “There is definitely a demand for high quality modern design office space environments where companies can play around with the space and install themselves according to their wishes,” said Steiner.
But according to civil engineers, Dubai is suffering as a result of the cut throat competition and quick buck attitude of investors who are not interested in long term quality.
“The question is how cheap and how fast can you build it. Investors are interested in getting their money back as quickly as possible and set a very short time frame,” said Shakir Al Kubaisi, regional chief executive of Maunsell.
Most designers agree that tough fee competition is a problem and as a result, consulting engineers are forced to consider cheaper alternatives to fit the budget and the time frame.
“Quality suffers because investors are not interested in building something that lasts. Buildings are slapped up at amazing speed and then need to be torn down or undergo major repairs less than a decade down the line,” argued Marco Malpiedi, general manager of Cowi Al Moayed Gulf.
Nonetheless, with over $2 billion worth of new projects pending in Abu Dhabi, the UAE looks set to enjoy another good year in the construction industry.
According to a report in Middle East Economic Digest, an upturn in Abu Dhabi’s industrial construction activity will help offset a projected slowdown in Dubai for this year.
Two engineering, procurement and construction (EPC) contracts at a value of US$1.5 billion are due to be awarded by Abu Dhabi National Oil Company (Adnoc) in the very near future.
The largest is for the main plant package on the second phase of the $1 billion onshore gas development project, aimed at increasing gas handling capacity.
The other EPC contract entails building a general utilities plant to raise power, desalination and seawater cooling capacity at Ruwais to meet the utility needs of new industry in the area, including the expanded Ruwais refinery.
Adnoc is evaluating bids for the second main construction package which covers the installation of new units, including an unleaded gasoline facility, the report said.
The utilities plant will also serve Abu Dhabi’s Adnoc-Borealis petrochemical venture when it eventually comes on stream. Five international contracting groups have been invited to bid for the construction of the 600,000 tonnes per year ethylene cracker by early March.
The launch of a major power and water project, the Taweelah A-2, is also due this year in Abu Dhabi.
The plant, which will have a capacity of 480-580 megawatts and 50 million gallons a day, will be implemented on a build-operate basis, with the successful bidder taking a 40 per cent stake in a separate utility company to be set up to run the company.
As is obvious, there is no end in sight as the contracts continue to roll for the UAE’s builders. Other industrial construction projects forthcoming include Dubai’s plan to upgrade the Jebel Ali D station, expanding its installed generating capacity. The project is expected to go for tender late this year and will be funded by Dubai government. Roads and sewerage construction projects are expected to proceed in Dubai, including the US$60 million expansion of the Al Awir sewage treatment plant and the Sharjah-Dubai ring road project.
The building sector is expected to stay active in all the Emirates. Several packages are still to be tendered on Dubai’s Emirates tower project.
In Abu Dhabi, design and build bids for the estimated US$200 million trade centre were due back late last month.
Sharjah is also aiming to implement the largest civil construction scheme for many years with its US$120 million world trade and exhibition centre on the Al Khan lagoon.