RICS_Survey_MENA_2018

Economics
Q3 2018: RICS Middle East Construction and Infrastructure Survey

Profit margins narrow, but workloads expected to
increase
• Construction and infrastructure workloads declined in Q3, but respondents expect workloads to increase over
the next twelve months.
• Profit margins under pressure in Q3, and are expected to continue to do so as respondents highlight insufficient
demand, financial constriants, and competition as holding back activity.
Respondents to the RICS Q3 Global Construction and as a constraint. Chart 2 shows that respondents in KSA have
Infrastructure market survey from the Middle East broadly the firmest expectations for tender price increases for both
reported a decline in activity during the third quarter. Although building and civil engineering over the next twelve months in
activity was downbeat in the third quarter, Chart 1 indicates the region, while prices for both are expected to decline in the
that contributors are optimistic that headline workloads are UAE.
likely to increase over the next year.
Interestingly, a majority of contributors in any country in
Perhaps due to expectations for future workloads, a majority the Middle East did not report any particular skill shortage.
of respondents in the Kingdom of Saudi Arabia (KSA), 71%, Though, 47% of respondents in each of Oman and the UAE
and in the United Arab Emirates, 55%, reported highering reported a shortage of BIM managers. Meanwhile, in KSA 42%
additional headcount in Q3 to support new workloads. A of respondents noted a shortage of construction managers,
significant share of respondents in Oman (45%) and Qatar while 38% in Oman and Qatar reported a shortage of quantity
(44%) also reported new hiring during the quarter. surveyors/commercial managers. However compared to
other regions, there does not appear to be an acute shortage
There could be some element of front-loading here, as
of any particular skill in the Middle Eastern construction and
respondents across the Middle East don’t see headcounts
infrastructure industries.
expanding over the next twelve months despite the
expectations for increased workloads, and those in KSA and As shown in Chart 5, infrastructure workloads were mixed
the UAE expect a modest contraction in headcount over the throughout the region, with little change reported in KSA
next year. and the UAE, but contributors in Oman and Qatar reporting a
decline. This becomes even more nuanced when looking at
Contributors across the Middle East reported a sharp pullback
workloads by segment. Workloads on road and rail generally
in profit margins in Q3 and increase in payment delays.
increased during the third quarter, with the exception of Oman,
Despite expectations for increased workloads, this is expected
while those for harbour and port projects generally declined.
to persist, as shown in Chart 4. This dynamic may be attributed
Contributors from Oman and Qatar also reported declining
to financial constraints faced by firms, which were identified
workloads for communications and airport projects.
by a majority of respondents in each country included in the
survey as a drag on activity. Expectations for which infrastructure market segment will see
the greatest growth in output over the next twelve months were
As noted in Chart 3, more than a third of respondents in Qatar
similarly nuanced. The greatest share of respondents in both
and half of respondents in the UAE and KSA saw some degree
Qatar and the UAE expect this to be harbours and ports, while
of deterioration in credit conditions during Q3. The outlook for
in KSA rail is expected to see the strongest growth in output
credit conditions throughout the region over the next twelve
and in Oman this is expected to be communication.
months is more nuanced, with expectations in Oman and
Qatar skewed towards an improvement and those in KSA One area which shows more uniformity across the Middle East
towards a deterioration. is the type of infrastructure investment is needed. Between
70-80% of respondents in each of KSA (70%), Oman (75%),
Insufficient demand and competition were also highlighted
Qatar (73%) and the UAE (79%) all see more of a need for
as stifling market activity by respondents across the region.
new projects than for the repair and maintence of existing
Respondents in KSA and Qatar also cited the cost of materials
infrastructure.
To receive a copy of this report on the day of release e: globalproperty@rics.org rics.org/economics

Q3 2018: Middle East Construction and Infrastructure Survey rics.org/economics
MENA Key Indicators

Chart 1: Workloads Chart 2: Tender Prices, Next 12 months
60 60
Net balance, %
Past 3 months Building
Net balance, %
Next 12 months Civil Engineering
50
40
40
30
20
20
0 10
-20
-10
-20
-40
-30
-60 -40
Oman UAE Qatar Saudi Arabia Saudi Arabia Oman Qatar UAE
Chart 3: Credit Conditions Chart 4: Profit Margins

0 10 20 30 40 50 60 70 80 90 100 0
-10
UAE
-20
-30
Saudi Arabia
Deteriorate
-40
Same
Improve
-50
Qatar
-60
-70 Past 3 months

Oman Net balance, % Next 12 months
-80
Oman Qatar Saudi Arabia UAE
Chart 5: Infrastructure Workloads, Past 3 months Chart 6: Infrastructure Needs

-20 -15 -10 -5 0 5 10 0 10 20 30 40 50 60 70 80 90 100
Net balance, %
Saudi Arabia UAE
UAE Oman
New Projects
Repair & Maintenance
Oman Qatar
Qatar Saudi Arabia
2 © RICS Economics 2018 Q3 2018

Oman Key Indicators

Workloads - Headline workloads contracted modestly in Q3, though Enquiries & Workloads - New business enquiries declined in Q3, as
respondents did report an increase in private industrial builds and no new workloads also decreased. Respondents reported tighter profit
change in public residential or private commercial workloads. margins, and a moderate increase in payment delays.
15 Net balance, % 30 Net balance, %
20
10
10
5
0
0 -10
-20
-5
-30
-10
-40
-15 -50
-60
-20 Profit Margins New Business New Workloads Repair & Payment Delays Use of ADRs
Infrastructure Other Public Private Private Private Public Total Enquiries Maintenance
Works Commercial Industrial Residential Residential Workloads
Factors Holding Back Activity - Competition and financial constraints 12-month Expectations - Respondents expect workloads to increase
were overwhelmingly the top factors cited by a majority of over the next twelve months, and this is expected to outpace material
respondents as holding back activity (88% and 81% respectively). 71% price inflation (in net balance terms). Meanwhile, headcounts and
also cited insufficient demand as stifling activity. profit margins are expected to remain unchanged over the next year.
0 10 20 30 40 50 60 70 80 90 100 40 Net balance, %

% of respondents who responded 'Yes'
Weather Conditions 35
Shortage of Skills 30
25
Shortage of Materials
20
Shortage of Labour
15
Planning & Regulation
10
Insufficient Demand
5
Financial Constraints
0
Cost of Materials
-5
Competition -10
Workloads Headcount Cost of Materials Profit Margins

Oman Key Indicators

Expectations for Credit Conditions - Credit conditions are seen
Skill Shortages - 47% of respondents identified a shortage of BIM
little changed over the next three months by a majority (75%) of
managers. Apart from this, there were no other skills that more than
respondents. However, over the next year, 44% of respondents expect
40% of respondents identified as there being a shortage of.
credit conditions to improve.
0 5 10 15 20 25 30 35 40 45 50 80 %
Quantity Surveyors/Commercial Managers Next 3 months

70 Next 12 months
% of
Project Managers respondents
who
Plumbers responded 60
'Yes'
Plasterers
50
Electricians
Development Managers 40
Construction Managers
30
Civil Engineers
Carpenters/Joiners 20
Building Supervisors
10
Bricklayers
BIM Managers 0
Deteriorate Same Improve
Infrastructure Workloads - Infrastructure workloads were mixed in Infrastructure Expectations - Over the next twelve months, 47% of
the third quarter. Repsondents reported an increase in workloads on respondents expect communications workloads to see the most
water and utilities projects, while workloads on airports declined. significant increase.
-40 -30 -20 -10 0 10 20 30 0 5 10 15 20 25 30 35 40 45 50

Net balance, %
%
Water/Utilities Water/Utilities
Roads Roads
Rail Rail
Harbours/Ports Harbours/Ports
Energy Energy
Communication Communication
Airports Airports

Qatar Key Indicators

Enquiries & Workloads - New enquiries and new workloads declined
Workloads - Workloads were down across the board in Q3, with
during the third quarter. Repair and maintenance workloads were
respondents seeing the largest pullback in private industrial
also reported to have declined, though at a more modest pace in net
workloads. Infrastructure workloads declined at a much more modest
balance terms. Respondents also reported a significant deterioration
pace during the third quarter.
in profit margins, and increase in payment delays.
0 60 Net balance, %
-5
40
-10
-15
20
-20
0
-25
-30
-20
-35
-40 -40
-45
Net balance, %
-60
Factors Holding Back Activity - Respondents were almost unanimous 12-month Expectations - Respondents expect a marginal increase in
(97%) in highlighting financial constraints as a factor holding back workloads over the next year, and see headcounts little changed. The
activity. Meanwhile, 84% identified competition, 81% insufficient cost of materials is seen rising at a faster pace, however, and profit
demand, 76% the cost of materials, and 60% a shortage of materials. margins are expected to continue to deteriorate.
0 10 20 30 40 50 60 70 80 90 100 30 Net balance, %

Weather Conditions
20
Shortage of Skills
Shortage of Materials 10
Shortage of Labour
0
Insufficient Demand -10
-20
Cost of Materials
Competition -30

Qatar Key Indicators

Expectations for Credit Conditions - A majority of respondents (58%)
Skill Shortages - Respondents did not overwhelmingly highlight a
see little change in credit conditions over the next three months,
specific skills shortage, though 38% did note a shortage of quantity
though a third expect some degree of deterioration. Credit conditions
surveyors/commercial managers.
are expected to tighten over the next year.
0 5 10 15 20 25 30 35 40 70 %
Quantity Surveyors/Commercial Managers Next 3 months

Next 12 months
% of 60
Project Managers respondents
who
Plumbers responded
'Yes' 50
Plasterers
Electricians 40
Development Managers
Construction Managers 30
Civil Engineers
20
Carpenters/Joiners
10
Bricklayers
BIM Managers 0
Infrastructure Workloads - Infrastructure workloads were mixed in the

Infrastructure Expectations - 42% of respondents expect harbours and
third quarter. Workloads on rail, road and water and utilities projects
ports to see the largest increase in workloads over the next twelve
increased, while there was little change in workloads on harbours and
months, while 32% expect the biggest increase in workloads to occur
ports and energy projects. Meanwhile, workloads on communication
in road projects.
and airports declined.
-30 -20 -10 0 10 20 30 0 5 10 15 20 25 30 35 40 45

Net balance, %
%
Roads Roads
Rail Rail
Energy Energy
Airports Airports

Kingdom of Saudi Arabia Key Indicators

Workloads - Contributors reported a decline in headline workloads Enquiries & Workloads - Contributors reported a sharp decline in
during Q3, particularly regarding private commercial and residential new business enquiries in net balance terms, and new workloads
projects. Workloads for infrastructure, however, were reported to have were also seen to have decreased. Perhaps unsurprisingly, margins
increased at a moderate pace during the quarter. tightened and payment delays increased during Q3.
20 Net balance, % 30 Net balance, %
10 20
10
0
0
-10
-10
-20
-20
-30
-30
-40 -40
-50 -50
-60 -60
-70
-70
-80
12-month Expectations - Workloads are expected to increase at

Factors Holding Back Activity - Respondents were unanimous in
a robust pace over the next year, while the cost of materials are
highlighting financial constriants as a factor holding back activity, while
expected to increase at a more modest pace (in net balance terms).
92% also reported insufficient demand. Meanwhile, 75% noted the
However, headcounts are still seen declining, and profit margins little
cost of materials and 67% identified competition as restraining activity.
changed over this period.
0 10 20 30 40 50 60 70 80 90 100 60 Net balance, %

Weather Conditions 50
Shortage of Skills 40
Shortage of Materials 30
Shortage of Labour 20
Planning & Regulation 10
Insufficient Demand 0
Financial Constraints -10
Cost of Materials -20
Competition -30

Kingdom of Saudi Arabia Key Indicators

Expectations for Credit Conditions - Most respondents, 58%,
Skill Shortages - Respondents didn’t highlight a shortage of any
expect no change in credit conditions over the next three months.
particular skills, but 42% noted a shortage of construction managers
Expectations over the next year, however, are more mixed, with 42%
and plasterers.
expecting an improvement and 33% expecting a deterioration.
0 5 10 15 20 25 30 35 40 45 70 %
% of respondents
Quantity Surveyors/Commercial Managers who responded 'Yes' Next 3 months
Next 12 months
60
Project Managers
Plumbers
50
Plasterers
Electricians 40
Civil Engineers
20
Carpenters/Joiners
10
Bricklayers
BIM Managers 0
Infrastructure Workloads - Respodnents reported an increase in Infrastructure Expectations - Half of respondents expect rail projects
workloads for road, rail and energy projects during Q3. Meanwhile, to see the largest increase in demand over the next twelve months,
work on harbours and ports declined during the third quarter. while 20% see this for communications projects.
-40 -30 -20 -10 0 10 20 30 40 0 10 20 30 40 50 60

Net balance, %
%
Roads Roads
Rail Rail
Energy Energy
Airports Airports

United Arab Emirates Key Indicators

Enquiries & Workloads - Respodents reported a significant decline in
Workloads - Headline workloads declined during Q3. While
profit margins and an increase in payment delays in Q3 in net balance
most segments saw a pullback during the quarter, workloads on
terms. Meanwhile, new business enquiries and new workloads
infrastructure projects were reported to have been little changed.
declined at a more modest pace.
0 60 Net balance, %
-5 40
-10
20
-15
0
-20
-20
-25
-40
-30
-60
-35
Net balance, %
-80
Factors Holding Back Activity - Competition was seen as a factor 12-month Expectations - Although workloads are expected to increase
holding back actvity by 81% of respondents. Financial constraints over the next year, profit margins are seen to continue to deteriorate.
(75%) and insufficient demand (65%) were the only other factors Meanwhile, respondents expect a moderate increase in the cost of
identified by more than 50% of respondents. materials and decline in headcounts.
0 10 20 30 40 50 60 70 80 90 100 40 Net balance, %

% of respondents
Weather Conditions who responded 'Yes'
30
Shortage of Skills
20
Shortage of Materials
10
Shortage of Labour
0
-10
Insufficient Demand
-20
Cost of Materials -30
Competition -40

United Arab Emirates Key Indicators

Skill Shortages - Nearly half (47%) of respondents reported a Expectations for Credit Conditions - Credit conditions are expected to
shortage in BIM managers in Q3. Apart from this, a substantial share remain unchanged over the next twelve months, though over the next
of respondents did not report a deficit in a particular skill. three months expectations are slightly skewed towards a tightening.
0 5 10 15 20 25 30 35 40 45 50 70 %
% of
Quantity Surveyors/Commercial Managers respondents Next 3 months
who Next 12 months
responded 60
Project Managers 'Yes'
Plumbers
50
Plasterers
Electricians 40
Civil Engineers
20
Carpenters/Joiners
10
Bricklayers
BIM Managers 0
Infrastructure Expectations - No single segment was overwhelmingly

Infrastructure Workloads - Infrastructure workloads were mixed during
expected to see the strongest increase in demand over the next year,
Q3. Respondents reported an increase in workloads on road projects,
as more than 20% of contributors each selected harbours and ports
and a decline in workloads on harbours and ports, as well as airports.
(29%), roads (23%), and communications (23%) projects.
-20 -15 -10 -5 0 5 10 15 20 25 0 5 10 15 20 25 30 35

Net balance, %
%
Roads Roads
Rail Rail
Energy Energy
Airports Airports

Information
Construction and Infrastructure Survey Economics Team
RICS’ Asia-Pacific and Middle East Construction and
Infrastructure Survey is a quarterly guide to the trends in the
Janet Guilfoyle
construction and infrastructure markets. The report is available
from the RICS website www.rics.org/economics along with Market Surveys Administrator
other surveys covering the housing market, residential lettings,
+44( 0)20 7334 3890
commercial property, construction activity and the rural land
market. jguilfoyle@rics.org
Methodology Simon Rubinsohn

Survey questionnaires were sent out on 24 September 2018
with responses received until 21 October 2018. Respondents Chief Economist
were asked to compare conditions over the latest three months +44( 0)20 7334 3774
with the previous three months as well as their views as to the
outlook. A total of 984 company responses were received. srubinsohn@rics.org
Responses for New Zealand were collated in conjunction with
Property Council New Zealand.
Jeffrey Matsu
Net balance = Proportion of respondents reporting a rise in a
variable (e.g. occupier demand) minus those reporting a fall (if Senior Economist
30% reported a rise and 5% reported a fall, the net balance will
+44(0)20 7695 1644
be 25%). Net balance data can range from -100 to +100.
jmatsu@rics.org
A positive net balance reading indicates an overall increase
while a negative reading indicates an overall decline.
Sean Ellison
Contact details
Senior Economist
This publication has been produced by RICS. For all economic
enquiries, including participation in the monitor please contact: +65 68128179
economics@rics.org
sellison@rics.org
Disclaimer
This document is intended as a means for debate and Tarrant Parsons
discussion and should not be relied on as legal or professional Economist
advice. Whilst every reasonable effort has been made to
ensure the accuracy of the contents, no warranty is made with +44(0)20 7695 1585
regard to that content. Data, information or any other material tparsons@rics.org
may not be accurate and there may be other more recent
material elsewhere. RICS will have no responsibility for any
errors or omissions. RICS recommends you seek professional, Kisa Zehra
legal or technical advice where necessary. RICS cannot
accept any liability for any loss or damage suffered by any Economist
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Economics

Q3 2018: RICS Middle East Construction and Infrastructure Survey

To receive a copy of this report on the day of release e: globalproperty@rics.org rics.org/economics

MENA Key Indicators

Chart 3: Credit Conditions Chart 4: Profit Margins

-70 Past 3 months

Chart 5: Infrastructure Workloads, Past 3 months Chart 6: Infrastructure Needs

Saudi Arabia UAE

Qatar Saudi Arabia

2 © RICS Economics 2018 Q3 2018

Oman Key Indicators

15 Net balance, % 30 Net balance, %

0 10 20 30 40 50 60 70 80 90 100 40 Net balance, %

3 © RICS Economics 2018 Q3 2018

Oman Key Indicators

Quantity Surveyors/Commercial Managers Next 3 months

-40 -30 -20 -10 0 10 20 30 0 5 10 15 20 25 30 35 40 45 50

4 © RICS Economics 2018 Q3 2018

Qatar Key Indicators

0 10 20 30 40 50 60 70 80 90 100 30 Net balance, %

Insufficient Demand -10

5 © RICS Economics 2018 Q3 2018

Qatar Key Indicators

Quantity Surveyors/Commercial Managers Next 3 months

Infrastructure Workloads - Infrastructure workloads were mixed in the

-30 -20 -10 0 10 20 30 0 5 10 15 20 25 30 35 40 45

6 © RICS Economics 2018 Q3 2018

Kingdom of Saudi Arabia Key Indicators

20 Net balance, % 30 Net balance, %

12-month Expectations - Workloads are expected to increase at

0 10 20 30 40 50 60 70 80 90 100 60 Net balance, %

Planning & Regulation 10

Financial Constraints -10

Cost of Materials -20

7 © RICS Economics 2018 Q3 2018

Kingdom of Saudi Arabia Key Indicators

-40 -30 -20 -10 0 10 20 30 40 0 10 20 30 40 50 60

8 © RICS Economics 2018 Q3 2018

United Arab Emirates Key Indicators

0 10 20 30 40 50 60 70 80 90 100 40 Net balance, %

Cost of Materials -30

9 © RICS Economics 2018 Q3 2018

United Arab Emirates Key Indicators

Infrastructure Expectations - No single segment was overwhelmingly

-20 -15 -10 -5 0 5 10 15 20 25 0 5 10 15 20 25 30 35

10 © RICS Economics 2018 Q3 2018

Methodology Simon Rubinsohn

11 © RICS Economics 2018 Q3 2018

United Kingdom RICS HQ

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