Building the future

With the region's markets posing different barriers to entry, Abu Dhabi's openness to business makes it a great potential market for local, regional and international players in 2011, according to senior construction industry officials. However, this has led to stiff competition within the industry and lower margins in the first quarter of the year.

Additionally, an oversupply of premium property and funding issues has contributed to a sluggish growth in recent months. The good news? Big developers are looking at affordable housing projects and consultancy work is on the rise, some companies say, while others point to prospective infrastructure business across the GCC.

Taller ambitions, shorter margins

"Work opportunities across all sectors make Abu Dhabi an attractive market for contractors. Certain regional markets, which had opportunity but barriers to entry, made contractors look towards the potential of the Abu Dhabi market," says Bishoy Azmi, Chief Executive at Al Shafar General Contracting (ASGC).

"However, each tender is being fought over by 10 or more contractors at a time. This leads to lower chances of being awarded a project and an environment where margins are lower."

He says construction is moving at a very slow pace, since developers are very cautious about the way forward, but declines to give any figures on growth projections for the coming year. Agrees Phillipe Dessoy, General Manager of Six Construct, "We have done Dh4 billion in the UAE and Qatar in the last two years, and hope to reach Dh4.5 billion in 2011. But we will be happy if we can maintain the same kind of activity in 2011 since there are too many contractors and not enough work to go around."

Six Construct has diversified its portfolio and is concentrating more on the oil and gas sector, he adds. "We are working on Das Island and the Zakum project and are happy with these two major contracts. But it is also difficult since the logistics of marine work are more demanding. Our biggest problem is how to renew our order book in the coming year with the current competition," he says.

Latest research from Ventures Middle East, an Abu Dhabi-based project tracker firm (see tables overleaf), shows a significant drop in contracts awarded between October 2010 and March 2011 against the same period in the previous year. "One must remember that December 2009 saw the $20 billion award for the UAE nuclear plant project (see box overleaf). "So the drop in figures must be analysed within that context," says Mibu John, Syndicated Research Director at the firm.

In general, the property market is low at the moment. "The oversupply of property at the premium end is a major reason," says Paul Abbosh, Regional Development Director at Atkins Middle East.

"Hence, many big developers such as Aldar are looking at affordable property and accommodation where the demand is expected to be greater than the oversupply at the premium end. Obviously, some developers are struggling with funds, and liquidity is still an issue. Demand is the key driver at the moment," he adds.

Atkins is involved with projects such as the Yas Island Waterpark; the Central Market mixed-use development in downtown Abu Dhabi; Khalifa Industrial Zone and Al Ain Municipality's Environment Health and Safety Management System (EHSMS).

But he sees cause for optimism. "The market has changed from that of a design market to focusing on consultancy. There is more detail and in-depth planning before starting a project today — founders are looking for detailed information and validation of particular clients' business plans," said Abbosh. "Besides, due to heavy infrastructure budgets from the public sector, we are finding a lot of consultancy opportunities with government bodies in Abu Dhabi and the GCC."

He adds that the firm is working with the Department of Transport to assist with transport and planning, and a federal study of transport planning for the National Transport Authority of Abu Dhabi. Etihad Rail also appointed Atkins as the preliminary engineering services consultant to oversee the execution of the three stages of the UAE railway network.

Following the work at stage zero, it has been appointed to continue working on stage one and two. Work involves developing the design to a level for tender, the transport body said recently.

Construction on the railroad is to begin in mid-2011 and Etihad Rail has issued tenders to more than 20 pre-qualified consortia for civil and track works and rolling stock of the railway in the Western Region. It will finalise design for the project's second and third phases by year-end.