Material costs impeding Saudi construction despite strength in workloads

RICS Global Construction Monitor Q1 2022

• 87% of respondents single out material costs to be impeding construction activity
• Workloads are expected to rise for year ahead, but mainly driven by infrastructure projects
  
• Labour and supply chain shortages set to impact future workloads
  

There’s continued strong activity across the Saudi Arabian construction market despite rising concerns over the cost and availability of materials, according to the latest RICS Global Construction Monitor for Q1 2022.

Looking at the all-sector level, +59% of respondents reported a rise in workloads this quarter, this slightly down from +60% in Q4 2021. Workloads are mainly being driven by a continued focus on infrastructure projects, as 82% more respondents reported a rise. Respondents also cited a firm commitment to transport infrastructure as over three quarters (82%) reported a rise in workloads in this subsector.

However, despite the strength in current workloads the impact of global supply chain shortages is impeding activity across Saudi Arabia. Indeed, this quarter +87% of respondents reported that material costs are a major constraint to current activity, 4% lower than the global average. Also, access to those materials is only reported to be an issue by 55% of respondents.

Elsewhere, labour shortages and access to the right skills doesn’t seem to be improving. As over three quarters of respondents continue to report this as an issue slowing down activity. Interestingly, this quarter +70% of respondents also highlighted the difficulty with accessing finance for projects.

Despite the current challenges, respondents still remain optimistic for the coming year ahead, but have moderated their expectations for profit margins. The net balance this quarter slid to +52% down from +70% in Q4 2021 but fares a lot better than many other countries across the world. The current infrastructure projects and pipeline is set to sustain the Saudi Arabian construction sector as 89% more contributors anticipate a rise in workloads for the year ahead. 

RICS Chief Economist, Simon Rubinsohn, commented: “The good news in the latest report is that the industry remains positive about the outlook for activity and that the generally upbeat mood can be seen not just in regard of infrastructure and housing development but also in the commercial sector. However, it is clear that the sector faces significant challenges which have been reflected in recent official data showing a sharp rise in vacancies across the construction industry. RICS numbers demonstrate these shortages are pretty much across the board including quantity surveyors and project managers as well as both skilled trades and more general labour. This, combined with problems around accessing building materials in the current environment, is exerting significant upward pressure on construction costs at the present time.”

-ENDS-

Notes for editors:

Contributor Quotes:

“In Jeddah major redevelopment projects have been launched by the government and it creates opportunity for construction.” -Jeddah

“Saudi Arabia’s new approach of accepting tourism and liberalizing freedom in kingdom.”- Riyadh

“Significant increase in inflation is imminent as the Mega Programmes complete the design phases.” - Riyadh

“Lack of training and welfare support and the impact of remote working and isolation from family.” - Riyadh

“Attracting consultancy staff and management to KSA.” - Riyadh

“Remnants of Covid -19 and war in Ukraine.” – Riyadh

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