169 Real Estate & Construction All real estate segments in recovery after downturn Residential property prices rising since end-2012 Government to continue promoting market stability Major urban planning projects set to spur growth Pipeline for construction projects looks promising 170 REAL ESTATE OVERVIEW

The sector is currently witnessing a period of growth and rising prices

The price is right Growing demand and tight supply seem likely to continue over the next few years

As of the third quarter of The real estate sector in is currently in a peri- CEO of TDIC, told OBG. “The development of its three 2014, all segments of the od of growth and rising prices, after a downturn fol- bolsters the growth of the leisure and hos- real estate market were in lowing the global financial crisis that began in 2008. pitality industries.” Outside of Saadiyat, the company simultaneous recovery for the first time since the According to a real estate market overview for the emi- is also undertaking several projects on Abu Dhabi Island downturn in 2008. rate by Jones Lang LaSalle (JLL), the third quarter of and in the Al Gharbia region. 2014 saw all segments simultaneously in recovery for Mai Hassan, a JLL financial analyst, told OBG the gov- the first time since 2008. The firm reported that the ernment is set to maintain its high level of involvement office, hotel and retail segments were all in the early in real estate investment development for the foresee- stages of a period of accelerating growth in late 2014, able future. “The government is likely to want to remain while rents in the residential segment were transition- active as a major player, as it appears to want to man- ing from a period of accelerating growth to slowing age supply and demand, and keep the market stable.” growth, though not yet in decline. BIG NAMES: Founded in 2004 and based in Abu Dhabi, MAJOR PLAYERS: is one of the most Tamouh Investments is a real estate development com- prominent real estate developers active in the emirate, pany focused on developing communities and sustain- with a portfolio of Dh14.1bn ($3.8bn) of investment able living. In April 2014 the real estate developer scaled properties and Dh2.7bn ($735m) of investment work up construction activity on projects. in progress as of September 2014. The Abu Dhabi gov- The island covers an area of 6.5m sq metres – 60% of ernment is a major shareholder in the firm, via a 29.75% which has been allocated to Tamouh for development stake owned by government investment firm Mubadala in accordance with the “city within a city” master plan. Development Company; it is also listed on Abu Dhabi The firm is planning for a community of 100,000 res- Securities Exchange. Aldar is the master developer for idents, as well as daily commuters and professionals. several major projects, including the leisure, retail and Tamouh’s offerings on the island include: Marina Square, tourism development . The company was cre- home to more than 8500 residents with 3440 units, all ated through the 2013 merger of government-backed of which are smart home enabled; Paragon Bay, a com- developers Aldar and Sorouh. Until the merger, the lat- munity mall with more than 100 specialty retail and din- ter was the master developer of Al Reem Island. In ing options; City of Lights, a mixed-use development December 2014 Aldar saw its rating upgraded by Stan- project comprising seven residential towers and two dard & Poor’s from “BB+” to “BBB-” with a stable out- buildings for offices and commercial use. City of Lights look, reflecting its improved financial profile. is set to be completed in stages between 2014 and 2016. Another major player is the fully government-owned Tamouh resumed work in late 2014 on Meena Plaza, Tourism Development and Investment Company (TDIC), a 246,500-sq-metre project that consists of three apart- which describes itself as the “master developer of major ment towers and one office building, and includes tourism, cultural and residential destinations in Abu recreational areas, a cinema and health care facilities. Dhabi”. The firm’s flagship project is the development Joe Ong, managing director of Tamouh, told OBG, “Pro- Pursuant to its goal of of the 27-sq-km , where three major jects like the development of Al Reem Island and Meena preserving market stability, museums – Abu Dhabi, Plaza illustrate the complexities of accommodating a the government is set to and Zayed National – are being built, in addi- diverse resident profile in Abu Dhabi. The island is home maintain its high level of involvement in real estate tion to other developments, such as several hotels. to families that enjoy the quality of life and calmer sur- investment development for “Saadiyat can be thought of as an extension of Abu Dhabi roundings, while also attracting more and more young the foreseeable future. with a special emphasis on culture,” Ali Al Hammadi, the people.” Tamouh is also building some 3000 villas for

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nationals at Jebel Hafeet in . The development will to develop sustainably built homes, comprehensive Urban development plans also include associated infrastructure, such as parks, internal infrastructure and facilities such as streets, will see the creation of a eight mosques, a family centre and a health clinic. The schools, parks and mosques, with the aim of ensuring second main hub – – as well as limits on contractor Trojan is responsible for construction, with that the needs of residents are largely met within such the expansion of Abu Dhabi the project scheduled to be completed in mid-2016. communities. “CSC applies to all development master City’s metropolitan area to Ong told OBG, “It is important to remember that there plans in the emirate,” Al Ahbabi said. “Our aim is to help ensure the efficient use of is also growth to tap into across the emirate. Our proj- achieve better, healthier and happier communities by resources and ect in Al Ain illustrates that there is an appetite for providing them with better spaces in which to live. infrastructure. comprehensive development with an emphasis on com- Today, many people travel from outside of the city into plete lifestyle offerings, including amenities such as Abu Dhabi; we want to encourage people to live and parks, activities and family resources.” work within their communities.” Founded in 2010 and headquartered in Abu Dhabi, The UPC has designed new communities, such as Aabar Properties is a real estate development, manage- North Wathba, in which residents can, as the UPC puts ment and investment company focused on developing it, “lead a high-quality lifestyle close to home”. A key a range of properties. The firm’s developments are aim is enabling people to live, work and play all within spread across Beach, Al Reem Island, Rawdhat a walkable distance – aided by infrastructure such as and Saraya. Aabar Properties’ offerings include: The shaded footpaths – to improve their health and qual- Wave, a 23-story residential tower located in Najmat ity of life. In line with the initiative, in September 2014 along the marina waterfront; Al Durrah Tower, a 40- the UPC announced new Abu Dhabi Community Facil- storey residence on Al Reem Island; Al Raha Beach, ity Planning Standards, mandating the provision of a which will comprise four tower blocks stretching over minimum level of community facilities – such as schools, 87 km of waterfront; and Hard Rock Hotel, a five-star medical facilities, community, sports and leisure cen- hotel that will house the international restaurant of the tres, and police stations – in new communities in the same name, as well as offer 378 luxury apartments. emirate, as well as existing ones that are being rede- Aabar Properties recently announced the launch of veloped, though these depend on the size of the com- its Al Raha Beach project. Construction is already under munity. All development proposals for communities of way and is expected to be completed in 2017, with over 2000 residents must comply with the standards. Ghantoot Murray & Roberts – a joint venture between Another key feature of Plan Capital 2030 is the cre- Ghantoot General Contracting and South Africa-based ation of a second main hub – Zayed City. The planned construction firm Murray & Roberts – winning the con- development, originally known in the Urban Structure tract for construction in March 2014. A month earlier, Framework Plan as Capital District but subsequently Al Futtaim was awarded a $180m contract for the Hard rebranded, is located on the mainland east of the exist- Rock Hotel, and -based Arabtec signed a memo- ing centre, between the city’s airport and Mohammed randum of understanding with the real estate firm for bin Zayed City. The planned district will span 45 sq km its subsidiary, Arabtec Construction, to build 37 towers and accommodate more than 290,000 residents. Its in Abu Dhabi and Dubai worth Dh22.44bn ($6.11bn). detailed timescale is currently being established. URBAN PLANNING: In addition to its involvement via SUSTAINABILITY: In 2008 the government introduced state-backed developers, the government is seeking to an initiative called Estidama, meaning “sustainability” directly shape the urban development of Abu Dhabi in . One of its key components is a sustainabili- through a range of planning strategies and regulations. ty ratings system for new buildings, villas and commu- Chief among these is the Abu Dhabi Urban Planning nities, which was launched in 2010 and is based on a Council (UPC) plan for the development of the emirate’s scale of one to five “pearls”. The government has man- capital, which was issued in 2007 as Plan Abu Dhabi dated that all new privately backed projects in the 2030: Urban Structure Framework Plan. The UPC began updating the scheme – since renamed Plan Capital Avg. purchase price in AD City investment zones, 2009-14 Q4 (Dh/sq metre) 2030: Urban Structure Framework Plan. “The plan serves as a clear set of guiding principles for the real estate 20,000 sector. To that end, there is a relatively clear direction in terms of where the sector is headed,” Jassem Al Ali, the CEO of First Gulf Properties, told OBG. 16,000 Speaking in October 2014, Falah Al Ahbabi, director general of the UPC, told OBG the agency was in the final 12,000 stages of preparing the revised version of the plan, and that among the main changes from the 2007 plan were limits on the expansion of Abu Dhabi City’s metropol- 8000 itan area. “We have focused on the growth boundaries of the city and on shrinking its geographical growth – 4000 in particular in the north and east, to ensure the effi-

cient use of resources and infrastructure,” he said. SOURCE: JLL One of the main thrusts of the UPC is the Complete 0 2009 2010 2011 2012 2013 2014 Q4 Sustainable Communities (CSC) initiative, which aims

THE REPORT Abu Dhabi 2015 172 REAL ESTATE OVERVIEW

Total office space supply in above categories achieve at least one pearl, and that with the internationally recognised sustainability cer- Abu Dhabi City stood at all government projects achieve at least two. At pres- tification scheme LEED. International Tower is the first 3.1m sq metres at the end ent there are no plans to raise the mandatory ratings commercial office building in Abu Dhabi to be accred- of 2014, with another 360,000 sq metres expected beyond the current levels, said Al Ahbabi of the UPC, ited with LEED gold status. “LEED gold accreditation was to become available in which created and manages the Estidama programme. worth pursuing, as it both attracts tenants and helps 2015, followed by an Al Ahbabi said the initiative had been well received reduce some operating costs,” said Cockerton. additional 80,000 in 2016. in the construction and real estate sectors. “When Esti- SUPPORT SERVICES: As the sector grows, there is dama was first introduced, there was some resistance clear potential for support services. One such firm, from industry, which is normal,” he said. “However, by Khidmah, a full-service integrated management com- 2012 the programme had been fully accepted by the pany owned by Aldar Properties, is looking to take market.” The construction industry is already accus- advantage of expansion opportunities by providing tomed to following such standards, having worked with energy-efficiency solutions to developers during the other sustainability initiatives such as LEED. Al Ahbabi planning stage rather than after construction is com- said the application of the initiative to the construc- pleted. In April 2014 Musanada awarded Khidmah a tion of villas was also accepted: “We demonstrated at Dh45m ($12.25m) contract for management of 225 the April 2014 Cityscape exhibition that applying Esti- mosques in the emirate’s Al Gharbia region for a peri- dama to villas is feasible; it adds between 3% and 5% od of three years, as well as a separate Dh34m ($9.25m) to the initial costs, while quickly bringing savings,” he contract for 27 government buildings in Al Ain. told OBG (see Environment and Real Estate chapters). Khidmah’s portfolio includes 10 other Aldar devel- COST IMPACT: Industry figures suggest the initiative opments totalling 12,000 units, and a villa community should not have too big an impact on development costs, for Hydra Properties with 450 units. The firm’s interest that meeting one-pearl ratings does not require major in green initiatives is exemplified by the green mosque changes from existing practices, and that developers project under way in the UAE. The Sultan Bulfara Al should not find it constraining unless they are seeking Kobaysi Mosque in is one of the 225 in the top ratings. However, some developers were seek- Khidmah’s contract and has been designated an eco- ing to do just this. “Four- and five-pearl ratings are not mosque. The building will be retrofitted to ensure max- easy to achieve; yet in the public sector in particular, imum energy efficiency, making air conditioning and we are seeing more and more projects attempting to subsequent energy demand more sustainable. Follow- achieve higher ratings than the mandatory minimums ing a technical feasibility study, plans are under way to as this has become an issue of prestige,” Al Ahbabi told better manage power and water consumption, as well OBG. The UPC works with developers to help them as options to remotely monitor and control energy use. achieve such ratings while also keeping down costs. “We OFFICE MARKET: According to JLL, total office space work together throughout the design and construc- supply in Abu Dhabi City stood at 3.1m sq metres at the tion process; it is not just a one-off exercise,” he said. end of 2014, with the 11,000 sq metres from Rotana’s David Cockerton, fund manager at SinoGulf Real Capital Centre Arjaan being the only addition in the final Estate Investments, told OBG that the additional costs quarter. JLL expected another 360,000 sq metres to of sustainability represent a good investment for real become available in 2015, followed by an additional estate firms in the emirate. The company developed two 80,000 in 2016. The segment’s performance has seen buildings – International Tower and Capital House – in marked improvements, with the vacancy rate down the Capital Centre development, adjacent to the Abu year-on-year from 39% to 25% at end-2014, while aver- Dhabi National Exhibition Centre, which were among age rents for grade-A office space were up from Dh1540 the last to be built before Estidama’s requirements ($419) per sq metre to Dh1730 ($471). were implemented, but which were built in accordance A shortage of supply in the coming years appears set to maintain price growth, particularly at the upper end Avg. annual rent for prime 2-bed flat in AD City, 2008-14 Q4 (Dh 000) of the market. “In the last two to three years, more high- quality space has come onto the market. However, that 250 space is now running out and it is not clear what the alternatives will be, as there is no steady pipeline of new projects under way,” Cockerton told OBG. JLL’s Hassan 200 also expects supply to remain tight. “Although the sup- ply of grade-A space is starting to improve, as a lot of 150 projects that were on hold have now been restarted, the availability of high-quality office space will increase only gradually, in particular as a lot of upcoming proj- 100 ects will be owner-occupied,” she told OBG, adding that most major projects currently in the works will not be 50 completed until 2017 or 2018.

SOURCE: JLL Much high-end office space coming onto the mar- ket has been quickly snapped up; for example, Arabtec 0 2008 2009 2010 2011 2012 2013 2014 Q4 announced in April 2013 that it was leasing the entire- ty of one of the largest prime developments to come

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174 REAL ESTATE OVERVIEW

Average rents for line shops on-stream in recent years – Aldar’s 59-storey office tow- limited supply in some segments (see analysis). Notable in major malls on Abu Dhabi er at its World Trade Centre development. aspects of the market include the fact that expatriates, Island were around $817 “The major question is whether increased demand who make up a majority of the emirate’s population, per sq metre as of the fourth quarter of 2014, up will work as a catalyst for new supply,” Cockerton told are limited to buying properties in designated invest- from $789 at end-2013. OBG. He said that the prospects for this may be limit- ment zones, such as Al Reem Island, Lulu Island and the Off-island, rents fell from ed at present, as major developers’ attention appears Al Raha Beach area. As a result of this, combined with $517 to $506. to be elsewhere; “Aldar is going through a period of post- other factors like the rolling out by the government of merger stabilisation and the government is very focused residential communities aimed exclusively at citizens, on existing projects, such as Saadiyat Island.” Accord- nationals and expatriates tend to live in different areas. ing to Cluttons’ “Commercial Market Outlook, Winter “Most tend to live further out of the city and 2014”, the shortage of prime office supply is also push- most development projects aimed at them are off- ing up prices in the secondary and tertiary markets, with island, as they tend to prefer to live in villas,” said Mark tertiary rents up 13% for the third quarter of the year. Morris Jones, a director at CBRE Abu Dhabi. “It can A prominent example of a recently completed high- cause problems with high-end apartment sales as end office project is the Abu Dhabi Global Market nationals – at whom they are largely aimed – tend not Square development on , which Has- to want to live in towers.” san described as offering “prime” office space. How- According to JLL, around 1600 units were added dur- ever, in April 2014 the project’s developer, Mubadala, ing the fourth quarter of 2014 alone, bringing the total suspended leasing until the government finalised the residential stock in Abu Dhabi to 243,000 units. Going rules for the financial free zone in which it is built. The forward, demand is expected to remain strong across decision left two of its towers, at 98,000 sq metres, the board, and given the anticipated reduction in new vacant for now (two others have been largely leased). supply, prices are likely to rise in the near term. “There is a little in the way of other prime space in the Speaking to OBG about the state of the residential pipeline,” said Hassan. Elsewhere, other recently devel- real estate market on Saadiyat Island, Al Hammadi of oped grade-A buildings – including SinoGulf’s Interna- TDIC said, “The market is healthy as evidenced by the tional Tower – are now close to already being fully equilibrium of demand and supply. There is a good bal- leased. “We have only three out of 24 floors available ance between the kinds of buyers that look to invest at the top of the building,” Cockerton told OBG. and those who look to purchase property to inhabit. RETAIL: According to JLL, the supply of retail space in This is possible due to the fact that there is a range of Abu Dhabi City stood at 2.5m sq metres at the end of home sizes and qualities on the island.” 2014. Some 326,000 sq metres of supply came onto INDUSTRIAL: Abu Dhabi is increasingly at the centre the market in the fourth quarter, thanks to the inau- of regional networks, thanks to developments like the guration of Yas Mall in mid-November. construction of , the expansion of the inter- Almost all of the mall’s retail space was leased prior national airport and the development of the Etihad to opening, meaning that its impact on rental rates had Rail network – all of which serve to provide more oppor- likely already been priced in, according to Hassan. “Rents tunities in industrial real estate. Waha Capital is invest- in the sector are likely to be stable for the next few years ing in the segment through its wholly owned subsidiary, as there are no further major openings in the pipeline Waha Land, offering facilities to manufacturers, logis- until around 2017. Furthermore, major projects are tics companies and trading firms. “Industrial real estate prone to delays in their schedules,” said Hassan. JLL put is greatly underserved, especially if we take into con- average rents for line shops in major malls on Abu sideration Abu Dhabi’s growing trend in manufactur- Dhabi Island at Dh3000 ($817) per sq metre in the ing and retail. Logistics companies, as well as small and fourth quarter of 2014, up from Dh2900 ($789) a year medium-sized enterprises, are driving demand for ware- earlier; off-island, rents fell from Dh1900 ($517) to houses and related services,” Salem Al Noaimi, the CEO Dh1860 ($506) over the same period. and managing director of Waha Capital, told OBG. Sanyalaksna Manibhandu, research manager at OUTLOOK: Growing demand – the result of factors such National Bank of Abu Dhabi Securities, told OBG that as increasing investment in the emirate – coupled with Yas Mall was likely to satisfy demand for now. “There tight supply in some areas suggest that overall prices will not be room for another super-regional mall in Abu will continue to rise across most market segments in Dhabi for a while. There is lots of supply in Dubai and 2015 and probably beyond. In particular, both the prime people are still happy to travel there.” office and mid-residential segments appear likely to be Prior to the opening of Yas Mall, the most recent major short on high-level supply for several years. “There con- retail development was the mall at Aldar’s mixed-use tinues to be a positive outlook regarding the interest Growing demand – the World Trade Centre, which was inaugurated in October level of foreign investors looking for opportunities in result of factors such as 2013 and contains around 160 shops spread out over the local market,” Al Ali told OBG. increasing investment in the four floors. The mall was opened shortly after the open- Over the longer term, the authorities’ urban planning emirate – coupled with ing in August 2013 of the Galleria on Al Maryah Island, efforts are set to reorganise Abu Dhabi into more dis- tight supply in some areas which is aimed at the luxury market. creet, sustainable communities in which residents can suggest that overall prices RESIDENTIAL: will continue to rise across The residential market was the first to live, work and spend their leisure time. This will help to most market segments in start recovery in the emirate, beginning in late 2012 reduce commute times and traffic congestion, as well 2015 and likely beyond. and driven by factors such as growing investment and as improve the quality of life for the emirate’s residents.

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Saeed Al Ghafli, Chairman, Department of Municipal Affairs

Maintaining a top spot OBG talks to Saeed Al Ghafli, Chairman, Department of Municipal Affairs

How do you respond to those calling for greater property sector in order to enhance the rights of uniformity amongst government institutions with investors and tenants as individuals and as institu- regards to public tender processes? tions, and to play its role in enhancing the compet- AL GHAFLI: I agree that fair and systematic proce- itiveness of the local economy and achieving the dures for tendering and procurement are essential goals set out in the Abu Dhabi 2030 Vision. Our laws for good financial management in government insti- and legislations are continuously being enhanced, tutions, and this is what we in Abu Dhabi consider because we believe in an open and free market, and to be a basic element of good governance. We always we are also aiming to maintain a spot among the top look for an efficient and robust public tendering five real estate markets in the world. process that will ensure value for money and high quality of services. As such, government depart- What is being done to encourage developers to ments in the are required to not only look at greenfield developments but follow strict, transparent procurement policies and also the rehabilitation of older units? guidelines, as mandated by the Purchasing, Tender- AL GHAFLI: The UAE in general and Abu Dhabi in ing and Contract Law No. 6 of 2008. particular have become well recognised internation- With regards to uniformity, most government ally for their environmentally friendly projects and departments are generally unified on this point. A sustainable work practices. We apply strict legisla- further order requiring semi-government agencies tion in the building and construction sector in rela- to be closely aligned in procurement and tendering tion to environmental, health and safety standards processes and to publicly announce tender agree- in residential and commercial buildings. ments will help enhance governance and increase To this end, the Department of Municipal Affairs the transparency of government transactions. in cooperation with the International Code Council has developed the Abu Dhabi International Building How have ownership and title laws been Codes, which is a complete set of comprehensive and improved, and what more can be done to attract coordinated codes providing the minimum require- foreign investors to the residential market? ments to safeguard public health, safety and the AL GHAFLI: The strong legal framework in the prop- general welfare of the occupants of new and exist- erty sector in Abu Dhabi plays an important role in ing buildings. The new unified building codes intro- strengthening the local economy and helping to duce a common and transparent set of regulations attract foreign investment from all over the world. to govern all activities in the construction industry The property sector is vital to the local economy. Since throughout the emirate. Furthermore, the codes are the introduction of Law No. 19 of 2005, which con- applicable to all projects in Abu Dhabi, including cerns the real estate sector and opened the door existing buildings, when a property owner or devel- for foreign nationals to invest and own property in oper submits an application to carry out improve- certain investment areas in the emirate, the sector ments to an existing structure. has proven to be a major attraction for foreign buy- The Abu Dhabi Building Codes are a major step ers and investors, especially since these areas are towards ensuring that the emirate achieves the Abu considered among the most attractive in the region. Dhabi 2030 Economic Vision, which aims to build a The Department of Municipal Affairs will contin- sustainable, diversified and high value-added econ- ue to develop local legislation related to Abu Dhabi’s omy that is well integrated into the global economy.

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Mohammed Al Mubarak, CEO, Aldar

Emphasis on quality OBG talks to Mohammed Al Mubarak, CEO, Aldar

Are developers now looking to restart schemes that Island, Saadiyat Island or Al Raha Beach. To ensure a were placed on hold after the market downturn? sustainable recovery, priority must be given to projects AL MUBARAK: The slowdown afforded Abu Dhabi the in locations where high-quality infrastructure already time it needed for the market to catch up with customer exists. We have also focused on creating a more mature needs. Dialogue between regulators, master develop- sales environment with well-established guidelines, ers and key stakeholders helped formulate policy to cre- including payment plans that work for the developer ate a suitable market structure that allows for positive while also protecting the customer (e.g., contingencies economic gains and provides greater protection to end based on project construction). As an industry, we must users and investors. We anticipate further clarity will avoid past issues, such as when sales were primarily driv- come as new regulations are implemented, also help- en by the secondary market. Developers also need to ing to grow the maturity of the market and heighten strike the correct balance between developing recur- local and international business interest. ring revenue-generating assets and those that can be More importantly, the slowdown exacerbated the sold as part of a broader strategy to inject capital into undersupply of quality real estate developments, and new developments. Diversifying our customer base I want emphasise the word “quality”. Abu Dhabi’s strat- among end users and individual and institutional egy of economic diversification is creating significant investors is also key for achieving greater balance. demand for high-quality, modern residential property. Major employers such as the Cleveland Clinic and the To what extent has the retail market gone from Abu Dhabi Education Council require bulk-housing solu- being underpenetrated to being oversupplied, and tions in communities that offer excellent amenities what is your outlook for the segment? and facilities. As a result, leasing activity has been very AL MUBARAK: When you look at the forecasts, Abu strong, contributing to healthy recurring income for Dhabi’s retail offering seems abundant, but upon clos- developers. The increased demand for quality devel- er examination it is really not the case. Again, it comes opments has not been limited to residential properties back to the need for quality. Several community malls – demand for quality retail, hospitality, commercial were developed in the past 10 years, and they did an properties and even schools is also on the rise. Devel- excellent job of servicing market needs. By 2017-18 we opers are therefore looking to introduce new products anticipate more malls of this nature will be developed into the market. We are currently evaluating over 20 that cater to particular demographics in specific loca- different developments across a diverse array of seg- tions. This will foster greater competition, forcing old- ments within the sector. However, we are rigorous in er malls to evolve and improve their quality offering. our planning and before launching any project an Yas Mall is a unique product in the emirate’s retail immense amount of research is conducted internally landscape. There is currently nothing matching its size, to develop a clear strategy for each of our developments. scale and quality. As a destination mall experience, Yas Mall will fill the market gap and address the need for How can Abu Dhabi ensure that short-term growth such retail offering. Abu Dhabi has a mall-oriented is not at the expense of medium-term stability, and culture, with families spending an average of four to in what ways can developers contribute? six hours per visit. Conservatively we anticipate an esti- AL MUBARAK: A lot has been accomplished since mated 20m visitors during the first year, with an expect- 2006 in terms of developing high-quality infrastructure ed annual increase of 5-8% thereafter. It will be a to support development, be it on Al Reem Island, Yas significant contributor to Aldar’s recurring revenue.

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Residential unit prices recovered to $4333 per sq metre by end-2014

In demand Rates in the residential market are continuing to rise

The residential segment was the first in Abu Dhabi’s Abu Dhabi government employees live in the emi- The residential segment real estate market to experience recovery from the rate rather than commute from Dubai, as was com- was the first in the sustained post-2008 downturn. Prices in the segment mon. Furthermore, the residential segment, like the emirate’s real estate market to experience recovery have been rising since the end of 2012, when, accord- office market, is suffering from a lack of supply, from the sustained ing to Jones Lang LaSalle (JLL) data, asking prices especially outside the top of the market. “There is post-2008 downturn, with for residential units in investment zones (areas where still a supply gap at the affordable end of the mar- prices on the rise since the expatriates are allowed to buy apartments) in the ket,” Mark Morris Jones, a director at CBRE Abu Dhabi, end of 2012. emirate bottomed out at Dh10,200 ($2776) per sq told OBG. “Private investors in general do not appear metre, down from Dh17,500 ($4764) per sq metre to be strongly interested in the segment, in part in late 2009. By the fourth quarter of 2014 they had because land is expensive.” recovered to around Dh16,000 ($4355). In its 2014 report, Cluttons noted that large num- Furthermore, the market has shown no sign of bers of new workers were entering the emirate as a slowing in recent months. According to JLL, apart- result of government efforts to diversify the econ- ment rentals were up 11% year-on-year in the fourth omy at a time when the pipeline for new projects is quarter of 2014, while sales were up 18%. For villas, relatively light. In addition, that major companies, the figures stood at 12% and 25%, respectively. such as , were found to be purchas- GROWTH DRIVERS: Several factors have under- ing stock before its public release, exacerbating the pinned price growth in the segment. “Demand is trend of shortages. SinoGulf’s Capital House is a high as a result of factors such as growing invest- prime example of this, as all 332 of the apartments ment and the fact that the emirate is viewed as a in the building were leased to Etihad Airways prior safe haven in the region,” said Mai Hassan, a finan- to the marketing launch in October 2014. Morris cial analyst at JLL. Additionally, in November 2013 Jones told OBG that few major residential projects the government removed a cap that had previous- are being launched at the moment, and that many ly limited annual rent increases to a maximum of 5%. residential projects on Al Reem Island – one of the “Rents started to increase in 2013, at first mainly in city’s major investment zones – remain on hold. prime developments in investment areas. However, EXPANDED SUPPLY: The market supply includes with the lifting of the rent cap this spread to sec- Aldar Properties’ development at Al Raha ondary areas too,” Hassan told OBG, adding that she Beach. Set among landscaped lawns, tennis courts, believed they would carry on rising. swimming pools and a marina, Al Bandar is an island Some industry figures have said the change has development of 511 glass-fronted apartments and had a particularly strong impact on tenants at the duplexes, loft residences and larger family apart- lower end of the property market, with local media ments. Al Raha Beach is also the setting for Aldar’s reporting in November 2014 that rents for “lower- Al Muneera development, with 1445 villas and apart- Demand has also been end secondary stock occupied by the same families ments, as well as a commercial and retail area. Al boosted by new for at least five years” had roughly doubled over the Zeina, on the eastern edge of Al Raha Beach, fea- regulations implemented course of the year since the changes were imple- tures 973 apartments, 119 townhouses, more than in September 2013 mented. However, in other segments the impact of 150 podium and sky villas, and beachfront villas. mandating that Abu Dhabi government employees the changes has been limited. One of Aldar’s most ambitious projects, located live in the emirate rather Demand has also been boosted by new regulations in the Al Reem Island investment zone, Shams Abu than commute from Dubai, implemented in September 2013 mandating that Dhabi is a new community for 45,000 residents that as was common previously.

THE REPORT Abu Dhabi 2015 178 REAL ESTATE ANALYSIS

In December 2013 the offers high-quality retail and commercial space. Out off-plan sales at some of its projects is likely to sup- central bank imposed a of 98 sub-developments planned for the district, port further sales price growth. “Aldar’s resumption cap on mortgages for eight have been completed and construction has of off-plan sales at developments such as Al Hadeel completed properties below $1.36m in value at commenced, or will commence, on another eight in has been successful, which suggests the move will 75% of the purchase price 2014/15. The Sun and Sky Towers form part of Shams be extended to other developments,” said Hassan. for expatriates and 80% Abu Dhabi and are the two tallest buildings in the However, the impact of this will be limited by some for nationals. district. The 74-storey consists of a mix restrictions aimed at curbing speculation on prop- of residential and commercial units, while the 65- erties before they are completed, as well as discour- storey Sun Tower is entirely residential. Both feature aging flipping, which sees multiple resales of the one-, two-, three- and four-bedroom apartments same property before it is completed – a practice and penthouses. Sky Tower has 474 residential units that was blamed in part for the regional property and 75,300 sq metres of commercial office space, market bubble and subsequent burst in 2008. To while Sun Tower will accommodate 680 residential that end, the firm announced in April 2014 that it units. There are 10 penthouses between the two would prohibit buyers from selling properties pur- towers, bringing the total number of units to 1154. chased on an off-plan basis until they have paid at Another popular development is the mixed-use least 50% of the purchase price. Gate Towers, with 3533 residential units in four tow- FINANCING RESTRICTIONS: Furthermore, in Decem- ers as well as retail and leisure facilities, and The Arc, ber 2013 the central bank made regulatory changes a nearly 1000-unit residence. The development has to bolster market stability, including the imposition proven to be very lucrative, and by August 2014 the of a 50% loan-to-value cap on mortgages for off-plan residential project had helped to drive Aldar’s sec- purchases. The changes also affected mortgages ond-quarter revenue to Dh2.19bn ($596.12m), a for completed properties, setting the maximum 74% year-on-year increase. By October, less than mortgage for units below Dh5m ($1.36m) in value one year after being launched, The Gate Towers and at 75% of the purchase price for expatriates and The Arc were fully leased. The real estate developer 80% for nationals. Mortgage ceilings were also imple- also signed an agreement with Cleveland Clinic Abu mented for more expensive units, at 65% for expa- Dhabi to lease 607 units to hospital employees. triates and 70% for nationals. The introduction of OFF-PLAN SALES: In terms of sales, Aldar’s the new rules followed an increase in property reg- announcement in April 2014 that it would resume istration fees from 2% to 4% to disincentivise flipping. CONSTRUCTION OVERVIEW 179

Abu Dhabi will award around $100bn in construction projects by 2020

Building confidence The upturn is being sustained by a profusion of upcoming projects

As of April 2014, the total value of construction proj- One potential concern for the industry as it begins The total value of ects under way or in the pipeline in the UAE stood at to move into an upswing is that the falling price of oil construction projects under $727bn, according to estimates from the – as of late January 2015 it had dropped to just over way or in the pipeline stood at $727bn as of April 2014, Economic Digest (MEED), making the country the sec- $50 a barrel, from a peak of over $110 in July 2014 – making the UAE the ond-largest construction market in the GCC. Some 36% could see a reduction in government-backed projects, second-largest construction of this amount was made up of mixed-use developments, leading to a drop-off in work for the sector. However, market in the GCC. followed by residential (33%) and commercial (11%). Sanyalaksna Manibhandu, research manager at Nation- Companies operating in Abu Dhabi are set to bene- al Bank of Abu Dhabi Securities, said that such a sce- fit from a project pipeline replete with opportunities nario was unlikely to develop in either the emirate or across a range of sectors in the coming years. MEED the wider UAE. “The government has a very large sov- said in December 2013 that the emirate would award ereign wealth fund and the capacity to raise fiscal debt $30bn in construction projects by 2020. This did not to fund capital projects. So, in the short term, con- include infrastructure works, which bring the figure up struction projects high on the priority list, and for which to $100bn, including $25bn in oil and gas projects and work has begun, such as infrastructure-related ones, $20bn in transport infrastructure and chemical works. will be continued. There would probably be a reassess- MARKET CYCLE: In current prices, sector GDP was ment of projects that have not gotten off the drawing Dh85.4bn ($23.2bn) in 2013, equivalent to 9% of Abu board, not because of a lack of funding, but because it Dhabi’s total GDP and 20% of non-oil GDP. According is prudent to reassess things when key variables, such to Statistics Centre - Abu Dhabi (SCAD), the construc- as the oil prices, change substantially,” he told OBG. tion sector grew by 0.6% in real terms over the course STATE-BACKED COMPANY: Among the major players of the year, following growth of 0.6% in 2012 and 1.6% in the sector is Arabtec. Although headquartered in in 2011, and down from more rapid expansion of 9.7% Dubai, where it is the largest construction firm, the Abu and 32.3% in 2010 and 2009, respectively. Dhabi government became its main shareholder in These figures suggest that the industry had reached, November 2014, when state-owned Aabar bought a or was close to, the bottom of the construction cycle 16% stake in Arabtec from its former CEO, Hassan Ismaik, in 2013. Al Rumaithy Investment Group board mem- raising its share to just under 35%. Following the sale, ber Rashed Ahmed Al Rumaithy told OBG that the media reported that Ismaik also intended to sell his industry was now poised to enter a period of expan- remaining 11% stake in the firm. sion. “Having emerged from a five-year period of stag- Since the emirate began building up a significant nant growth, the construction sector in Abu Dhabi is stake in the firm in 2012, Arabtec has secured several at the beginning of an upward swing thanks to new ven- major contracts in Abu Dhabi, including construction tures and the reactivation of stalled projects. This grow- of and, as part of a three-company ing momentum is expected to set a healthy trend for consortium, a major new terminal at Abu Dhabi Inter- the coming four to five years.” national Airport. Its largest project is in Egypt; in March Against this backdrop of growth, the industry is fac- 2014 the firm announced it had reached an agree- ing a high degree of competition, which is putting more ment with the Egyptian military to build 1m homes In current prices, the pressure on profits; although, Al Rumaithy told OBG, across 13 sites provided for free by the army, at a cost construction sector’s GDP stood at $23.2bn in 2013, “Margins on average stand between 5% and 10%. How- of $40bn. According to the initial plan, building work equivalent to 9% of Abu ever, companies are developing efficiency gains after was due to begin in the third quarter of 2014, with the Dhabi’s total GDP and 19.9% the bidding process to push those margins further.” project to be completed by 2020. In September 2014 of non-oil GDP.

THE REPORT Abu Dhabi 2015 180 CONSTRUCTION OVERVIEW

More large-scale transport infrastructure projects are in the pipeline as well. “We anticipate continued investment by the government to further develop infra- structure as it moves to achieve its 2030 targets. This should sustain growth in the construction sector, despite intensive competition,” Moufid Aswad, general manag- er for the UAE of CAT International, told OBG. These projects include the 628-km second stage of the Etihad Rail project, which is expected to come on- line in 2018. The contracts for the phase were due to be awarded in the second quarter of 2014, but have been subject to delays. Another major project is the planned metro and light rail system, comprising an 18- km metro line and two light rail lines of 20.4 km and 16.2 km, as well as plans for a third 13.4-km circle line and a bus rapid transit system. The Abu Dhabi Execu- tive Council approved funding for the project in March 2012, though a timetable has yet to be announced. The two largest current road projects are a 62-km road running between Dubai and Abu Dhabi, known as More large-scale transport infrastructure projects are in the pipeline the E311, being built south of and parallel to the exist- Efforts to expand energy the firm announced that it had almost completed the ing route, to add capacity and reduce congestion, while infrastructure are among planning and design phase, and that it had “made pos- the second is a 327-km, Dh2.1bn ($572m) road from the largest drivers of itive progress and results in its discussions with the Al Mafraq, close to Abu Dhabi City, to Ghweifat, on the activity in the industry, with four nuclear plants being concerned authorities in Egypt in order to commence border with Saudi Arabia. The two projects together have built at Barakah in Al the project as soon as possible”. been divided up between six construction firms and con- Gharbia. In 2013 the company launched a real estate devel- sortia. Other local projects include a nearly Dh300m opment arm, Arabtec Properties, which in April 2014 ($82m) plan to transform the 80-km road between announced plans for real estate projects worth $3.8bn, Madinat Zayed and into a dual carriageway, including three in Abu Dhabi. However, by June – before which is due to be completed in 2017. construction work had begun on any of them – it was ENERGY: Efforts to expand energy infrastructure are reported that all of the projects had been put on hold. among the largest drivers of activity in the industry. The TRANSPORT: The largest building project currently energy sector accounts for the four largest engineer- under way outside the energy sector in both the emi- ing and construction projects under way in the UAE, rate and the UAE is the construction of a new terminal according to Deloitte’s “GCC Powers of Construction at Abu Dhabi International Airport, the Midfield Termi- 2014” report – all of which are taking place in or off- nal Building, by a joint venture between Turkish airport shore of Abu Dhabi. Two of these are nuclear energy construction company TAV, Greece’s Consolidated Con- projects – namely the Barakah Nuclear Power Plants 1 tractors Company and Arabtec. The Dh10.8bn ($2.9bn) and 3, the contracts for which are worth some $3.1bn facility will include 700,000 sq metres of internal space, and $4bn, respectively. In all, four nuclear plants are making it the biggest building in the emirate. It is expect- being built at Barakah in Al Gharbia, by South Korean ed to be completed in June 2017. consortium Kepco. The other two projects in the sec- The Midfield Terminal Building will be built around tor are an engineering, procurement and construction 18 arches, with ceilings of 52 metres in height at their package for an offshore facility for the Upper Zakun highest points and a roof span of 319 metres at its widest oilfield, and an expansion of the oil refinery. Refin- point. The building will require 69,000 tonnes of struc- ing, nuclear power and gas accounted for four more tural steel, 275,000 sq metres of aluminium cladding of the top 10 projects in the emirate (see analysis). and 115,000 sq metres of external glazing, among oth- HEALTH, EDUCATION & RELIGION: Several major proj- er materials. The project incorporates an array of sus- ects are also ongoing or were recently completed in tainable designs, practices and materials, and has a health and education. Among the most prominent is three-pearl Estidama rating (see Real Estate overview). Cleveland Clinic Abu Dhabi, a multiple-speciality hos- pital being developed on Al Maryah Island by Mubadala Construction sector indicators, 2010-13 Development Company and the Cleveland Clinic, an

2010 2011 2012 2013* Ohio-headquartered hospital firm, and scheduled to Share of GDP at current prices (% ) 12.9 9.9 9.1 9.0 open in 2015. The 409,000-sq-metre facility, which is Share of non-oil GDP at current prices (% ) 25.7 23.1 21.3 20.0 being built by Six Construct and Samsung C&T under a Dh5.65bn ($1.54bn) contract, was originally due to Gross output (% of GDP at current prices) 24.4 19.8 17.8 17.7 open in 2013, but faced delays due to design changes Capital formation (% of GDP at current prices) 0.7 0.5 0.4 0.4 and logistical challenges related to its location. Compensation of employees (Dh bn) 23.64 25.49 24.07 25.11 Another major project in the health sector is the SOURCE: SCAD *Preliminary estimates construction of New Al Ain Hospital. In December 2013

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Abu Dhabi General Services Company, Musanada, award- ed a Dh4.3bn ($1.17bn) construction tender to a con- sortium made up of Arabtec and Spain’s Constructora San José. Work on the hospital’s 358,000-sq-metre main building is due to finish by 2018, and the com- plex as a whole is scheduled for completion by 2020. In the education sector, May 2014 saw the comple- tion of New York University Abu Dhabi, developed by Mubadala on a 450,000-sq-metre campus on Saadiy- at Island. The facility was constructed by Al Futtaim Carillion under a design-and-build contract based on a master plan by Rafael Viñoly Architects. Its comple- tion marked the tail end of a wave of construction in the higher education segment, with Sorbonne Uni- versity Abu Dhabi, Sheikh Zayed University (both of which are in Abu Dhabi City) and a new campus of UAE University in Al Ain having been completed in 2010, 2011 and 2012, respectively. Another major project in Al Ain is Sheikh Khalifa bin Zayed Al Nahyan Mosque, which is due to open in 2016 and is being built by Arabian Construction Company Growing competition in the industry is putting pressure on profits (ACC) on a 256,680-sq-metre plot, which will make it from all major historical periods, is the first of several The government is in the one of the largest mosques in the emirate. Work on the planned for the cultural district, alongside Zayed Nation- midst of a major project began in December 2013. al Museum and Guggenheim Abu Dhabi. A tender for programme of housing CULTURAL DISTRICT: development and In December 2014 a major mile- construction of , which will be construction aimed at stone was achieved in the construction of Louvre Abu the centrepiece of the cultural district, was issued in Emirati citizens, which Dhabi when the museum’s 7000-tonne, 180-metre- 2013, but as of late 2014 had yet to be awarded. The forms a key element of the wide central geometric lace dome was placed in its final facility, which will have a built-up area of 66,198 sq Plan Capital 2030: Urban position. Located on Saadiyat Island, the museum will metres, has been designed by Norman Foster. Guggen- Structure Framework Plan. house 9200 sq metres of gallery space, including a heim Abu Dhabi, designed by , will focus on 6681-sq-metre permanent gallery. The museum’s first contemporary art and culture, and will house 18,000 gallery was completed in March 2014 and the build- sq metres of exhibition space. ing is due to be finished by the fourth quarter of 2015. HOUSING: The government is in the midst of a major The contractors on the Dh2.4bn ($653m) project are programme of housing development and construction Arabtec, Constructora San José and Oger Abu Dhabi. aimed at Emirati citizens, which forms an important ele- The project is part of the Saadiyat Cultural District, ment of the Plan Capital 2030: Urban Structure Frame- which is being developed by the state-run Tourism work Plan. Local real estate developer Aldar Properties Development and Investment Company, and is the has participated in several major projects under the largest mixed-use project under development in the Gulf scheme, including Al Falah (see below). region. The facility, which was designed by Jean Nouv- In 2012 the authorities announced the formation of el and will be a universal museum focusing on works a new housing authority to oversee the programme, 182 CONSTRUCTION OVERVIEW

previous month. More than 1000 houses built under the third phase of the Al Falah development were hand- ed over to their new owners in August 2013; the proj- ect as a whole is for the construction of some 4857 villas on 12.5m sq metres of land. In April 2014 Musanada said it would soon launch work on a Dh637m ($173m) initiative to build 348 housing units and associated infrastructure at two sites, Al Shuwaib and Al Shuaiba, in Al Ain City. WORKFORCE: The construction sector is the largest employer in Abu Dhabi by far, accounting for 26% of male employment and 22% of overall employment in 2013, according to data from SCAD. Workers in the industry are overwhelmingly expatriates, with construc- tion accounting for 0.6% of employment of nationals in 2013, compared to 24.5% of expatriate workers (who also substantially outnumber nationals). Assembling a well-qualified workforce is steadily becoming more difficult, due to factors that include growing construction sector activity in India. This is Construction accounts for almost one-quarter of the expat workforce providing employment opportunities for labourers there The construction sector is including infrastructure work and coordinating appli- without them having to travel abroad. Strong compe- the largest employer in Abu cations for housing, plots of land and loans. tition for expatriate workers from other GCC states – Dhabi by far, accounting for Prominent elements of the programme include a such as Qatar, which is preparing to host the 2022 FIFA 26% of male employment and 22% of overall Dh2.7bn ($735m) project to build 12,500 homes for World Cup – is another factor. employment in 2013. citizens across nine sites, which was announced in Jan- As in other GCC countries, working conditions in the uary 2013. The Zayed City project to build a second major sector have attracted some scrutiny and criticism from hub in Abu Dhabi City (see Real Estate chapter) will also media and non-governmental organisations. Some of see the development of a 1440-ha Emirati residential this relates to what critics claim is poor enforcement neighbourhood, including 2723 villa plots in its first and a lack of adherence by some firms to existing laws stage. In November 2013 government services firm and regulations, in addition to problems arising from Musanada issued an infrastructure tender for the proj- the kafala sponsorship system. In November 2014 the ect, which was first outlined in 2007 under the Plan UN International Labour Organisation launched an Capital 2030: Urban Structure Framework Plan. investigation into working practices in the UAE follow- Major housing construction tenders to have been ing an issue brought up by the International Trade Union awarded under the initiative in recent years include a Conference that focused on kafala. Dh500m ($136m) contract awarded in August 2012 Wassim Merhebi, executive director at ACC, rebuffed to local firm National Transport & Construction to build these criticisms of health and safety standards in the 353 residential units at the Al Ghaythi project in Al industry, arguing these were strong, and tighter than Gharbia, following the firm’s receipt of a Dh625m in some other parts of the region. “Media coverage of ($170m) contract for 433 villas in the same project the problems has often generalised from individual cases that were rare or one-off incidents; furthermore, health Top 10 construction/EPC contracts by value, April 2014 and safety regulations are continuously becoming

Project Value ($ bn) Contractor/EPCC stricter,” he told OBG. For example, in 2013 Abu Dhabi’s Barakah Nuclear Power Plant 3 4 Kepco Department of Municipal Affairs launched building Upper Zakum Full Field: Early Production Facility 3.8 Petrofac Emirates codes dealing with safety and fire prevention, among Offshore: EPC 2 other issues. Aimed at improving construction standards, Ruwais Refinery Expansion Project: Process 3.1 GS Engineering & Construction the codes introduce “a common and transparent set Package 2 (RFCC) of regulations to govern all construction industry activ- Barakah Nuclear Power Plant 1 3.1 Kepco ities throughout Abu Dhabi”. OUTLOOK: Abu Dhabi Airport Expansion: Midfield Terminal 3 TAV, CCC, Arabtec After a sustained downturn following the Building global financial crisis that began in 2008, the construc- National Housing Scheme Project 2.9 Various tion industry appears to be entering a period of renewed Ruwais Refinery Expansion Project: Offsites & 2.7 Samsung Engineering growth. Manibhandu told OBG he thought the main Utilities (Package 3) opportunities for construction and engineering firms Barakah Nuclear Power Plant 2 2.5 Kepco in the coming years would be in the hydrocarbons, Ruwais Carbon Black & Delayed Coker Project 2.5 Samsung Engineering energy and infrastructure segments, though this is like- Integrated Gas Development: Ruwais 4th NGL 2.2 Petrofac Emirates ly to depend on the trajectory of oil. “There are always Train Package opportunities in oil and gas, and there are also a num- ber of major upcoming infrastructure projects, such as SOURCE: Deloitte/MEED Projects, OBG research nuclear power plants and the planned metro system.”

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184 CONSTRUCTION ANALYSIS

Average tender prices were forecast to increase by 4-5% in 2014

Legal tender Centralisation of the process may bring short-term challenges, but the change is set to improve efficiency over the longer term

Contractors and Known as Musanada (meaning “support” or “assis- or state-run bodies. The level of classification (or lev- engineering firms are tance”), the Abu Dhabi General Services Company els, as firms can receive different classifications in required to apply for is charged with providing assistance and support different fields of work) depends on a range of cri- classification by the Department of Municipal services for all government departments, agencies teria, including capital, experience and the number Affairs in order to work on and entities, as decided by the Abu Dhabi Executive of staff in different technical categories. projects commissioned by Council. Established in 2007 to provide a variety of A firm’s classification then determines the maxi- the government or support services, including procurement, to Abu mum value of contracts for which it can bid. Although state-run bodies. Dhabi government entities, Musanada’s responsi- the rules were introduced in 2010, the deadline for bilities include acting as a tendering body for pub- registering for classification was delayed until late lic construction and infrastructure contracts. 2012, when there were 1036 companies registered The company’s importance has expanded in recent under the scheme – 726 in Abu Dhabi region, 277 years. In 2013, for example – a year in which it award- in Al Ain and 33 in Al Gharbia. ed around 70 tenders – the body was designated a FOCUS ON COST: Average tender prices in the UAE centralised means of tendering public construction fell by 4% in 2013, according to consultancy EC Har- contracts in fields like infrastructure and govern- ris, though the firm forecast that prices would ment housing projects. However, in certain other increase by 4-5% in 2014 and by a further 6% in sectors, such as oil and gas, government companies 2015. Senior figures at several engineering, pro- continue to issue their own tenders. Musanada is set curement and construction companies across a range to make the tendering process more efficient, as it of industries told OBG that tendering is very much will act as a main contact point for government enti- price-driven, and that the lowest bid tends to win. ties and external bidders. The public company is also Not a lot of emphasis is placed on technical merits expected to employ external consultants in order to or experience, and consequently companies with train its employees and ensure a smooth transition little experience are often awarded the contract. to the new centralised process. Delays can be a recurrent feature of the tender- Some industry figures say the decision to further ing process, with several industry figures telling OBG centralise tendering in Musanada has created some that the authorities prefer not to rush such process- minor, temporary disruptions in the contracting es, and often put them on hold. For example, the ten- process. It may take some time before players in the der for the second stage of the Etihad Rail project market become accustomed to Musanada taking was originally due to be issued in the second quar- over the infrastructural developments in the emirate. ter of 2014, but was postponed. “In my experience, it often makes more sense for a Indeed, such tendering delays can significantly health department to tender a hospital, for exam- add to the cost of applying for these contracts – ple, rather than a centralised entity, as it will know which can be quite substantial at times. For exam- the sector better,” said Wassim Merhebi, executive ple, according to industry players, companies in the director at Arabian Construction Company. sector have to be selective with the tenders they CLASSIFICATION: A notable feature of the local decide to bid on, as preparing these can cost as regulatory environment is that contractors and engi- much as Dh3m ($817,000). Furthermore, the govern- neering firms are required to apply for classification ment sometimes cancels issued tenders or post- by the Department of Municipal Affairs in order to pones the project, and if the project is modified work on projects commissioned by the government companies have to re-tender, incurring further costs.

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Infrastructure developments could provide EPC contract opportunities

Easy as EPC The large number of projects in the pipeline augurs well for the segment

The engineering, procurement and construction (EPC) founder of Sayah Engineering Middle East, told OBG. Abu Dhabi is approaching segment in Abu Dhabi is dominated by oil and gas. “In terms of infrastructure, Al Gharbia will be a major the end of a major oil and The largest EPC project currently under way in the emi- driver of growth, with projects including sewerage gas EPC cycle, with many new projects focused on rate is the development of the offshore Upper Zakum systems, electricity distribution and roads.” sustaining current oilfield, which was awarded to Petrofac Emirates – a The petrochemicals sector is another potential production rather than joint venture between Petrofac and Abu Dhabi gov- source of opportunities. In December 2013 Abu Dhabi expanding it. The next ernment investment firm Mubadala Development National Chemicals Company (ChemaWEyaat) – a major wave of big projects Company – and its partner, Daewoo Shipbuilding and chemicals firm created in 2008 by Abu Dhabi Nation- is expected to start in 2016. Marine Engineering, for $3.8bn in April 2013. The al Oil Company, Abu Dhabi Investment Council and the project covers EPC, transportation and commission- state-owned energy investment vehicle Internation- ing of surface facilities on four artificial islands being al Petroleum Investment Company – announced that built at the fields, due to begin operating in 2016. it had signed a deal for the construction of the first The most recent major EPC deal was a $2.25bn con- plant under the Madeenat ChemaWEyaat project to tract awarded in December 2014 to the Italian firm create a 70-sq-km chemicals city near Ruwais. How- Tecnimont by Abu Dhabi Company for Onshore Oil ever, the scheme has faced significant delays. Operations for the third phase of surface facilities at CHALLENGES: Some of the main challenges in the the Al Dabb’iya onshore oilfield. Al Dabb’iya is part of emirate’s EPC segment mirror those in the construc- the larger Bab field, which is the biggest onshore field tion sector as a whole. These include the fact that the in the emirate by surface area. tenders are decided largely on price, with little focus OPPORTUNITIES: The emirate is approaching the on added value or the inherent risks of low-priced work; end of a major oil and gas EPC cycle, with many new that hiring skilled workers and engineers in particu- projects focused on sustaining current production lar is increasingly a challenge; and that the project rather than expanding it, with the next major wave pipeline is cyclical rather than smooth, despite being of big projects expected to start in 2016. However, largely managed by the government. Horizon Energy’s CEO, Mahra Rashed Al Suwaidi, told In terms of employment, firms say that filling some OBG the medium-term pipeline for oil and gas proj- technical positions – especially in areas such as off- ects looks very promising. “The outlook for the oil shore structural engineering, project and process industry is better than the sector previously expect- management, and process safety – is difficult and ed, as production in coming years is set to surpass past increasingly expensive, largely as a result of strong estimates. Opportunities abound in offshore devel- international demand for experts in these fields. opments in particular, as well as for projects requir- Competition on price is also intense. Figures in the ing new technologies, such as sour gas fields.” EPC industry told OBG that firms are sometimes award- OTHER SECTORS: Despite the dominance of ener- ed contracts based on what they say are unrealisti- gy, infrastructure developments will also provide sig- cally low bid prices, complaining in particular that nificant EPC contract opportunities in coming years, several Korean firms had won projects with such low Al Gharbia will be a major especially in Al Gharbia. “Abu Dhabi is currently one bids in recent years. It is argued that this reflects the driver of construction of the best places in the world for engineering and tendering process’s heavy focus on price to the exclu- growth in the emirate, with infrastructure projects construction work, as there are an enormous num- sion of factors such as feasibility or a company’s likely to include sewerage ber of projects in the pipeline in line with Abu Dhabi experience and expertise. As a result, some firms systems, electricity Economic Vision 2030,” Elias Sayah, the president and have called for stricter pre-qualification requirements. distribution and roads.

THE REPORT Abu Dhabi 2015