Construction costs to surge on oil market volatility -Currie & Brown

Construction costs aren’t coming down just because the strait is reopening. Data center projects in Saudi Arabia and the UAE could see cost increases of up to 9.9%, and hotel projects up to 9.5%, according to research (pdf) from cost management firm Currie & Brown — even after the US-Iran agreement.

The pressure is mounting on materials. Under a higher oil-price scenario, steel prices in the two markets could rise by up to 15.9% by September, copper by 5.4%, and aluminum by as much as 10.5%. “Saudi Arabia and the UAE have two of the most ambitious construction pipelines in the world. With demand for materials already strong, rising oil prices are adding further pressure to supply chains and construction costs,” Craig Finlayson, Currie & Brown’s Regional Commercial Director for the Middle East, said.

The most exposed sectors: Data centers are particularly exposed given their intensive use of copper and MEP systems — and in a sector where speed to market is critical, rising input costs force a reassessment of procurement strategies and project timelines. Meanwhile, hospitality projects depend on globally sourced fit-out materials and specialist equipment and face their own calculus in deciding where spending will best protect long-term asset value and operational performance as input costs rise. Both categories have limited ability to substitute locally.

The easing of immediate concerns following the US-Iran agreement buys time, but Currie & Brown’s view is that it doesn’t resolve the underlying uncertainty. Oil prices have yet to settle, supply chains remain stretched, and the construction pipeline across Saudi and the UAE — giga-projects, airport expansions, data centers — means demand for key materials is unlikely to soften meaningfully in the near term.