After the goldrush

So the clocks have gone back, the autumn evenings have begun to overlap the working day, and a general sense of gloom has settled over the eight-week run-up to Christmas. The mood has not been helped by the news that, unlike most of the rest of the world, the UK is still in recession. In fact the economy has been shrinking for 18 months now, the longest, if not the deepest, contraction since records began in the fifties. This week we report the Office for National Statistics’ comment that the construction sector made a “significant contribution” to that decline. What’s more, as firms complete work-in-hand and go to the market for more, they are being forced to cut prices to the bone; Davis Langdon says bids are 15% lower than last year, and are likely to fall another 10% in 2010.

Against this bleak background, the golden vision that was Dubai is regaining some of its lustre as deals are once again done and sites reopened. Abu Dhabi, which has an altogether sounder underlying economy, is also moving into a higher gear (go to page 26 for a rundown on what’s going ahead, and page 22 for a closer look at one remarkable project). This does not mean that the UAE has turned back into a fairytale land of gold where demand just keeps growing; recessions are wonderful for lending perspective to a view, and it’s clear that Dubai was the land of the goldrush. Now that it’s over, the UAE has become a much tougher market.

For one thing, clients may be spending, but they, and their backers, are more risk-aware. Money is no longer the universal lubricant, and contractors are finding their margins hacked back by 15% compared with 2007; fees for consultants are 20% lower. And you can forget payment up front: in fact, you’ll be lucky to see a bean in the first three months. Neither will there be the same volume of work: a quarter of Dubai’s properties were empty last month and hundreds of thousands more will go on the market in the next two years. A few years ago, that would merely be an incentive to increase the pace, but these days Dubai is subject to the law of supply and demand. Those developments that do happen will proceed at a slower pace – nobody developing a three-tower residential scheme is going construct all three at once. Much better to build one, sell it and then use the proceeds to fund the next.

This meaner market means that UK firms will have to slash costs, and staff, further: one expert predicts that one job in five will go. It also means that the economic case for swapping highly paid Brits and Australians for Asians will become unanswerable. The head of one British consultant in Dubai has already confessed that he will be using Indian QSs in the near future, many of whom will operate from the Subcontinent. Another consequence is that firms will have to diversify into the wider region. That means biting the bullet and operating in “difficult” countries, such as Saudi Arabia. With 27 million of the Gulf’s 36 million population, and plans to spend £623bn on public sector construction projects by 2020, it has become a country that can no longer be ignored.

The place to be

The brightest spot in the UK market is undoubtedly the infrastructure sector, which is forecast to grow 30% by 2013 – at which point it could account for 18% of new-build work. The importance of areas such as waste, rail and nuclear cannot be overstated – despite the fears over delays to reactors. This is why, after page 62, we kick off a series of in-depth market reports with a closer look at the work on offer. These reports will analyse the latest trends in key sectors, highlighting what work is around and, crucially, how likely it is to keep going in these straitened times.