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UAE construction consolidates

10 October 2024

 

With an abundance of tower cranes on the horizon, labour buses and ready-mix concrete trucks clogging streets, it is evident that construction in the UAE is in the midst of yet another boom. 

While that may appear to be business as usual for a market that has become known around the world for delivering daring projects, behind the scenes, there have been sweeping changes that will affect how the market operates for the coming decades. 

In Dubai and Abu Dhabi, major property developers that the government owns or controls have been reshuffled and consolidated. At the same time, the government has taken control of major contracting companies to help it deliver on its project ambitions. 

In Dubai, the most significant move came in March this year when Sheikh Mohammed Bin Rashid Al-Maktoum, the Prime Minister and Ruler of Dubai, announced the incorporation of local real estate bodies Nakheel and Meydan into Dubai Holding Group. Under the directive, the board of directors of both Nakheel and Meydan will be abolished. 

The consolidated Dubai Holding Real Estate (DHRE) entity is a major player in Dubai’s construction market. By 4 October 2024, the company and its subsidiaries accounted for 9% of construction contract awards in Dubai. Importantly, the percentage share has been increasing over time. The entities – although not merged at the time – represented 6.5% of contract awards in 2019.

The largest contract signed by a DHRE entity this year was the $490m contract to construct the 75-storey Como Residences tower on the Palm Jumeirah awarded to local contractor Alec by Nakheel.

Master developer

While the combined entity will remain important for contract awards, its significance is even greater when its role as a master developer is considered. Dubai Holding had a large land bank, and the addition of Nakheel, which also has a vast portfolio of lands to develop, has created an entity that will shape the future development of Dubai for the coming decades.

One of the Nakheel projects that will move forward in the next few years is the development of Palm Jebel Ali. In late August, Nakheel awarded a $220m contract to complete the reclamation works for the artificial island to Belgium’s Jan de Nul.

Abu Dhabi activity

Abu Dhabi has also been consolidating its real estate companies. In September, Aldar Properties and Mubadala Investment Company signed a partnership agreement to establish several joint ventures to own and manage assets in Abu Dhabi.

The partnership will be owned 60:40 by Aldar and Mubadala, respectively. It includes a $2.45bn retail platform, $816bn-worth of real estate assets in Masdar City, two undeveloped islands off Saadiyat Island and Yas Island, and an industrial logistics park.

Earlier, in February this year, Q Holding completed a transaction with ADQ Real Estate and Hospitality IHC Capital Holding to acquire control over 100% of the share capital for companies including Modon Properties and Abu Dhabi National Exhibitions Company (Adnec). The merged company was rebranded as Modon Holding and is an ADQ portfolio company.

Abu Dhabi has a long track record of mergers and acquisitions with its government-related property development companies. In 2013, it merged Aldar properties with Sorouh Real Estate, two of the emirate’s largest property developers at the time. 

Like in Dubai, while the entities that make up these combined development bodies have been responsible for a significant share of contract awards in Abu Dhabi and will continue to do so in the future, their real importance is shown when considering their role as master developers. These consolidated players have vast land banks to develop and will help shape property development in the capital.

Fewer customers

For contractors, the consolidation of leading real estate players reduces the number of potential customers active in the market. Further complicating the matter is the growing importance of government-controlled contracting entities, which some contractors fear will mean fewer opportunities for privately owned contracting companies. 

In Dubai, the Investment Corporation of Dubai owns Alec. The contractor has won contracts for several key projects in recent years, including the recently awarded Como Tower. It has also worked extensively at Dubai International airport over the past 15 years. It is widely expected to play a leading role in the construction of the recently reinvigorated $35bn Al-Maktoum International airport project. 

The contracting landscape is more complex in Abu Dhabi. In early October, ADQ acquired a 49% stake in Alpha Dhabi Construction Holding, the construction subsidiary of local investment company Alpha Dhabi Holding (ADH). In 2022, ADH increased its stake in Aldar Properties and became the single largest shareholder, then becoming the real estate developer’s parent company. ADQ also has NMDC as a portfolio company. NMDC is a dredging and marine works contractor with capabilities in the construction and energy sectors. 

These contracting companies already command a dominant position in the market, and their common ownership structures with Abu Dhabi’s leading project clients will effectively guarantee that this trend will continue into the future. 

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Colin Foreman

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