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The Gulf Region: A Healthy Appetite

Despite some projects being on hold as a result of the economic downturn, official figures show that imports of furniture and interiors products to the region are rising at a significant rate. Much of this appetite is sustained by the GCC governments’ increased efforts in pushing for infrastructure and hospitality growth.

The Gulf region continues to be a major player in the global construction world, with the combined total value of listed construction projects in the GCC countries plus Iran and Iraq worth some US$2.5 trillion in 2008 - more than double the combined GDP of the six GCC economies.

Despite the fact that the financial crisis has impacted on the Gulf’s construction sector and led to a slowdown across the region, with a number of planned projects being on hold or cancelled, there are still significant projects in the pipeline, which have a total value of US$3.1 trillion.

Table 1: Gulf Projects - Planned or Underway (Values in US$ billions)

The UAE leads the project market, accounting for 42 percent of the total project value, while the value of projects in Bahrain has more than doubled to almost US$68 billion and those in Qatar have increased by 71 percent in the last year. High oil revenues combined with prudent spending by Gulf Governments in the past have created a solid macro foundation. GCC Governments are stepping in to support key construction projects and increase their spending on infrastructure projects. Together with falling prices for building materials this will provide some respite for construction firms during 2009.

Infrastructure

The infrastructure sector will be one of the most active sectors in the construction industry in the short term, as Governments spend money on infrastructure projects in order to create jobs and offset the economic slowdown. The projected annual infrastructure construction growth is 5.4 percent for the Middle East in the next five years, putting it ahead of the global average which is projected to grow by 5.2 percent per annum.

Table 2: Global Construction Outlook
(World Infrastructure Spend)

The UAE currently has almost US$105 billion worth of infrastructure projects being planned or under construction, with Abu Dhabi recently announcing a further US$200 billion expenditure on infrastructure projects by 2030 (in line with the city’s strategic development plan).

Whilst the UAE economy may no longer be experiencing the phenomenal growth rates it has become used to in recent years, the current value of on-going civil construction projects in the UAE is still a massive US$698 billion, according to independent research company Proleads.

The Interiors Sector

Developments in the construction sector also have an impact on other sectors that are intrinsically linked to it. New construction provides opportunities for the interiors sector and its sub-sectors, as well as the furniture sector.
Despite some projects being on hold as a result of the economic downturn there are still massive business opportunities for interiors companies in the Gulf region.

The total forecast spending on interior projects (including curtain walling, doors, windows, canopy and skylights, stone cladding – façade, swimming pools, garbage disposal, window cleaning, parking management, lifts, sanitary fittings, light fittings, external lighting, car park, landscaping, signage, kitchen, laundry equipment, fit out, furniture, fixtures and equipment) in all six GCC countries is estimated to be US$47.1 billion in 2009 and US$56.9 billion in 2010.

Official figures show that imports of furniture and interiors products to the Gulf region (which exceeded US$6.5 billion in 2006) are rising at a significant rate. The Middle East interiors market is now almost on a par with well-established markets such as the EU, the US and Japan. A growing number of businesses relocating to the UAE, the wealth and the on-going development of the region have ensured that there is an on-going demand for furniture and interior products.

Forecast spending on confirmed “Interiors” projects in the UAE (Values in US$ billions)

A large number of commercial and residential buildings, hotels, retail outlets and mixed-use developments will reach completion this year, and the “refit market” of existing buildings also provides a growing market segment. A staggering US$37.3 billion worth of interior projects will enter the UAE market in 2009, with an additional US$42.9 billion entering the following year.

General imports account for around 90 percent of consumption in the UAE, with China, India, the US, Japan, Germany, the UK and Italy being the most important import partners. Of the US$3.3 billion UAE imports in 2008, general furniture represented US$1.11 billion, fabrics and floor coverings accounted for US$1.05 billion, lighting for US$742 million and ceramics for US$420 million. The UAE as well as Kuwait and Saudi Arabia are net furniture importers and feature fast growing construction sectors, therefore offering great prospects of profits for furniture exporters, both in the low and high end markets.

Japan, South Korea, Thailand and India are the most important export destinations. A significant part of UAE exports consist of re-exported products (38.8 percent) - India was the top destination, followed by Iran and Iraq, underpinning the UAE’s position as the third most important re-export centre in the world after Hong Kong and Singapore. As a sub-sector to the interiors market, the overall value of the furniture market in the UAE is estimated to be around US$397 million for 2009.

The contract furniture market is estimated to claim half of all furniture sales in the country and as further sub-sector, the office segment accounts for 27 percent of the Emirates’ contract furniture market.

The Hospitality Sector

In terms of tourist infrastructure, Dubai, and the UAE as a whole, offer excellent standards of accommodation along with tax-free shopping, expanding coastlines and local cultural heritage. The Government’s commitment to diversifying the economy has meant that continuing investment in the tourism industry is assured. Investment into development and refurbishment are higher in the UAE than anywhere else in the world

Whilst the tourism industry has witnessed phenomenal growth in recent years, it is still a relatively young sector, and thus there is still a huge potential for expansion.

Approximately 3,245 new rooms were added to the stock of quality hotel rooms in Dubai over the second half of 2008. This brings the total to approximately 40,000 rooms, representing a 10 percent increase on 2008.

Dubai’s tourism industry is expected to overtake oil exports as an important source of revenue in the near future and the tourism industry has accounted for a steady increase in Dubai’s GDP, now estimated at around 20 percent.

Some 325 hotels equating to 92,026 rooms are currently under construction or planned in the Middle East, with the majority expected to enter the market in 2009 and 2010, representing 10 percent and 12 percent growth respectively on last year. US$19.9 billion are projected to be spent on hotel construction in the GCC region in 2009 and US$140.4 billion in terms of total project budget. The UAE accounts for 60 percent of the region’s future hotels at present - including an additional 22,000 hotel rooms in Dubai in the next five years.

Gulf Projects - Hotel Developments
325 Planned New Properties 2009-2014

The luxury category remains very strong in the Middle East and represents 36 percent of the proposed additional supply. However, recent figures show an interesting trend in the opening up of budget hotels, making the UAE a more affordable destination.

 

 

 

 

UAE remains the centre of development with 60 percent of future hotel pipeline

* Materials in this article are extracted from the “Dubai Market Report”, released by Gulf Interior magazine.

Both Furniture & Furnishing Export International and Gulf Interior are members of the International Alliance of Furnishing Publications (IAFP), representing Southeast Asia and the UAE, respectively.