The past few months have been a good time for the construction market. The long-awaited infrastructural projects have accelerated, more and more flats and offices are under construction, and warehouse halls spring up like mushrooms. The Central Statistical Office reports that activity in the construction and assembly sector has continued to increase rapidly since the beginning of the year. In September 2018, it was almost 20% higher than in the same period in 2017.
“In the past few quarters we have received far more requests for proposal than two or three years ago. Demand for production and storage space is constantly growing in Europe, and Poland is a very attractive location in this respect. The boom we are currently witnessing is strictly related to the transport opportunities that the region offers. More and more fast road connections are available in Poland and a lot of infrastructural projects are underway. The still relatively low costs of labour are another factor that supports the project development process. If we add to this the attractive geographic location, moving production and logistics services to Poland is simply very cost-effective”, assesses Maciej Runkiewicz, a Member of the Management Board of Kajima Poland.
Construction sites are busy
According to Cushman & Wakefield, at the end of the first half of 2018 there were over 2.25 million m² of modern warehouse space under construction in 66 projects throughout the country. This is the best result in the history of the Polish market. 75% of this space has already been leased, which confirms that the demand is still very high. Forecasts for the coming months are also optimistic, which means even more work for the developers and general contractors. Such a good condition of the warehouse sector is undoubtedly a source of satisfaction, but at the same time it is also a big challenge that all market participants need to face. The consequences of such a huge demand for construction services include rising prices of building materials and general contracting costs, and a shortage of labour.
Costs of materials included in the price
At the end of September, prices of building materials increased by 20% to even 30% compared to the same period of the previous year. The waiting time for certain materials also increased. According to Maciej Runkiewicz, a Member of the Management Board of Kajima Poland, price increases and delays in deliveries mostly concern prefabricated parts, steel structures and mineral wool used, for example, to insulate warehouse halls. These are true bottlenecks for the entire construction market.
Any workers out there?
The highest ever number of projects in all sectors of the real estate market also drives demand for labour. The unemployment rate, which according to the estimates of the Central Statistical Office amounted to 5.7% for entire Poland at the end of September, dropped to the all-time low. This certainly does not help in the current situation.
“Unfortunately, the construction sector is affected by the shortage of labour, pretty much as every other industry in Poland. There is a shortage of both highly qualified employees as well as young people who could be trained in the profession. Naturally limited endurance and regulations prevent working for extended periods of time, so working after hours, two shifts or on weekends is now almost impossible. Foreigners employed by our subcontractors have become a common sight on construction sites. For sake of maximum safety, we have decided to increase control in this area so that all of our staff are legally employed, have work permits, valid health certificates and have received proper health and safety training”. says Łukasz Waliszewski, Management Board Member and Head of Acquisitions and Production Preparation at Trasko-Inwest.
All these factors, including the rising costs of building materials, as well as pressure on salaries, increase the cost of general contractor services. However, the contractors explain that this is inevitable given the current market situation, and does not inflate the profit margins of construction companies, but rather ensures that the contracts are executed seamlessly.
“The rising cost of construction services is a natural development, especially during the market boom, when the costs of materials, employees, services and fuel are also increasing. The market enforces these adjustments. Yet, the growing production costs do not affect the profit margins of general contractors”, argues Michał Skowron, Vice-President of the Management Board of Dekpol S.A.
General contractors need to face many challenges, and so do developers that the projects are executed for. Nevertheless, the stable situation on the warehouse market, both in terms of supply and demand, and the greater attention that is paid to one another by all parties involved in the investment process, offer a positive outlook on the future.