33 (128) 2018
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Real Estate & Construction

Dynamics of changes on the Polish construction market

by Adam Polak, cost manager, Gleeds Polska
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For 25 years, Gleeds Polska shares its based on experience knowledge of project management with a wide range of clients such as representatives of investors, developers, investment funds, banks, contractors and other institutions.

Gleeds Polska is part of Gleeds Group – one of the world's largest independent construction consultants with over 130 years of experience in the industry. Our goal is to support and consult the very best clients, projects and people in the industry. As we aim to meet expectations of our clients and the stay up-to-date, we closely observe and analyse the situation of the dynamically changing construction market. Considering the changes that have started in recent months, we observe a trend, very important for both currently implemented and planned investments that occurred in the construction industry in Poland.

2017 under the star sign of dynamic changes

Having collected and analysed information obtained from the construction industry market, one can ascertain that a sharp rise in prices in the construction industry occurred last year (comparing the period from December 2016 to December 2017).

Regarding construction works (concrete works, reinforcement steel, steel structures, masonry structures) this growth amounted on average to 22.7% (between 15.3% and 30.1%). Estimates of the size of changes in the other types of works such as finishing works, electrical installations, low voltage installations and mechanical installations is more difficult due to the high dependence on variables as the type of technology, equipment class, quality of material used, etc. These changes might therefore be differentiated by large deviations occurring and may reach in extreme cases an increase by 30% over the previous year. And regarding the increase of the prices of raw materials such as coal, iron ore, copper ore (source: World Bank Report) and new 2017 tax regulations (reversed VAT in the construction sector) that increase businesses’ costs, we understand the reasons for the price inflation on the construction market. After a thorough analysis of the market condition and factors, we estimate that the average price increase for building investments in 2017 is between 5% and 15%.

Workforce deficit in the construction industry

Factors that influence the current construction market situation are closely related. One of the basic reasons for the current market condition is the escalating shortage of executive workers. The situation on the labour market has been developing in this direction for a long time. On the one hand, we observe a systematic unemployment decrease from 14.4% in 2013 to 10.2% in 2016 to reach 6.6% at the end of 2017. (source: GUS, Poland's central statistical office). However, the GUS data does not include people working cash-in-hand in the grey sector, therefore the real level of unemployment may be lower than officially reported, which is better reflected using LFS analysis method. According to Eurostat, by this measure, unemployment at the end of December 2017 was not 6.6% but a mere 4.4%. On the other hand, employment in construction (mainly in the public sector) had been decreasing since 2011, regarding to completion of the projects, co-financed by the EU from the 2007-2013 financial perspective. Meanwhile, EU funds from the current 2014-2020 financial perspective are still not being used to a satisfactory degree (source: NIK – Poland's supreme audit office) and this circumstances affected employment rate in the construction industry at the end of 2016. These reasons combined with construction and assembly production increasing by 12.8% in 2017 relative to 2016, according to GUS, caused a substantial imbalance in the construction sector labour market. This fact is confirmed by leading contractors’ reports, who currently have a great difficulty with employing subcontractors in essentially all industries, therefore they are forced to offer ever-higher salaries.

Construction industry trends

Investment planning forecasts for 2018 are very optimistic in private or public sectors alike. A particularly large increase is expected in infrastructure projects that need to be covered by the EU funds from the 2014-2020 perspective, as was announced by the Minister of Investment and Development. As there is a variety of planned public developments and the residential market is growing too, reflected in the 21% growth of the number of construction permit applications (source: GUS), the deficit of workforce is getting wider. Unfortunately, a proper solution is unlikely to be found soon. Although construction companies try to eliminate staff shortages by increasing the employment of immigrants mainly from Ukraine (according to the National Bank of Poland, there are over one million Ukrainian citizens working legally in Poland, of whom 23.6% are working in the construction and renovation and finishing services), it is still insufficient to cover the entire deficit in human resources. Another difficulties be within gaining the construction staff, would be the new law restrictions of Ukrainians’ entry to the EU. Visits without visas are limited to 90 days in half a year for business, tourist and family purposes, however, some of them will be employed in the grey economy, encouraged by a higher income perspective in Western European countries. Moreover, not only Poland is struggling with the lack of hands to work. The problem also applies to our closest neighbours (Germany, Czechia, Hungary, Slovakia) who are forced by the market condition try to manage it by preparing or introducing special laws that enable Ukraine immigrants to be employed abroad. Such a situation intensifies competition for economic immigrants between Polish construction companies, which will certainly result in raising wages. To sum up, in 2018 we should expect a further increase of prices proposed by the contractors of construction works. These factors will necessitate the revision of budgets planned by investors.

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