Poland’s construction sector and indeed its entire economy grew dynamically last year. The residential sector recorded a 40% increase in new construction starts in the first half of 2021 compared to the same period in 2020. The industrial sector also picked up strongly – mainly in warehousing – recording 90% year-on-year growth. The renewable-energy infrastructure sector is booming too as a result of energy transition requirements. Nevertheless, multiple factors heighten risk and can threaten the viability of some projects.
Inflation. Rising material costs
Surprisingly, rising inflation has given the construction sector a boost in the residential sector, as individuals decided to invest their money in real estate instead of keeping their savings in bank accounts offering negative real interest rates. The same situation happened in the industrial sector.
The Polish economy was relatively unscathed by Covid-19. However, the global economic recovery and other in-country political factors have resulted in near-record increases in the cost of construction materials and lack of its availability. This needs to be taken into account when planning or financing residential investments, especially when negotiating or even rebidding offers from general contractors. It can result in project delays as contractors are unable to hold their prices. Pricing risk have become a major threat to the viability of real estate contracts. Early procurement of materials can result in greater price certainty.
The rising cost of building materials costs was expected to start easing in 2022, but then the current situation in Ukraine suddenly become highly important in future reference to pricing and supply chain. It obviously influences exchange rates too. The Polish zloty is getting weaker. But this situation makes Poland more attractive when it comes about the prices of our goods and services sold abroad.
Politics vs. construction market.
The current political situation in the country puts some of the investments in uncertainty in terms of risk policy. The Polish Deal (Polski ład, – the tax revolution in Poland created by the government – does not help investors. It puts additional financial pressure on employers, pushing up construction costs again as increases in employees’ gross salaries generate additional costs.
Russian aggression in Ukraine has generated a special situation on the Polish labour market.
It has a huge influence on availability of construction labour. Since the Russian invasion has necessitated military conscription in Ukraine, it significantly impacts the Polish labour market in both skilled and unskilled labour. Huge numbers of Ukrainians are returning home to fight for to their country. Construction workers still remain in high demand in Poland, with almost 100,000 construction-related vacancies in the first half of 2021. Over the last few months, the labour shortage worsened, affecting construction work and fit-out. Now it will become even more acute.
Rising energy prices will also drive inflation as they also affect the construction sector. Generally, carbon taxes related to the emissions trading scheme (ETS) will play a crucial role in shaping market conditions. Green building certificates are the new must-haves. In the warehouse and office-development sectors, it is the client, as end-user, who is demanding the new standards of sustainability from developers and contractors, even if this means higher construction costs. This at least seems to be a positive outcome, as new buildings coming into use will be more energy efficient.