52 (147) 2022

Real estate and construction

Will the next months treat the construction industry kindly?

By Jacek Kostrzewski, managing director, Gleeds Polska
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An overview of the key changes in the construction and real estate market

As of today, answering this question is very difficult. Although just a few days ago we would have thought it was difficult, we would have answered in a much more positive way, basing our opinion on how the construction market operated through the pandemic. We were aware of our challenges – rising inflation and shortages in the labour market. But these obstacles have been overcome by the construction sector in the past.

Few, however, expected what would happen in the morning of 24 February 2022. The world which we have known so far now is changing in front of our eyes, every day, every hour.

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What changes appear?

A few days ago, we could have said there are huge differences in the scope of prices of construction materials, costs of logistics, services, and workforce. But not only has the financial part of our industry changed, but the common approach is also different. Sustainability and ESG values are getting more and more ubiquitous across the industry. Changes are present in every sector of construction and property. In this article, we are going to take a look at the crucial, most noticeable differences in comparison to the past situation, in terms of the components and catalysts.

What has driven the change?    

The pandemic has had a significant impact on global economics. The first lockdown caused common uncertainty within the social mood that led to major project and construction slowdown or even temporary suspension. Luckily, we all managed to find ourselves in a new reality. The flow of workforce and goods across the borders has been hindered, too. It led to the increase of the prices and decrease of availability. That process coincided in time with an increase in energy prices and inflation growth.

Conducting tenders for general contractors, we are still experiencing a shortage on that market – they have their hands full of work, they do not have enough manual workers and prices of materials are increasing day by day.
Even though we witnessed a short slowdown at the beginning of the pandemic, despite the challenges, projects still somehow are being planned, designed and built.

How have sectors changed?

Let’s focus on the most visible changes of the construction and real estate industry sector by sector.
Rental apartments are getting more and more popular, the demand and supply have been growing in the last years and information coming to us from the market confirm that we may expect that trend to continue or even accelerate.

Changes in buyers' shopping behaviour and habits have influenced the logistics and retail sectors, which have both influenced each other. We are witnessing our clients and their tenants extending their logistics webs by constructing new logistics schemes. In constant need of efficiency improvement, they modernise existing warehouses, implementing robotics solutions to deliver packages more effectively and as fast as consumers need them to.

The retail market also needed to redefine the approach known so far. There are no longer large-scale schemes under construction. Small convenient retail units are getting more popular, as customers are keener to do their shopping in their neighbourhood. Shops are built near housing estates to be more convenient and accessible for their users. Existing large-scale malls are modernised and their functions get partly changed, for example, due to their location they become partly office areas or entertainment units.

Talking about the office sector, we cannot overlook the concerns that appeared at the beginning of the pandemic. Employers, tenants, and landlords were worried that the change of working style to working from home would surely impact demand to the office area, as the employees would not be keen to work from offices anymore. Now, after almost two years we can see that the pandemic did not deter people from visiting their offices; it also forced employers to modernise, fit out and improve their office area standard, so that it would attract people.

Describing the Polish construction market, we shall not skip the mixed-use schemes that have become more popular and there are more of them in investors’ portfolios and plans in all Polish cities. In the past, mixing functions was limited to putting a few square meters of retail space into residential or office projects. Nowadays, we find more and more often combinations of more than two or three functions. Residential buildings are mixed with offices, commercial spaces, restaurants, and relaxation zones. More and more often, these projects take the form of extensive city-forming, with new public squares or parks created. Such projects are appreciated by local residents, so they might become even more popular in the future.

What about ESG and sustainability?

The future of the built environment will surely be shaped in accordance with ESG and EU Taxonomy assumptions. Sustainability and social responsibility are gaining widespread acceptance, taking roots in the approach of many organisations, which are rethinking their approach. The construction sector has great potential to help implement changes. The industry has started to think about construction in a wider way – not only in the context of the buildings themselves, but also how they fit in to the broader context of business operations.

Businesses that have made the effort to implement ESG values and strategies are getting more privileged and they may soon be cutting coupons and benefiting from it. Banks and funds are keener to finance projects of the parties with ESG strategies in place. Soon ESG compliance will be a necessity to get a long-term business loan. And employees are keener to work for an organisation with an effective ESG strategy in place; it may soon become deal-breaker – in employees’ market, this will hurt those firms that ignore ESG.

Shall we hope for the best?

To sum up, the construction and real-estate sectors have handled the economic and pandemic situation with fortitude. After a bit of slowdown, investors, general contractors and all the parties involved in the market have somehow managed to find their own ways to operate and make their projects happen. It is a reason why we can be hopeful in the upcoming months.

Our climate situation is crucial. Business ethics, people's well-being and sustainable values are getting more and more common, spreading across part of business. It is gratifying that we are witnessing this improvement, which will be beneficial for all of us. Considering the ongoing processes, we can expect to be working in a prosperous, sustainable and responsible sector. Thanks to ESG we have reached a point at which the construction sector can be prosperous – but no longer at any price. It has to happen in way that is responsible and thoughtful, focused not only on profit but also on the people who make it happen and the environment within which it happens.

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