As witnessed in 2019 the output of the construction industry grew significantly and this trend is forecast to continue into next year, therefore the key market players are going to face even bigger challenges.
The dramatic labour shortage witnessed in all phases of construction, causes enormous challenges for the industry as there is an insufficient number of both specialized workers and highly trained engineers.
Meanwhile the volume of construction orders keeps growing continuously, increasing the pressure on time schedules. CBRE, the global leader for real estate consultancy and investment services, releases its Fit-Out Cost Guide for Hungary with the goal of providing guidance regarding the costs of office space formation.
The formerly biennial report, now needs to be updated yearly, as regulations and circumstances are changing rapidly, influencing the whole industry.
Considerable price increases due to two main factors of the construction field
- Increasing labour shortage: Statistical data indicates that the labour force in the country decreased by 26% between 2007 and 2012. With the workforce having moved abroad during previous cycles, there remains a significant shortage of qualified labour.
A further factor is that the sector, which shrunk significantly in the course of the economic crisis and has yet to fully recover. One possible solution to help ease the strain on the sector is to internally train and develop future professionals of the industry by increasing the level of higher and vocational education training provisions.
- Lead times: In addition to the steady rise in construction costs, project lead times are also increasing because of shrinking supplier and subcontractor capacities. It is also important to point out that the shortage of professionals has now become a feature of all the professions involved, from skilled workers on site to qualified engineers.
The situation is further exacerbated by the fact that, in addition to the office segment, development activity in both the retail and industrial & logistics sector increased in 2019 and this trend is set to continue.
Real estate industry facing new challenges
The factors mentioned above, together with the continuous growth on the demand side from an occupational perspective makes 2019 a challenging time for the industry. The lack of skilled professionals has blown up into an even greater problem due to the number of construction projects planned and commissioned, although the significant in and building technology and equipment may help offset this problem.
Between 2016 and 2018, the rise in the ratio of growing demand and increasingly expensive materials carried about a 26% increase in costs, whereas construction costs only climbed by 32%, while auxiliary costs are a mere 14% higher.
“The first quarter of 2019 brought about a 16% price increase year-on-year. The average price of a rather basic fit-out in 2019 is approximately EUR 890 per square metre compared to the EUR 770 per square metre rate practiced in 2018. This includes all construction and soft costs on top of a basic shell&core standard provided by the Landlord).”
- explained László Barna Harangi, Associate Director, Head of Project Management & Building Consultancy.
Construction industry to quiet down in 2020
The trends of recent years are forecast to overcome in 2019 as well, whereas the number of applications for building permits already represents a slight decline in Q1 2019.
The elevated building activity seems to be reducing by 2020 and should stabilize on a lower level until 2023. Government orders represent nearly half of construction industry expenditure, are expected to remain present in the sector with a high volume. Longer project lead times will continue to result in elevated fit-out budgets.
CBRE’s analysts expect no dramatic further increase for 2020; the 10 to 15% growth, which may be considered to be constant, is what can be expected, meaning that the fit-out cost may reach as much as EUR 1,100 to 1,200 per square metre by the end of 2020.