The View 7th edition

CONSTRUCTION MARKET

18

HARANGI BARNA Associate Director Head of Project Management & Building Consul- tancy

COST INCREASE REMAINS TRIGGERED BY STRONG ACTIVITY The growth rate in construction output volumes accelerated over 2018. While KSH reported an annualized increase of 19% until June 2018, the same indicator climbed to over 27% by the end of November. The output volume increased in both main construction segments: the construction of buildings (+17.8% y-o-y) was driven by increases across residential and all commercial property categories, while growth in civil engineering projects remained high due to continuing road, railway and utility constructions, mostly backed by EU-funded subsidies. The volume growth has been accompanied by a further surge in prices; while Hungarian consumers perceive moderate inflation (under 3%), manufacturers face price increases of over 5%, and the rate can be as high as 12% in the building construction industry. According to CBRE, the annual cost inflation for office and industrial constructions reached 18% – a notable acceleration from 13% a year ago. The Hungarian construction market is experiencing a critical shortage of available labour – perhaps most severely amongst all sectors in the economy. An estimated 40,000 skilled workers are missing from the sector, out of which ca. 25,000 are working abroad. This shortage has been driving up labour costs, yet so far the wage increase has failed to attract back skilled workers from Western Europe, where construction is also fuelled by the increased pipelines across major economies. Experts in the field agree that a drastic wage hike of up to 25- 30% would be necessary to retain the needed skilled workforce in Hungary. The trend of increasing costs is anticipated to continue this year as well. The law sets the mandatory minimal wage in the construction sector at ca.

1000

1000

900

900

800

800

700

700

2018

600

600

2019

500

500

Developer's Contribution

400

400

300

300

200

200

100

100

0

0

Office Shell&Core Cost

Hard Fit-Out Cost

Tenant Fit-Out Cost

Industrial Construction Cost

Evolution of Construction Costs

Source: CBRE Research