The View 7th edition

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figure is in line with the forecast for Prague, but far below the levels expected in Warsaw or Bucharest. Industrial development activity is still outstandingly high in Poland with 2.1M sq m of space under construction, compared to 580,000 sq m in the Czech Republic and only 475,000 sq m across Hungary. Retail development volumes have largely remained in level across the region and are expected to be less of a driver of construction activities in the coming years, once again with the notable exception of Poland. Based on recent projects, CBRE estimate the annual construction cost increase to have reached 18% towards the end of 2018. Industrial construction costs rose to the range of 450-550 EUR/sq m by year end, up from 400-450 EUR/ sq m 12 months ago. Above ground shell & core office space can be constructed at an average of 950 EUR/sq m, up by a more moderate 9% on last year. Price increases have been more transparent in fitout works, with the total fitout cost (including all soft & additional costs) reaching 910 EUR/sq m on average, up from 770 EUR/sq m a year ago. The cost inflation was most significant for works involving intense blue-

collar efforts (mostly mechanical and electric installations), followed by the material-heavy project elements, while it remained modest for soft cost elements involving mostly white-collar labour. The hard fit-out cost elements add up to an average of 640 EUR/sq m, generally split in a 75-25% ratio between the developer and tenant. In our experience, fit-out costs have not only increased in absolute terms but also in terms of the share covered by landlords (as a compensation for the reduction in other forms of tenants’ incentives). On top of this, the other cost elements (like furniture, AV etc. and all the soft costs) covered by the tenants sum up to 270 EUR/sq m. Residential developers are experiencing similar cost increases, but they are more likely to transfer the vast majority of the increased fit-out costs to the buyer, therefore the cost inflation weighs less on their profit margin. Furthermore, last year saw final capital values for offices increase only by ca. 10% (yield and rent driven), while the price increase amongst newly built residential schemes was well in the double digits.