The View 9

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NO RELIEF IN PRICE INCREASE FOR FIT-OUT WORKS CBRE’s estimate for annual construction cost increase remained at around 15-20% y/y, still measurably above the average price index of 9.4% published by Central Statistical Office. As indicated already six months ago, we recorded a divergence between the price evolution for shell & core construction and fit-out works. More robust development pipelines in the industrial, hotel, and office segments directly lead to higher price increases to shell & core construction works while fit-out price inflation slowed clearly compared to mid-year. Industrial construction costs are quoted in the range of 550-650 EUR/sq m, indicating ca. 20% increase over the year. As current vacancy on the industrial market is nominal, the continuous increase of development costs can be directly reflected in the rental increase for new industrial deliveries. In the office segment prices for above ground shell & core space increased the most, now approaching 1,150 EUR/sq m in average, up by 21% y/y. The total fit-out cost (including all soft & additional costs) climbed to 1,025 EUR/sq m on average. The hard fit-out cost elements add up to an average of 720 EUR/sq m, generally split in a 80-20% ratio between the developer and the tenant. On top of this, the remaining cost elements (like furniture, AV etc. and the various soft costs) covered by the tenants comes to ca. 305 EUR/sq m, up by a more modest 14% y/y and almost flat on mid-summer statistics. The cost inflation was smallest here for IT, cabling and furniture.

Evolution of Construction Costs

Source: CBRE Research