Construction Industry Faces new Challenges

Office Market

Rising construction costs and scarcity of labor are seen as a major barrier to development and therefore market growth across the various private and public property sectors. However, there are also signs are that the development cycles are at their peak, experts suggest.

More than 60% of the 300 construction and development professionals at the Portfolio Construction Industry 2020 conference at the New York Place hotel expect construction activity growth to stagnate.  

At the same time, the overall view is that the industry has to adapt to the changing needs of tenants and building occupants and environmental regulations, as well as improve productivity so that projects can be completed on schedule.

On the demand side, tenant demand is continuing to rise across the office, industrial and retail sectors, according to the Royal Institution of Chartered Surveyors, one of the sponsors of the event.

“Although we have an issue with well qualified workers, from a construction perspective we currently have over capacity: We heard from the panelists and other stakeholders in the sector that they have developed a significant capacity over the last few years; however, if demand slows down then this over capacity will have to be dealt with,” said Zsombor Barta, president of the Hungarian Green Building Council (HuGBC).

“The other issue that Hungarian and EU regulations regarding energy efficiency are becoming stricter. The question is whether this will cause prices rises, or if developers have already priced this. This requires a certain percentage of renewables to be integrated into a project; this will [in turn] require a different way of thinking on the part of developers as the range of renewables they can calculate with is also limited in an urban area like Budapest,” Barta continued.

Huge Issues

“These are huge issues, as developers have to rethink their whole developments from a design and building engineering perspective if it is located in, for example, an area where district heating is not available and you can no longer count on solar-gain within the calculation of renewables for a project. This will have a major impact and developers and designers are now being pushed to think in more innovative and more energy efficient ways,” he added.

From the developer perspective , Tibor Tatár, commercial and retail development manager at Futureal Group, commented that the challenge facing developers over the last three year has been deadlines and quality.

“We do not expect a fall in construction costs but a major step forward would be an improvement in construction quality and the keeping of deadlines. These are the most important issues for the industry. In the medium-term, the construction industry has to not only think about quality, but also shortening deadlines; this is the main challenge for the next four-to-five years,” he explained.

“Fortunately, an increase in rentals came at the same time as the increase in construction costs and there was space for an increase in rentals as Hungary has the lowest in Central Europe, 25% cheaper than [the] Czech [Republic] and Poland. I, therefore, believe there will be further increases in Budapest to circa EUR 18 per sqm per month,” Tatár said.

“For a 20,00 sqm office project, the construction time is two, to two-and-a-quarter years; this is too long and should be one-and-a-half to one-and-three-quarter years, as in many other countries it is shorter than [in] Hungary,” Tatár continued.

A further question regarding project development is locational issues.

“In the past, projects were closed developments, developed as an individual entity with no essential connection to the wider society and communities around them. There has now been a major shift as many new developments have internal courtyards that are open to the general public, in addition to public green areas, parks and shops. The concept is changing from pure office buildings to more open and mixed developments,” concluded Barta of the HuGBC.

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