Current trends in construction

Poland is the largest beneficiary of EU funding (2021-2027), is among the top 20 FDI recipients worldwide, and remains a hotspot for investment in construction and real estate.

In terms of production in construction, Poland recorded 10.7 percent growth year-on-year in May 2022. This is a remarkable result considering current rates of inflation, a post- Covid-19 market, as well as the crisis in Ukraine which has impacted Poland’s construction market as many Ukrainian construction site workers have left Poland to fight in the war against Russia. To put this into perspective, in May 2022 year-on-year production in construction rates were considerably lower in other markets: 8.7 percent in Sweden, 2.5 percent in Finland, 2.1 percent in Portugal, 1.9 percent in the Netherlands, and -8.2 percent in Spain.

As inflation rates hit levels not seen in Poland for 25 years, there has been a visible drop in loans from banks financing individual residential buyers, and a drop in individual buyers interested in paying cash, which has hitherto been a large proportion of buyers due to higher returns from other investments such as state bonds. Significantly, this is pushing the Polish real estate market in the direction of a visible shift toward PRS and a pause in developer projects which are not attractive to PRS investors.

Although the foundations of the Polish real estate market are genuinely strong (with no signs of a bubble market nor unrealistic price levels), residential market investors now must consider several more factors, including the difficulty of predicting the costs of development. At first glance, construction costs appear to be higher, but some materials have actually fallen in price – for example, steel and insulation. Labour costs also may not be increasing at the same rate as last year as pay rises seems to have hit an upper limit.

When coupled with a visible wait-and-see approach on the part of residential developers, general contractors may soon feel the pressure. In addition, anyone predicting construction costs will only rise over the next year or two could be extremely surprised. It is by no means a foregone conclusion. What’s more, developers with itchy feet who cannot “wait and see” will be forced to lower their expectations in terms of their margins, and this could provide an additional motor for making the Polish real estate market even more attractive to PRS investors.

References:

The Polish Real Estate Guide 2022, EY.
Polish Real Estate Market Outlook 2022, CBRE.
Eurostat, May 2022.
Spotlight: EME Office Value Analysis – 2022, Savills.