Fit-Out Cost Guide 2018

FIT-OUT COSTS ARE CONSTANTLY RISING – FOLYAMATOSAN NÖVEKVŐ ÉPÍTÉSI KÖLTSÉGEK

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HU

2012. The international migration is unlikely to fill up this gap either as the real estate industry is booming in the surrounding countries as well. This phenomenon not only suppressed construction volumes in the years before 2016, but has by now eroded the long-term output potential of the industry due to structural capacity issues. The problem is likely to become even more apparent in 2018 when the demand side in all property segments is expected to strengthen further. The most important barrier for the realization of the forecasted development volume in the coming years is the availability of good professionals, including engineers but mainly construction workers of all kind. While some of this deficit is likely to be compensated by the modernisation of the construction processes and equipment, the labour shortage remains the most important bottleneck.

Ezek mellett az új lakóépületekre vonatko- zó ÁFA-kulcs átmeneti csökkentése 27%- ról 5%-ra egy olyan adminisztratív eszköz, amelynek a piactorzító és extra építési akti- vitást okozó hatása – a vonatkozó rendelet 2019 végére várható lejártáig – várhatóan meg fog maradni. Mindezek komoly nyo- mást gyakorolnak az építési szektorra erő- forrás oldalon és egyértelmű árnövekedés- hez vezetnek. Az árnövekedés fő kiváltó oka az építési szektorban észlelhető munkaerőhiány, fő- leg, ha azt a hazai fejlesztések várható nagy- ságrendjéhez viszonyítjuk. A válság utáni években a teljes iparág jelentősen összeszű- kült és a szükséges felépülés még nem tör- tént meg teljes mértékben.

CAPACITY SHORTAGE IN AN OVERHEATED INDUSTRY

FIT-OUT COSTS ROSE BY 26% IN JUST TWO YEARS

MUNKAERŐHIÁNY EGY TÚLFŰTÖTT SZEKTORBAN

The current development boom has three main drivers: one from the private consumption, one from the government and an additional administrative reason. The current economic cycle intensifies the appetite for new commercial developments, while at the same time the Hungarian government also acts as a big market player by initiating large public funded development projects. Besides these two factors, the temporary reduction of the VAT rate from 27% to 5% on new residential developments acts as an administrative distortion and induces extra demand before this regulation ends in late 2019. Together, these factors put a strain on construction capacity and lead to price increases. The main reason behind the sudden price shift is the lack of available capacity in the construction sector compared to the extent of anticipated development volume. The construction industry shrunk significantly in the post-crisis years and the required recovery has not taken place. A significant share of the previously available skilled labour force moved to Western European countries with booming construction industries, hence they are missing from the Hungarian market ever since. In addition to the westbound labour flight, the decline in the number of new candidates and graduates during the crisis years lead to a 26% contraction in the total number of registered construction employees between 2007 and

The surge in construction requirements has driven up costs at an unprecedented pace, prompting CBRE Hungary to publish the new edition of our Fit-Out Cost Guide, which clearly explains the extent of the cost growth. The construction inflation is partly driven by surging material costs, as well as escalating labour costs due to the trends explained above. This is a phenomenon we expect to continue relentlessly as we move into 2018. CBRE perceives the total fit-out cost on a shell&core basis for an average ‘A’ category office space to be at 768 EUR/sq m as of Q1 2018, up from 608 EUR/sq m in Q1 2016. This equals to a price increase of 26% in a two year period. Breaking down this total cost increase, it can be stated that the hard construction costs have risen by 32%, consisting mostly of highly labour-intensive construction works like masonry, HVAC installation, carpentry, tiling & carpeting, glazing, painting etc. The additional other soft costs have increased as well; however, to a slightly moderate extent – these include design and engineer services, project management services, moving costs, change management, etc. By taking the same two-year period the prices in this segment of the industry has grown with only 14% in general.

Az ingatlanpiacon jelenleg tapasztalható robbanásszerű növekedésnek három alap- vető mozgatórugója van: az első a lakossági építési kedv növekedése, a második a kor- mányzati beruházások fokozott aktivitása, a harmadik pedig az építkezésekkel kapcsola- tos központi adminisztratív eszközök hatá- sa. A jelenlegi piaci környezetben fokozódó kereslet mutatkozik új, piaci alapú fejlesz- tésekre, miközben maga a magyar kormány is jelentős piaci szereplőként jelenik meg a nagy, állami finanszírozású fejlesztési pro- jektekkel.

As a response to the enormous cost pressure, general contractors try to push fees lower for sub-contractors. This can result in significant delays in delivery of a project, as overloaded companies will enter at a later stage to the overall development. A potential solution to these challenges is two-fold: sufficient contingency must be left in the budget and reserve time must be allocated in the initial schedule. General contractors are challenged to come up with non-standard construction schedules so the available capacities are utilized to the maximum extent. This requires flexibility and a creative attitude from all parties involved. As such, a strong focus on project preparation and the subsequent project management process will be increasingly crucial going forward.

900

800

number of building permits - építési engedélyek száma

700

number of employees ('000) - foglalkoztatottak száma (ezer fő)

600

500

+14%

400

300

200

100

+32%

0

Construction activity - Építési aktívitás

2016 Q1

2018 Q1

Budapest - Budapest Central Hungary - Közép-Magyarország Rest of the country - Az ország többi része

Employment in construction industry - Foglalkoztatás az építőiparban

Construction costs - Építési költségek Other costs - Egyéb költségek

30

31

FIT-OUT COST GUIDE

FIT-OUT COST GUIDE