CBRE Fit-Out Cost Guide Update 2019

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

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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.

CAPACITY SHORTAGE IN AN OVERHEATED INDUSTRY

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

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.

900

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+14%

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100

+32%

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2016 Q1

2018 Q1

Construction costs - Építési költségek Other costs - Egyéb költségek

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FIT-OUT COST GUIDE