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The Warsaw Voice » Real Estate » September 17, 2008
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Prospects for Poland's Construction Sector
September 17, 2008   
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The construction market is among the most rapidly developing sectors of the Polish economy, with 15.4-percent growth in 2007, reaching almost zl.127 billion. The growth of construction and assembly output is a lasting trend and this year could close with only a slightly lower growth rate. The prospects for the following years look very promising, though some dangers loom as well.

After the Polish construction sector's tough time at the start of the decade, 2005 marked the start of vigorous and stable growth in the sector. Of course the most important event influencing the situation was Poland's European Union accession. After a period of revival, signs of which were already visible in 2003 (just before accession), 2005 and especially the second half of 2006 saw a boom in the construction market. Ever since, construction companies have been signing a growing number of contracts and reporting better financial results. The main question is how long the growth rate can be maintained and what potential to increase production capacity construction companies actually have.

Based on observations of market trends and analyses of the major factors affecting the construction market, we predict stable growth on the Polish construction market.

In 2008, the growth rate should be about 14 percent, with construction and assembly output at companies employing more than nine people growing by about 16 percent.

In 2009 the growth rate will weaken considerably; we estimate that construction and assembly output will grow by about 8 percent. This will be the cumulative effect of negative trends-a correction after three years of rapid growth, decreased activity on the developer housing market, continuing delays in the completion of large infrastructure projects. In 2010 (mainly thanks to acceleration in infrastructure investments as well as a continued good market situation in the commercial real estate market and increased activity of housing developers) the construction market will again report double-digit growth-we predict a 15-percent increase in construction and assembly production.

Importantly, all the construction market's segments will grow. The housing market has a record number of developer projects in progress, and new ones are starting all the time. Although there are signals that developers are refraining from commencing projects for which they already have all the necessary permits, we do not think this will cause the volume of housing construction to decrease; the growth will only slow down.

In non-residential construction, there is visible growth in the activity of developers building office projects. About 1.5 million sq m of modern warehouse and logistics space is currently being built, and 2.6 million sq m of modern retail and service space will find its way to the market by the end of 2010. Combined with investors' increased activity on the hotel market, this means that this year and subsequent years will see maintained stable growth in the incomes of companies operating in the non-residential construction segment.

Civil engineering construction will remain a key segment of Poland's construction market in the coming years. EU funds included in the budget for 2007-2013 are a unique opportunity for Poland to carry out huge infrastructure projects involving transport and environmental protection. Together with Poland's share, more than 85 billion euros has been reserved, most of which will be designated for this kind of projects.

Analyzing the future of the Polish construction sector, one must not forget the dangers that could disturb the development trends and slow down the predicted growth. In our view, the greatest barriers at present include the danger of a decrease in cement production or a drastic increase in the prices of this material, insufficient capacity of construction companies to meet the potential demand, complicated and restrictive EU regulations on environmental protection, and complicated administrative procedures involved in the organization of tenders.

Szymon Jungiewicz Director, Research and Analysis Department, Emmerson SA
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