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The Warsaw Voice » Real Estate » January 13, 2010
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Building Industry Standing Up to Crisis
January 13, 2010 By A.R.    
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Poland has escaped the worst effects of the global economic crisis, while the construction industry is among the sectors that have proved most resistant to the downturn.

The building sector in Poland ended the year with a 5-percent rise in the value of sold production-a much better result than in industrial production, where a slight fall is expected. In the first half of last year construction output was up 1.4 percent on the same period in 2008. The situation started to change in the third quarter when construction output rose by over 8 percent and the upward trend persisted in the fourth quarter. In November, construction output was 9.9 percent up on the same month in 2008. From January to November the increase was 4 percent, or 5.8 percent with small enterprises taken into account, compared to the same period in 2008.

"There was no crisis in the building industry in 2009, but the expectations had been much higher," said Prof. Zofia Bolkowska from the Helena Chodkowska University of Management and Law during the Monitoring of the Construction Market conference, which the Polish Chamber of Commerce (KIG) organized in December. According to Bolkowska, the increase was lower than expected, even though the number of ongoing infrastructure-related projects is rising. Such projects are the chief contributing factor to the growth of the sector as a whole. For example, the amount of civil engineering projects increased by 23.5 percent between January and November last year, whereas construction of new buildings grew by just 5.3 percent and the number of specialist projects fell 3.8 percent.

Bolkowska said that over the next two years, infrastructure-related construction projects would predominate in the building sector as a whole, benefiting from the large sums of EU funds available and from public funds.

This year and next will be weaker than 2009, but a crisis is unlikely, experts say. A forecast analyzing trends in the building industry in 2010-2011 indicates that infrastructure-related construction projects should be on the rise, just as in 2009. This will determine the condition of the entire sector, not only because this type of construction will predominate, but also because of development opportunities.

Non-residential construction is not growing, but this trend will change if foreign investors return to the construction market, experts say. In the housing sector, the number of new apartments delivered for occupancy in 2009 may surpass the record set in 2008, whereas a decline will be evident in 2010 and 2011, but this may turn out to be less severe than expected.

After a slump at the beginning of last year, moods in the building sector market are gradually improving, as shown by a survey conducted by the PMR research company. When they assess the market situation and their own condition, construction companies are more optimistic than they were six months ago. Still, they are a long way from the optimism seen in 2006-2008. More than a fifth of the largest construction companies operating in Poland regard the situation in the sector as positive, up from only 9 percent six months ago.

Companies are also more optimistic than in March 2009 in their predictions of how the construction market will develop in the coming 12 months. A total of 42 percent of companies surveyed expect the market situation to improve and just 14 percent are anticipating a further decline.

Construction companies' order portfolios are also looking healthier-39 percent of respondents said they were happy with the current amount of orders, compared to 31 percent six months earlier. Thirty percent of surveyed businesses said they were not happy. Companies are also more optimistic when it comes to future order portfolios-49 percent of respondents are expecting orders to grow in the coming 12 months, while 20 percent expect orders to fall.

In the survey, companies identify road construction as the most attractive segment of the market (84 percent) in the coming two years, followed by sports venues and recreational facilities (31 percent), power engineering (31 percent) and construction in the environmental protection sector (24 percent). Office buildings (5 percent) and warehouses (9 percent) were considered the least promising.

The situation appears worse on the market for construction materials, where due to the crisis sales were poorer than the year before. For example, sales of cement dropped by 10 percent compared to 2008.

Experts say competition is tight on the construction market, resulting from declining demand in some segments. Businesses also complain of the high costs of employment and weak demand for construction services. Building companies are no longer complaining about a shortage of qualified staff, which over a year ago was identified as the most pressing problem. In this respect, the situation on the labor market has improved from the point of view of construction companies.

The economic downturn has hit housing. After bank loans became harder to obtain, demand for apartments decreased. This is one of the reasons why developers have scaled back their projects.

The main risk factor in the building industry is that the macroeconomic downturn could continue, with all the consequences it could bring. Most importantly, the downturn could cause a further decline in investment by companies, which would result in lower demand for new industrial buildings and warehouses. The building industry may also suffer from growing unemployment caused by the economic slowdown. This is expected in the last quarter of 2009 and in 2010. Growing unemployment means lower income for families and, consequently, lower demand for housing construction.

Despite the various problems, experts say the building sector is proving relatively resistant to the economic slowdown and this year production is likely to continue rising much faster in the building sector than in industry.
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