Home » Business » Crisis in Czech Construction Industry: Decline in New Projects and Demand for Apartments Due to High Interest Rates

Crisis in Czech Construction Industry: Decline in New Projects and Demand for Apartments Due to High Interest Rates

“In April, construction production accelerated its year-on-year decline and was lower by 6.4 percent. Both of its segments contributed to this decline,” said Radek Matějka, director of the Department of Agriculture and Forestry, Industry, Construction and Energy Statistics of the CZSO.

Some developers have been suspending some of their projects since last year. The reason is primarily the rise in interest rates, which makes project financing more expensive. This is reflected in building construction, i.e. the construction of apartments, offices and other non-residential premises. According to CZSO data, construction production in this sector decreased by 5.3 percent.

“We are concerned about the decline in newly started construction of office buildings. The demand for flexible offices and coworking is growing, especially from large international companies. In the coming years, we therefore expect a shortage of A-grade buildings that meet the strictest sustainability standards in Prague. Older buildings will have trouble meeting the demands that companies require today,” comments Adam Zvada, head of Scott.Weber Workspace, which operates offices and coworking spaces.

The reason why developers are holding back is the drop in demand due to expensive mortgages. At the beginning of the year, the big players predicted that construction production could fall significantly this year. “We estimate that from the perspective of individual buyers, there will be a large reduction in demand for apartments due to the cooling of interest in mortgage loans. Institutional buyers will partly compensate for this shortfall. However, all major builders will adapt their offer to the current economic cycle. So my estimate is that this year and next year, roughly a third of the apartments will be opened in Prague compared to previous years,” Tomáš Pardubický, head of the Finep development group, said in an interview for E15 this February.

Compared to last April, 40.6 percent more new apartments were completed, namely 4,264. However, the number of started apartments fell by less than a quarter to 2,685 apartments.

While the construction of new apartments and houses will fall this year, according to builders, Czechs, on the other hand, will throw themselves into reconstruction to a greater extent. “One of the most common reasons for renovations is to reduce housing costs. The most popular ways to reduce energy costs are building solar panels, insulating or replacing windows,” says Ondřej Boreš, manager of the company Velux, which specializes in the sale of roof windows and deals with household energy savings.

One of the major obstacles in the Czech construction industry remains the lack of qualified workers. “This is a big problem, especially on construction sites. There is also the problem of financing, which is affected by the current economic situation. I suppose that could change over time, but it’s not something that can be changed with just a command. On the other hand, problems associated with people are long-term. I think it is also related to the aging of the population, although the government is trying to take measures such as raising the retirement age. However, it is possible that it would be worth taking further steps,” said Petr Palička, manager of Penta Real Estate, in the E15 survey about the crisis in the Czech construction industry. Personalities from the Czech real estate world took part in the surveys as part of the REsummi E15 conference.

SURVEY: How to solve the crisis of the Czech construction industry

REsummit survey

The last time the Czech construction industry grew in a year-on-year comparison was in January, since then it has been falling. Attenuation does not only apply to apartments and offices. An even more pronounced decline occurred in engineering construction, which includes the construction of roads or telecommunications and energy networks. Construction production here fell by 9.4 percent year-on-year.

It also slows down the approval of new projects at the building authorities. In April, they issued a total of 6,387 building permits, which is 10.9 percent less year-on-year. However, the value of permitted buildings increased. In total, it reached 54 billion crowns, which is 14.1 percent more than in the same period last year.

According to statistics, construction companies continue to suffer from a lack of employees. The average registered number of employees in the construction industry decreased by 1.5 percent year-on-year, their average gross monthly salary increased by 7.8 percent year-on-year. According to analysts, the construction industry is hampered most by financing problems, while developers and private investors are mainly concerned about high inflation and expensive loans.

2023-06-06 08:52:00
#Czech #construction #industry #crisis #Due #financing #collapses #E15.cz

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