The past, present and future of Port Koper

Written by Dr. Ales Pustovrh – Bogatin, EECFA Slovenia

The largest Slovenian civil engineering project in recent history – the construction of the second railway connecting Port Koper with the core international railway network in Slovenia – officially started in March 2019. Still, many questions remain to its successful completion.

Port Koper railway project – Source: http://www.drugitir.si

The past

Port Koper, which is the only deep-sea port in Slovenia, recorded an impressive growth in the last decade; it transported more than 24 million tons of goods, including almost 1 million containers (TEU) and more than 750.000 cars. Since 2009, it has increased the quantity of its throughput by more than 10 million tons. The throughput continues to grow fast.

However, its growth is encountering limitations from the infrastructure that was designed for much smaller traffic volumes. 59% of the goods has been transported from the port using rail, essentially reaching the capacity of the existing railway connecting the port with the international railway junction at Divaca.

Before recent and ongoing modernization, the existing railway had a capacity of 72 train compositions per day, allowing for the annual transportation of 9.2 million tons of cargo. When the modernization is completed, the capacity of the existing railway will increase to 14 million tons. Yet, with projections of Port Koper reaching 35 million tons of throughput by 2030, this essentially means that all additional cargo will have to be transported on road. This ultimately results in doubling the current road cargo transportation by 2030 and tripling it by 2040.

More about Slovenian civil engineering can be found in the EECFA Slovenia Construction Forecast Report. Sample report on eecfa.com

A simple solution would be to expand railway capacity by constructing the second railway next to the existing one, but unfortunately, this is not possible as the existing railway was constructed in 1967 as an industrial railway owned by the port. Due to its history and very difficult terrain with very steep gradients, it does not fulfil technical EU standards for the core TEN-T railway network. Thus, the construction of the second railway actually requires the construction of the whole new railway with two tracks to enable longer train compositions and faster speed.

Since 1996, and in the period of 10 consecutive Slovenian governments, 17 different technical plans have been prepared for the construction of the new railway.

The present

The final plan obtained a building permit in 2016 and will allow for the construction of 27.1 km of new railway. Together with the existing railway, the capacity of the new railway will be 231 train compositions per day, making the transportation of 43.4 million tons of cargo possible. Its steepest gradient will be 17%, while the existing railway has the steepest gradient of 26%. In order to achieve this key technical characteristic, 37.4 km of tunnels (including service tunnels) and 1.1 km of viaducts will need to be constructed. This plan is still being adjusted to construct a full two-track railway as the existing building permit only allows a single-track railway with service tunnels.

This will further increase the price of the project. Estimated construction value of works Continue reading The past, present and future of Port Koper

Serbia’s office trailing on beaten path

Written by Dejan Krajinović, Beobuild Core D.O.O., EECFA Serbia

office
Left: Business Garden; Top right: Sirius Business Center; Bottom right: Green Heart Source: Beobuild Core D.O.O.

Office has been struggling to sustain steady growth as its output performance surprisingly meandered in the previous period. Finally, investments are picking up, but will it be enough to improve market conditions?

Office construction

Although Serbia’s office segment has been enjoying positive developments during the ongoing expansion, its performance has been rather bumpy and below market expectations. The initial strong recovery of construction outputs in 2016 had a short breath and corrected back by a double-digit margin in the following year. This was not expected in any way since permit numbers continued surging unabated, while investment-wise all market conditions improved further.

Find out more about office construction in the EECFA Serbia Construction Forecast Report. Sample report

The sudden decrease in 2017 was largely caused by the delay in two major planned projects in Belgrade which had received their permits, but construction start did not follow as planned. With its small base and still recovering outputs, this was enough to produce a significant delay in new deliveries and sway outputs of the entire segment.

Serbia-office
Weak office stock growth during the last decade – Source: Beobuild Core D.O.O.

Unlike other regional centers, the Belgrade market is still underdeveloped and substantially behind in stock size owing to a delayed transition and the lack of institutional funds and developers from the EU that already invested in Central and Eastern Europe. Because the downturn of 2008 and 2009 reduced financing, most office projects have been developed in a pre-leased manner, thus keeping vacancy at a constant low and rents at a stable high. Consequentially, the costs of renting class A office in Belgrade can go 40% higher than its regional peers such as Zagreb or Sofia.

The construction of office buildings has again accelerated in 2018 and 2019, and the project pipeline is slowly entering realization, meaning that new deliveries should start increasing the modern stock by a significant rate in the coming period and vacancy could also temporarily increase. Having in mind the very propulsive take-up figures in the last three years, there is no fear of a prolonged vacancy at the moment. Belgrade is the largest market and there was only 10.000m2 of new stock delivered in 2018, making a tiny contribution to the total of 860.000m2.

On the other hand, several larger projects entered realization in the same period, so another GLA 120.000m2 is under construction in Belgrade and will enter the market in H2 2020. The gap between demand and supply is already very wide and although bigger projects entered construction, it will take time for new offices to become available. Furthermore, most new projects will be leased before or during construction, so, the effect, if any, on the rent costs should be very limited in this cycle. Pressures on the demand side are set to remain strong in mid-term, so more investments will be necessary if Belgrade is to keep its regional competitiveness.

Continue reading Serbia’s office trailing on beaten path

Mixed Feelings on the Romanian residential market

Written by Dr. Sebastian Sipos-Gug – Ebuild srl, EECFA Romania

Romanian snowglobe
Source: https://sofiaadventures.com/romanian-souvenirs/

Revisiting the Romanian residential construction market

We previously looked at the stability of the Romanian residential construction market and the likelihood of a correction even in the scale of the 2008 one. A lot has happened in the year since our previous post and we see ourselves faced with a similar question regarding the future of the residential construction, albeit now of a substantially different one. Previously, the main threat to market equilibrium used to be the oversupply due to speculative development. Now, we are faced with the distinct probability of a drop in demand.

Emergency Government Ordinance no. 114/2018 (EGO 114)

Residential construction was quite active in 2018, and our previous analysis indicated that despite significant growth in the past years, the market could be considered relatively stable. This has changed dramatically due to government intervention at the end of the year through Emergency Government Ordinance no. 114/2018 (EGO 114).

There are a number of features of this legislative paper directly and indirectly impacting residential construction: changing the minimum wage for construction workers, tax breaks for construction companies, changing the taxation of telecom and energy companies, and a new tax on bank assets.

Construction

Starting with 1st January 2019, the minimum wage for construction workers has been raised to RON 3000, up from RON 1900 previously, and higher than the RON 2080 value for the rest of the economy. The government also included in the Ordinance a tax break for these wages, exempt from income and health taxes, yielding a much better net to gross ratio for employees. However, the total impact on salary costs for companies remains significant. According to Continue reading Mixed Feelings on the Romanian residential market

EECFA 2018 Winter Construction Forecast

EECFA (Eastern European Construction Forecasting Association), conducting research on the construction markets of 8 Eastern-European countries, released its 2018 Winter Construction Forecast Reports on 5 December 2018. Key findings are summarized below. Full reports can be purchased, and a sample report can be viewed at www.eecfa.com.

In many previous forecast rounds we have argued for a soft-landing scenario in Turkey. However, the dramatic fashion of the currency depreciation in summer 2018 unearthed many structural problems of the construction industry and made us revise our forecast to an even more pessimistic one. Unlike the stop-and-go like reactions to previous crises, we tend to believe in a stop-and-stay scenario this time. In Russia, we are less pessimistic thanks to a recently announced governmental program expected to affect the market positively.

EECFA-EE3

Optimism still prevails in the Eastern and Western Balkan countries of EECFA. For the region as a whole the new forecast sees just a little downward revision. However, on country level, the stories are different. Less optimism in Croatia and more optimism in Serbia and Slovenia compared to the previous forecast round. In Romania, the largest construction market of this region, the outlook of the building construction submarket has been adjusted downward.

EECFA-SEE5

Bulgaria. Construction output in Bulgaria is speeding up with an expected growth of 7.4% in 2018. Residential construction continues to expand on the back of increases in economic activity and real disposable income, and historically low interest rates on housing loans. Additionally, the non-residential segment is also predicted to grow driven mainly by office and industrial constructions. Civil engineering construction has continued its recovery path in 2018, Continue reading EECFA 2018 Winter Construction Forecast

From gloom to boom: Serbia’s residential

Written by Dejan Krajinović, Beobuild Core D.O.O, EECFA Serbia

Residential construction in Serbia is performing extremely well, and the long-awaited recovery is now well underway, with 2018 volumes again surpassing initial expectations. The situation on the market has been brewing for some time, with a strong investor confidence as well as very favorable financial conditions fueling expansion.

There has been a steady growth in construction activity for 4 years in a row now, but this trend has all the necessary conditions to sustain these levels and produce more growth in the coming years. Housing construction is flourishing, being already one of the best performing sectors in the overall building construction.

New projects are lining up, boosting permit numbers to record levels. Although it is expected for permits to hit the roof in 2020, the amount of permitted homes will certainly drive this growth cycle for several more years.

Top: Belgrade Waterfront/St.Regis Tower; Bottom left: Skyline complex; Bottom right: West65 tower – Source: : Beobuild Core D.O.O

Serbia’s residential market though is coming from a very low-end of its potential – hitting historical bottom after a long and very deep recession that ended in 2014. With such a small basis at the time, an upswing was expected in construction volumes, but the current strength and speed of the recovery seemed too optimistic.

Investment activity has accelerated, with the strong contribution of both domestic and foreign investors, creating a real boom in the construction of multi-unit buildings. Investors from around the world have already entered the market, particularly Belgrade’s starved luxurious segment and yielding high-end residential projects. The competition of large-scale projects by international and domestic investors is bringing a whole new level of market sophistication, with different services, features and amenities.

The most notable is the Belgrade Waterfront development, a large-scale re-urbanization of the banks of the Sava River in Central Belgrade, covering 80ha of prime construction land. This project is a joint venture of the Republic of Serbia and Abu Dhabi-based investment fund ‘Eagle Hills’, estimated to be worth more than EUR 3bln. Continue reading From gloom to boom: Serbia’s residential

Russia’s mortgage boom

Written by Andrey Vakulenko – MACON Realty Group, EECFA Russia

The Russian residential market will long be the driving force behind the whole construction sector due to the continued high demand of most of the country’s population for improving their housing conditions. Mortgage loans, the most common means for purchasing homes in Russia in recent years, have finally strengthened, which compensates for the crisis years of 2015-2016 in Russia. As there has been a major drop in the population’s income, and it persists, mortgage lending is the only way to increase home purchases. The mortgage market easily overcame the crisis of 2015-2016 in Russia and already in 2017 exceeded the peak indicators of the pre-crisis year of 2014. During the first half of 2018, the trend towards growth further strengthened: the volume of issued mortgage loans rose by 68%, and its share in the total number of housing transactions reached a record 54% in the primary market. All this shows the current high demand for mortgage loans.

To explain the explosive growth in mortgage lending, the fundamental factors shaping the housing market need to be considered:

  1. Level of individuals’ living space provision (sqm/person);
  2. Demand for housing (how much more housing needs to be built, so that the level of living space provision can reach an acceptable value – about 30 sqm per person);
  3. Affordability of housing for purchase (the ratio of the income of buyers and the price of real estate).

As per the Federal State Statistics Service of the Russian Federation, to date, the total housing stock in Russia is about 3.4 billion sqm, only slightly more than 23 sq km in terms of the country’s permanent population (146.9 million as of January 1, 2018) per person. This level can be considered low compared to most developed foreign countries (39 sqm/person in France and Germany; 70 sqm/person in the USA, 76 sqm/person in Canada). Minimally comfortable living conditions are achieved with a security level of at least 30 sqm/person as per the social standards of the United Nations, and it is the target of public housing programs in Russia. To ensure that the population’s living space has reached this target, while maintaining the country’s population at the current level, another 1.0 billion sqm of living space should be built. Thus, the low level of housing provision is the guarantor of the preservation of demand for new housing projects for a long term.

The second factor ensuring long-term demand for housing is the quality of the existing housing stock, which has more than 33% (or about 1.2 billion sqm) of housing built before 1970. Even with the record volumes of housing construction registered in Russia in recent years (in 2014-2017 about 80 million sqm annually) and even if it stays at the current level, it will still take at least 28 years to reach the minimum acceptable security and to fully replace the old housing stock. In general, housing demand in Russia will not be Continue reading Russia’s mortgage boom

Turkey forecast in hindsight

Written by Janos Gaspar, EECFA’s Head of Research

Back in early July, a month before the currency depreciation entered into the free fall phase in Turkey, we wrote a post about the European Commission’s forecast. This is a regular task for us, since we use these forecasts for assessing the expected macro environment in some of our countries. The post was about comparing the most recent GDP forecast with the previous ones and comparing the construction investment (precisely Gross fixed capital formation) outlooks where available.

It was so surprising to see the Commission’s upward revision of construction investment forecast in Turkey (for 2018-2019), that I have entered into a mail exchange with those behind the figures. I thought this was a mistake, but they have assured me that everything is ok with their figures.

For this reason, one more paragraph was added to that post emphasizing that our view on Turkey is significantly different from that of the Commission and that we, EECFA, have revised our forecast downward.

This is the EECFA forecast I was referring to, issued in at the beginning of Summer 2018:

This interactive presentation of our latest forecast is available on our website: http://eecfa.com/

Turkey in bigger size:

Surely, we did not foresee that the events would unfold in such a dramatic fashion; our scenario in many previous forecast rounds was the soft-lending, instead.

Since Summer 2016, which was the first time we provided forecast for 2018, we have had five forecast rounds in EECFA, two per years, plus the most recent one in 2018. In these 5 forecast rounds, our forecast for 2018 varied in a relatively small band, from -1.7% to +2.8%. And the same figures for 2019 (in our latest 3 issuances) were between 1% and -0.8%.

And here we are now, construction investment was up by 8.4% (as published by the Turkish Statistical Institute on 10 September 2018) in the first half of the year. In the good half.

Considering the massive unsold dwelling stock [link in Turkish] and the wide-ranging consequences of the currency downfall already materialized in abandoned/suspended private and public projects, very cautious investors and reconsidered public investment plans, my gut feeling is that our forecast is very much valid.

In case you would like to see our assessments on segment level, EECFA’s forecast for Turkey is available in the EECFA Forecast Report Turkey released on 18 June 2018 together with the other 7 EECFA Forecast Reports.
Sample report: eecfa.com / Discount options and orders: eszter.falucskai@eecfa.com.

Global warming: near-future effects on the Croatian coastal infrastructure

Due to its coastal geography, Croatia is exposed to the effects of climate change such as rises in sea level and serious wave and storm threats. In the near future, the country will need to take action which will involve increased civil engineering construction on the coast.

Written by Michael Glazer (SEE Regional Advisors) and Tatjana Halapija (Nada Projekt), EECFA’s Croatian members

Rovinj coastal city – Source: http://www.studio-pastello.com

Croatia’s building boom is continuing, but some of the engines currently driving it will likely run out of steam in a few years: Coastal hospitality-related construction will decline in importance as current renovation and greenfield projects complete and opportunities for new projects become more limited. Educational, health and other construction spending fueled by EU post-accession funds will decline as those funds dry up.

All of this is several years off, and inland hospitality construction and renewed office and residential building will take up some of the slack, so there’s no need to panic. But, it’s still worth asking: what will be the next big thing in the Croatian construction market?

One likely candidate is Continue reading Global warming: near-future effects on the Croatian coastal infrastructure

Residential construction in Bulgaria – Growth goes on, challenges remain

Rises in employment and income in Bulgaria, combined with low interest rates both on deposits and housing loans, are pushing residential construction as well as the property market upwards. The rise in profit margin increasingly attracts investors in the sector. However, aging multi-family buildings and the growing number of uninhabited properties remain as major challenges ahead of the housing stock in the country.

Written by Yasen Georgiev and Dragomir Belchev, EPI – EECFA Bulgaria

Varna Wave ongoing residential project in Varna, Bulgaria – Source: varnawave.bg

Residential construction and the real estate market in Bulgaria continue to be in the focus of investors and developers. The turning point was in 2016 when the sector registered a growth of 31.1% and it is expected to increase in double-digit terms in the period up to 2019. These developments have a direct correlation with improved living conditions as in 2017 the Bulgarian GDP grew by 3.6%. According to European Commission forecasts, there are no signs for pessimism as they prognosticate a further growth of 3.8% in 2018 and 3.7% in 2019.

The economic development is accompanied by low rates of unemployment and an increased disposable income. Major cities in Bulgaria such as Sofia, Plovdiv, Varna and Burgas are getting more and more attractive, which leads to the concentration of the population and creates a strong demand in the residential sector. Consumer preferences are also changing in favour of quality properties (larger ones and with better location) that are lacking in the market. At the moment supply is still lagging behind, unable to catch up with demand. In H1 2018 completed newly-built residential buildings were 9.1% more than in the same period in 2017. In terms of dwellings, there is a drop of 10.3%, which is a proof of the completion of bigger-scale projects.

As a result, currently over 50% of the deals are made while dwellings are still under construction. Continue reading Residential construction in Bulgaria – Growth goes on, challenges remain

EECFA countries in the European Commission’s 2018 Spring Macro Forecast

Before the publication of the 2018 Summer EECFA Forecast Report, the European Commission released its spring forecast, revealing the prospects for almost all EECFA member countries. Let us highlight the main changes in the prospects over the past half year.

Written by Aron Horvath, PhD, EECFA Research, ELTINGA

Chart 1. Revision of GDP growth forecasts for EECFA countries, Hungary and the EU (average 2017-2018-2019) Source: European Commission

Chart 1 shows that GDP growth is higher in the region than in the EU, so the economic outlook is still better in the Eastern region. Looking at the individual level, the only exception is Russia, where economic growth is set to remain under 2 percent according to the Commission. As for the rest of the countries in the region, the expected growth is between 2.75 and 5.5 percent. Turkey and Romania lead the group with an over 5 percent forecasted economic growth.

Among EECFA countries, Slovenia, Turkey and Romania have witnessed their economic outlook having improved since the latest forecast in Autumn 2017. On the other hand, the forecasted GDP growth Continue reading EECFA countries in the European Commission’s 2018 Spring Macro Forecast