In recent months, the construction boom has caused the prices of some raw materials to break new records. Mineral wool, OSB boards or plasterboard walls – these materials were sometimes even lacking in wholesalers. In this situation, can we expect a reduction in the cost of finishing office space? Based on the data collected over the years by the fit-out company, we check the forecasts for the coming months.
The data of Polskie Składy Budowlane show that the prices of building materials in July 2021 increased by an average of 8.3% compared to the previous year [1]. Price changes are now noticeable in every sector, which is caused not only by shortages in storage, but also due to the increase in transport, energy, labor and production costs. Price increases themselves are nothing new, but the pace of these changes is surprising. The data collected by Reesco show how the situation has evolved over the last 6 years. Fit-out over the years
According to Reesco data, the price of finishing office space has been steadily increasing since 2015. At the end of the second quarter of this year, it was 52% higher than in 2015 for buildings in Dolny Mokotów in Warsaw and 39% higher for the Warsaw CBD ( Central Business District) region. Experts’ forecasts indicate that by the end of this year the cost of a fit-out will increase by 4% for areas outside the CBD and 6% for the very center of Warsaw compared to current rates. Observations and analyzes show that it is primarily influenced by the increase in the prices of materials and labor.
Materials keep going up
Experts found double-panel plasterboard walls (12.5 cm) with labor and double painting with labor to be “benchmark” construction items on price lists.
– These two elements are, in our opinion, the most basic of the fit-out and reflect the changes on the market. Until 2019, you can see a steady increase in these categories, followed by a slight decline in 2020 as the COVID-19 epidemic started. However, already in the first half of 2021, prices returned to their pre-pandemic levels. According to our forecasts, by the end of this year, the above-mentioned prices may increase by about 6% compared to the last half of the year – Jakub Prokocki comments.
Apart from the above-mentioned items, the greatest price increases can be seen primarily in the case of steel, plastics and their derivatives. From the perspective of fit-out companies, there is a noticeable increase in prices of even small metal elements, such as plasterboard screws.
In terms of office arrangements, huge changes can also be seen in the prices of wood-based products, including furniture, raised floor or movable furniture. According to the Association of Polish Windows and Doors, the price of MDF board increased by 50% just this year. In turn, the price of upholstery foam has increased by as much as 130% in the last 12 months, according to the data of the Polish Chamber of Commerce of Furniture Manufacturers.
Unfortunately, the price situation in wood-based products is unlikely to improve. The demand for wood is constantly growing – both the furniture industry and wood processors are recording an increased number of orders. On the other hand, the supply is limited – according to data from the Central Statistical Office, timber harvesting fell last year by about 6%, and an increase in deforestation is unlikely due to the current EU forestry strategy [2] – a Reesco expert comments.
A significant increase in prices is also visible in the sector of insulation materials such as polystyrene or mineral wool. The Plastixx index, which measures the price changes of the twelve most important plastics in Western European markets, reached almost half the level of the previous year in April this year, at the height of the first wave of the pandemic. Moreover, the results of the study of the European Plastics Converters’ Association show that over 90% of companies in this sector struggle with supply problems [3]. In addition, a temporary blockage of the production of this raw material in factories in Texas and a huge increase in orders from China made it impossible to further increase production to meet the demand from Europe.
There are several reasons for this pace of change. It was certainly influenced by the COVID-19 pandemic and the related restrictions, which led to a decrease in the production of building materials. Supply chains have also lengthened and sometimes even broken. The additional rise in inflation pushed up the valuation of raw materials. In construction, on the other hand, the demand for construction services has not decreased at all, which has led to the current imbalance between supply and demand. The fact that the wait for some materials is much longer than a few months ago does not help either. As a result, many companies stock the most expensive products, which in turn reduces market supply and fuels the carousel of rising commodity prices. The increase in labor prices, in turn, is caused, inter alia, by the outflow of workers from the east with the onset of the pandemic – notes Jakub Prokocki.
Where do these changes come from? And what’s next?
Predicting how prices will change in the coming months is purely speculative, but we can rely on some long-term trends from previous years. We can already see that the situation is really changing day by day and it is difficult to determine where the market is heading. Some experts indicate that the pace of growth in the prices of building materials should slow down at the end of this year at the latest. Some forecast the price carousel to continue until 2022. However, looking at our data and how the raw materials market has developed since 2015, we will certainly not see significant price drops.
What about the fit-out industry?
The above factors translate into an increase in the average price of a complete fit-out. However, we can see slower growth dynamics in A-class office buildings, which stems from the fact that the greater complexity of the building and installation resulted in the re-industry of some installation companies that began to deal with previously unrealized technological ranges. This increased competition in the market and forced lower rates. In recent years, there has also been a noticeable increase in customer interest in pro-ecological solutions and technologies. These are aspects that were previously not taken into account in office spaces often, which certainly affects the current prices of finishing surfaces. A circular economy is certainly something that can minimize costs, and at the same time will be environmentally friendly.
Already at the design stage, it is worth taking care of, for example, the appropriate layout of the surface, allowing optimal use of the built-in materials, as well as the use of materials that will be suitable for repair, reuse or easy transformation – says a Reesco expert.
[1] Polskie Składy Budowlane, Changes in prices of materials for construction and home and garden in June and in 6 months, 2021.
[2] Central Statistical Office, Statistical Yearbook of Forestry, Warsaw 2020.
[3] European Plastics Converters, Production of Essential Goods in Europe Threatened – need to calm down markets, 2021.
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