The fast-beating heart of Europe14 February 2019
With Poland experiencing a construction boom, and the Czech Republic seeing unemployment at a record low, finding work is getting easier, but finding workers can be hard. Jaroslaw Adamowski reports.
For Poland’s crane industry players, last year brought a noticeable increase in rental prices owing to shortages in the availability of equipment, spurring a positive outlook for the near future, according to industry representatives.
The boom in the country’s construction market that began in 2017 has generated a surge in investments, but it has also put increased pressure on local employers to raise wages and preserve skilled professionals. In the neighbouring Czech Republic, the construction industry is experiencing a similar trend, fuelled by record-low unemployment.
In 2017, Poland’s construction and assembly industry generated rev-enues of PLN 197.4bn ($52.3bn), a 10.2% increase year-on-year. The construction boom was particularly visible in comparison with 2016 when the industry reported a 2.2% decrease in revenues, according to data from the state-run Central Statistical Office (GUS). The reported growth rate was the highest since 2011, when Polish construction businesses posted a 11.8% increase in their revenues.
In its market report from January 2018, the Polish Association of Construction Industry Employers (PZPB) writes: "such a high production dynamic which is, above all, related to a cumulation of public investment programmes creates a demand shock.
This leads to a significant increase in the prices of raw and construction materials, higher spending on employees, as well as a deepening shortage of qualified employees, and transportation issues, about which employers have complained."
The Warsaw-based industry association says that "the main reason behind the weak market situation in 2016 was a significant decrease in orders from the public sector, largely caused by a fall in the development of projects co-financed from the European Union funds in the new financial perspective" for the years 2014 to 2020. "As a consequence, a major decrease in the revenues of construction companies followed, and their majority reported worse financial results. While a number of major public contracts were concluded in this period, they were in the project design phase, and they exerted a positive impact on the [industry’s revenues] in 2017."
As is the case in many other sectors of the Polish economy, companies from the construction industry have been making efforts to increase their spending on wages and stabilise their workforce amid a record low unemployment level. Last September, Poland’s unemployment fell to 5.7%, a level unseen since October 1990.
This was also less than a third of the country’s record unemployment level of 20.7% that was reported in February 2003.
In its European Construction Monitor market report for the years 2017 and 2018, international consultancy Deloitte combines the positive outlook for the Polish construction industry in the coming years with concern related to the country’s labour market.
"The Polish construction market is expected to be in good standing in 2018–2020 due to solid GDP and investments growth expectations and significant EU funds available for infrastructure projects," according to the report. "However, shortages of skilled workforce in the construction sector translates into pressure on salary growth, combined with growth in the cost of materials which might not be fully passed through into construction contracts (especially procured by public authorities, i.e. road and railway construction contracts), might result in margins being materially squeezed out."
Meanwhile, representatives of the Polish crane industry say that the rising demand for their services last year forced their customers to adapt their needs to the available market supply.
"The year 2018 was marked by a slight increase in prices which mostly resulted from a lack of sufficient amounts of equipment on the market.
This has forced our customers to increase their elasticity regarding the selection of cranes, as they were not always able to obtain the equipment they wanted from the market," says Mateusz Rychlewski, sales director at Polish crane rental company Herkules S.A.
Set up in late 2009 out of a merger between Poland’s two leading crane rental companies, Gastel and EFH Zurawie Wiezowe, Herkules operated under its previous name of Gastel Zurawie S.A. until December 2011.
"Herkules’s fleet currently consists of 275 cranes: 124 Terex cranes, 72 Potain cranes, 45 Jaso cranes, and 34 Wolffkran cranes within the range of 40t to 560t. In the near future, we plan to replace a part of the oldest cranes and also those with the lowest capacity with new equipment, but we are also not ruling out investments in cranes for special projects which require an individual approach," Rychlewski says.
The latest developments in the Polish market have paved the way for market acquisitions by major players.
"The above-mentioned factors have encouraged us to initiate acquisition proceedings, targeting local firms, and also to invest in the most popular class of cranes in Poland, the 120t category, but also in equipment for more complicated and demanding investments: swivel cranes, and cranes with large capacities," Rychlewski adds.
Focus On Acquisitions
Last September, Herkules announced it made a binding offer to take over Trinac Poland, local crane rental subsidiary of Germany’s Trinac GmbH. Under the deal, Herkules would acquire a 100% stake in Trinac Poland for some €10m (USD11.4m). However, the negotiations were ended the same month after the offer expired.
Asked about the potential benefits of the acquisition, Herkules’ sales director says: "It would ensure a larger market share [to Herkules], and reduce competition. Adding Trinac cranes to Herkules’ fleet would allow us to perform the most difficult orders in Poland. In addition to this, Trinac’s well-trained employees would complement and strengthen our team."
The potential acquisition would also considerably increase Herkules’ fleet. Trinac Polska owns about 150 cranes, ranging between 30t and 630t, including products by Liebherr, Wolffkran, and Potain, according to data from the Warsaw-based firm.
While the domestic market remains the main area of focus for Herkules, and is responsible for as much as 90% of its revenues, the company is also making efforts to increase its foothold in foreign markets.
"We are interested in what is happening from the Balkans to Scandinavia. We have made first steps to strengthen our presence in foreign markets. Currently, we are present in Sweden, Lithuania and Hungary," according to Rychlewski.
Asked whether Herkules is considering to increase its workforce next year, the company representative says this will depend on both market dynamics and the company’s ongoing acquisition talks.
"The above depends on the situation on the market which can change dynamically, and we are prepared for this. Another factor that conditions [an increase in the company’s workforce] is also the ongoing acquisition process, and our further recruitment steps will depend on it," Rychlewski says.
Marcin Berezowski, a technical and sales advisor on self-propelled cranes at Liebherr Polska, a Ruda Slaska-based subsidiary of the German manufacturer, agrees that the developments in the country’s construction industry are good news for Polish crane businesses.
"Given the continuously improving economic situation, it can certainly be said that the situation in the Polish crane market is positive," says Berezowski. "Regarding which cranes are most popular [in the Polish market], these range between the LTM 1030-2.1 and the LTM 1200-5.1.
This range cannot be further refined, because in each of the segments there are [popular subranges], for instance 30t to 60t cranes for swift construction work and early construction stages, 70t to 130t cranes for construction work on halls, 160t to 200t cranes for construction work on viaducts" and other major work.
According to Berezowski, three of Poland’s regions represent particularly important markets for cranes, as they host a considerable share of the country’s major construction projects.
"In what concerns the strongest demand for cranes, I think it is in the Mazowieckie, Silesian and Pomeranian regions, and it is worth emphasising that this demand remains at a very high level. The situation in the Warmia and Masuria region and the Podkarpacie region has also significantly improved, above all owing to a number of major investments, and, of course, the continuous development of highways," Berezowski said.
Warsaw, the largest city in the Mazowieckie region and Poland’s capital, attracts the highest number of new office space investments, but the Tri-city area, which comprises the cities of Gdansk, Gdynia, and Sopot in Poland’s northern Pomerania region, is also experiencing rapid growth in this market segment.
In its analysis, international real estate consultancy Knight Frank says that, as of end March 2018, Warsaw’s total office stock increased by some 24,000sqm, bringing the total to 5.3m sqm. With more than 800,000sqm of new office space under construction, new supply to be delivered in 2018 was expected to total 260,000sqm.
"In major regional office markets, Q1 2018 saw a continuation of the positive market sentiment observed in the previous year," the consultancy said, pointing to the 975,000sqm of new office space under construction in the cities of Kraków, Poznan, Wroclaw, Lódz, Katowice, and the Tri-city area.
The country’s residential market has also seen increased investments, as the year 2017 "marked itself as an undisputed record breaker with over 89,817 residential units delivered to the market which, was 14.5% more than in the previous year, and 128,484 building permits obtained, which was 20.48% more comparing to 2016," according to a market report released by international consultancy E&Y. "In terms of new construction projects started, development of 105,401 units was commenced, which means a 23.2% increase year-on-year.”
Bartosz Irzyniec, the area sales manager for tower cranes within the EMEA region at Terex Cranes, says that last year brought an increase in the sales of tower cranes in Poland, and the sales level remained stable in the Czech Republic, but that the sales levels reported by the entire industry were still below the precrisis year of 2008.
"In the first three quarters of 2018, Polish customers bought 25 tower cranes from all manufacturers, compared with 14 units in 2017, and 10 in 2016. The year 2018 was a record one since the end of the economic crisis. In the Czech Republic, the manufacturers’ sales volume for the first three quarters of 2018 stood at 10 tower cranes, the same level reported in 2017, but a solid increase compared with 2016, when only three such cranes were sold there," Irzyniec says. "Our customers say these two markets are in a reasonably good state, but it is also worth emphasising that tower cranes are a very specific segment of the crane market, and its state is not representative for the entire industry.”
Andreas Schramm, a senior manager for sales at Terex Cranes, says that Poland and the Czech Republic are both stable markets for mobile cranes.
"You see a lot of construction works on the highways from East to West as well North to South with an important amount of bridge building. The Czech market is a bit more challenging for us, but I can see that the amount of machines has increased in the rental business," Schramm says.
In Poland, 100t to 300t wheeled mobile cranes are bestselling, while crawler cranes are currently on hold.
In the Czech market, the 50t to 100t segment has been strongest, and the largest amount has been delivered within this range, according to the company representative.
"In Poland, currently the [largest] demand is coming in the range of the 130-250t on five-axle all terrain cranes. There is also a demand for 55t, 60t and 45t, and we have the cranes to match that demand," Schramm says.
Andreas Cremer, the global product director for mobile cranes at Manitowoc Cranes, says that, among the Eastern European mobile crane markets, the Czech Republic has developed the most over the past five years.
"The Czech market used to be a predominantly used crane market, with three to five mobile cranes selling there annually until 2015. Between 2015 and 2017, this rose to about 15 cranes per year, and in 2017, the sales volume increased to 25 cranes. Fourand five-axle cranes are selling well in the Czech market," Cremer says. "In Poland, the mobile cranes market has also reported a solid performance, but this is still a significantly smaller market than the one in neighbouring Germany. In Poland, medium-size mobile cranes of between 100t and 250t represent 90% of the sales, and only one or two large, six-axle mobile cranes are sold there every year." Rüdiger Boeck, the director of sales for tower cranes in the Central European region at Manitowoc Cranes, said that both the Polish and Czech markets performed well within this segment last year.
"Last year was a good one for crane rental companies in Poland and the Czech Republic. They were able to increase their rental prices, and are optimistic regarding next year. However, the crisis from the years 2008 to 2009 created serious financial challenges for some of these companies, so they are treading more carefully regarding purchases with financing," Boeck says. "Our bestselling cranes in these two markets include the MDT 189 and MDT 319 flat top cranes with a maximum capacity of 8t and 12t, respectively."
Boeck says the company is expecting the demand for tower cranes in the two countries to reach at least 30 cranes in 2019. In neighboring Czech Republic, local observers point to a similar trend in the country’s construction industry which managed to rebound following a period of lower performance.
"After several years of downturn, the Czech construction sector is recovering and the outlook for the coming years is encouraging, with growth rates exceeding 2% for 2017- 2018, driven by an overall strong economic outlook. The sector has recovered from productivity falls in building construction (-16.1%) and in civil engineering (-27.2%) between 2009 and 2014," local industry association Confederation of Industry of the Czech Republic (SPCR) said in its analysis. "Between 2008 and 2014, investment fell in both residential and non-residential building construction (-23.8%) and civil engineering (-23.9%). In contrast, there was a much lower fall in total construction sector employment (-6.7%) between 2009 and 2013."
The SPCR recognises that the Czech housing market is reporting robust development, and the "luxury housing market, in particular, is experiencing strong growth with prices of high-end apartments rising fast."
The demand for housing in the Czech Republic "is fuelled by record-low mortgage rates and rising household incomes. These developments led to a strong recovery of house prices since 2013, which had fallen dramatically after the financial crisis in 2008."
Within the office real estate segment, the country's capital Prague attracts the largest share of new investments, and in the third quarter of 2018, four new office buildings totaling 38,200sqm were delivered in the city. With around 352,600sqm of new office space under construction with scheduled completion in the years 2018 to 2020, the Czech capital is poised to significantly increase its total modern office stock of 3.45m sqm, as of end September 2018, as indicated by data from real estate services company Jones Lang Lasalle.
Like their Polish counterparts, Czech construction industry players have been under significant pressure to raise wages due to the record-low level of unemployment. In October 2018, the country’s unemployment rate stood at 2.8%. While 215,600 inhabitants of the Czech Republic were registered as unemployed that month, at the same time, an estimated 316,900 jobs were vacant, making labour shortage a serious concern for many employers, as shown by figures the Czech Ministry of Labour and Social Affairs.
In its Q1 market review report for the Czech real estate market, real estate services firm Colliers International says that the market’s growth "was constrained by shortages in labour availability, which prevented many companies from increasing their production," due to which local companies "have lobbied the government to simplify the rules for employment of workers from non- EU countries (especially Ukraine and the Balkans), but as yet there are no concrete steps in place to improve the labour shortage situation."
A report from Deloitte offers a similar perspective, claiming that the Czech "construction industry is facing a long-term lack of high quality and qualified workers, encompassing craftsmen, technicians and managers alike. The industry has been challenged by a shortage of qualified staff for decades."
Despite the positive developments in the Polish and Czech construction industries, the European Commission’s economic forecasts for the two economies is cautious. For the years 2019 and 2020, Brussels expects Poland to increase its gross domestic product (GDP) by 3.7% and 3.3%, respectively, compared with 4.8% in 2018. For the Czech Republic, the forecast is 2.9% and 2.6%, respectively, which would also represent a slight decrease compared with 3% in 2018.
Milan Hanyš, the founder and owner of local crane rental company Hanyš - Jerábnické práce s.r.o., says that as "part of the building boom, we have seen increased demand for crane work, so we strive to meet demand and continually increase the number of cranes and expand our services, such as warehousing services and products within our operating areas."
"Still the most demanded are mobile telescopic cranes that are used for all construction work and services. Special LTF, LRT, MK, LR, LTR cranes are used on the local market very rarely," Hanyš said. Hanyš operates primarily in the Czech market, but its large cranes with over 500t capacity also operate abroad in projects related to wind power plants and the chemical industry, according to the company’s owner.
The crane rental company has cooperated on projects in Germany, Poland, Hungary and neighboring Slovakia. Its fleet currently comprises 67 mobile cranes, predominantly Liebherr’s products, ranging from 30t to 550t, and one crawler crane, the Liebherr LR 1750, with a load capacity of up to 750t.
The positive market forecast for the Czech construction industry is encouraging further purchases by the Radonice-based business.
"For 2019, we plan to expand our fleet. This expansion is to include a new Liebherr LTM 1350-6.1 crane and four Liebherr LTM 1030-2.1 cranes. This way, we will be able to offer our customers up to 73 cranes," Hanyš says.
"We are also expanding our fleet with three new units of opentransport DOLL type VARIO N4S- 0195, two new Goldhofer type SPZ-L5 trailers, and three new Volvo FH16 tractors."