With fewer serious contractors to choose from, David Evans, Director (Optim) says packaging the specialties creates more opportunities for the project.
Are you seeing a revival in the construction sector? How strong is the growth?
It’s very strong at the moment, certainly the strongest it’s been since 2008, though it’s not back to the levels we saw then. There’s a lot of construction work going on now, with a lot of new projects but also there’s a considerable number of projects that have been on hold since 2009 that are now being restarted.
Do you think this activity is just pent-up demand being released, or is it a new constant level that’s been reached?
I think it’s a new constant, but it depends on which sector we speak about. Residential construction has really taken off this year, with a lot of large projects as well as smaller ones and even single, 10-unit apartment blocks starting up. Some of those are new, but some I knew about six years ago and they’re coming back. There’s been a shortage of residential as not much has been built in the past five years. But what’s interesting is that since prices bottomed out a couple years ago, they haven’t really picked up. What I think is happening is that there’s so much being built, especially around the outside of Bucharest, that this may be pushing purchase prices down further.
Which other sector would you describe as hot?
Offices. There’s a lot going on this year, not only in Bucharest but in the regional Cities. Retail as well continues to be strong along with manufacturing, although the focus may have changed. For years, it’s been automobile-driven along with oil and gas, but now it seems to be turning to FMCG.
With all the construction work now, is that having the effect of pushing up prices?
What we’ve noticed this year is that prices have increased marginally, around 1-2 percent, but the increase generally has been labor cost. There’s a shortage of labor now because over the past 4-5 years, workers have left the country and engineers have gone to work in Western Europe or the Middle East, and that’s left a shortage here. So I’d say we have a shortage of labor, both on site and in engineering management. The material costs have stayed the same, with no real increase in prices for steel reinforcement, or steel pipes or duct work and concrete. That’s stayed the same more or less, though there have been a few shortages but prices have remained stable, except for labor prices on site. There are some long lead in times for purchasing some products, particularly steel profiles.
Do you have to adjust when you’re tendering?
You have a limited number of contractors now, so whenever you tender, the same 6-8 General Contractors are always the ones entering bids. There are some like Boygues who are trying to re-enter the market but for the most part, it’s the same players. What Optim do is we package the specialties, so we’ll have a tender for foundations, one for superstructure, for facades and mechanical and Electrical installations. For each package, then, we’ll have 6-8 specialist subcontractors, so we’re opening it up to 50 possible contractors instead of going to the same 6-8 general contractors. This brings more opportunities to the project, more potential contractors who we then manage. Primarily, it gives us more control and it’s a way to cope with the growing requirements, also it allows the Developer to introduce late changes to the project, which is particularly important for Retail projects.
How has the relationship between investors and contractors changed?
It’s become more sophisticated. In 2008 and 2009, there were a lot of issues. Developers stopped paying as construction prices increased dramatically, contractors were caught out with fixed price contracts and some of them simply ran away. Now, the formal contracts between the partners are much stronger, as they anticipate all the eventualities. Developers are also requiring much longer guarantee periods and bonds are much stricter. Because we’re now left with experienced contractors, developers and investors, all sides seem to understand that if either party fails, it hurts everybody. I think there is a bit more cooperation now, at least on our project sites.