RIGA - Latvia's overheated construction market has likely entered a new phase after the recent victory of Germany in a tender for a 20 million euro construction project.
According to the Dienas Bizness daily, MBM Bau, a German construction firm, won a tender to carry out a large project 's Upmalas Biroji 's by placing a bid 8 percent cheaper than competing firms. One of the keys to the company's success: using German specialists and Polish workers, the paper wrote.
The victory could be one of the first cases when a foreign company with its workers outcompetes local ones in an open competition based on economic criteria to become a general contractor of a project, the paper wrote.
MGM Bau is no stranger to the Latvian market, having carried out two German government-financed projects in downtown Riga.
Jans Brinks, board member of Bauplan Nord, said that foreign companies already offer more advantageous conditions than Latvian construction companies, while Marcis Apsitis, head of the construction company LX Grupa, said that in comparison with foreign firms Latvian companies' costs do not differ much.
Due to the building boom in Latvia, projects are often carried out in a rush despite a deficit of skilled construction workers. In some cases, the quality of construction is doubtful, said Brinks.
What's more, the boom has sparked a surge in prices for both materials and labor. An industry survey carried out in July revealed that construction costs would rise some 20 percent this year. Cement prices alone soared 10 percent in July, and another rise is expected this fall, according to the survey.
The Latvian statistics office announced last month that construction costs grew 29 percent in the second quarter of 2007 compared with the same period last year. In the first quarter the result was 30 percent.
Traditionally, labor costs have far outpaced costs of materials, and industry insiders say this trend is continuing this year. In the second quarter salaries in the construction sector skyrocketed 48 percent, the statistics office reported.
According to the paper, the office building Upmalas Biroji in Riga will be developed by the subsidiary Bauplan Nord of German real estate project developer Bauplan Nord GmbH.
The new office building will be situated at the new southern bridge on the left bank of Daugava not far from the Debessmanna shopping center. It is planned that the building will be put into operation in spring 2008.
Rental space of Upmalas Biroji will amount to 10,300 square meters.