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Dive brief:
- Developer and builder based in Sweden Skanska assumed impairment charges The company announced on Jan. 9 2 billion Swedish kroner ($195 million) in its commercial real estate development, residential development and investment properties.
- On a Jan. 10 investor call, CEO Anders Danielsson said SEK 400 million of the charges came from work in the United States, which he called Skanska’s “weakest market right now.” CFO Mangus Persson said low return-to-office rates in the US have hurt the company’s portfolio.
- The downgrades will be reflected in Skanska’s fourth-quarter earnings, but the company’s leadership indicated that the impairments are limited. “Nothing in last night’s announcement relates to the construction business,” Persson said.
Diving knowledge:
Part of the problem with commercial property in the US, Persson said, is the lack of comparable transactions in the market, a benchmark that companies use to determine the value of their own real estate assets.
“There’s a lot of uncertainty about property values today, because it’s hard to find relevant comparable transactions,” he said.
Commercial and residential real estate development has presented a difficult patch for the company in previous quarters. In the third quarter of 2023, Skanska reported a drop in revenue of residential work because of weak markets in nearly every area in which the company operates, Persson said.
In that quarter, Skanska reported a SEK 900,000 impact from asset and goodwill impairment charges as a result of these weak markets.
Office occupancy rates have fallen in the US since the start of the COVID-19 pandemic. The Dodge Construction Network recently predicted that office starts will fall 6% in 2024, about 22% off the peak in 2019. These numbers combine with a increased modification and updating of offices work, that is, the actual starts of new offices are even lower than they appear.
However, major companies continue to initiate the march to corporate campuses, a trend that Dodge chief economist Richard Branch said is likely to continue this year.
