This audio is automatically generated. Please let us know if you have any comments.
Dive brief:
- Skanska’s business remains anchored for a good construction performance in the US —especially infrastructure—as it resists a weaker residential and commercial property development market.
- On Friday, the Sweden-based developer and contractor reported 2.58 billion Swedish crowns ($242 million) in profit for the second quarter of 2024, a 94 percent increase from the same period a year ago. In construction alone, Skanska reported 1.5 billion kroner in profits.
- “The market is very strong. We’ve been very successful in identifying and bidding and winning the right kind of jobs in that geography,” Chief Financial Officer Magnus Persson said of U.S. construction on an earnings call Friday. However , called the US commercial real estate market “still quite sluggish,” although the sector has gained momentum in Europe and the Nordics.
Diving knowledge:
Skanska, an experienced builder of infrastructure projects, has seen its backlog grow steadily since 2020 and remains historically high for the contractor. In the second quarter, Skanska recorded 42 billion kroner in order bookings in the US (roughly two-thirds of its bookings for the quarter) and counted 24 months of construction work in the US at the end of the period.
CEO Anders Danielsson said both civil infrastructure (roads and bridges) and social infrastructure (such as hospitals, schools and airports) have helped drive the company’s growth.
An example of a major infrastructure win by Skanska during the quarter is the $861 million, 73-acre project to transform the South Brooklyn Marine Terminal in an offshore wind port.
“The operation in the USA is increasingly important for the company. Today it’s already 50% of the revenue from the construction stream,” Danielsson told Construction Dive in an interview Friday. “And I would also say that the US operation along with the commercial development divestment that we did in the quarter is the which is driving improved profitability.”
In Q2, Skanska recorded five major divestments of commercial properties, all in the Nordic region, and recorded 1.19 billion kroner in divestment profits in the quarter.
Constant problems in commercial property
Despite the weakness of the US commercial market, which Skanska has attributed high inflation rates, low sales volumes and underperforming offices: The company has seen improvements in the commercial real estate market in Europe and the Nordics, and has no plans to abandon the development and leasing of commercial space.
“We have no ambition to sit on properties that are finished,” Persson said during the earnings call. “The business model is still to be developed and sold. But we have the financial resilience, if you will, to not have to fire the sale stuff if we can’t get the right deals for it.”
Skanska announced it in April Persson would leave the company pending the appointment of a substitute.
Danielsson told Construction Dive that focusing on higher-value commercial properties will be key to success in the market. Should interest rates fall, he expects investors to step up, but the focus will be on higher-caliber spaces, rather than cheaper leases.
“We can see the market polarizing even more, but the high-quality Class A building, in the right location, is definitely the winner in this market situation,” Danielsson told Construction Dive. “Most companies want employees to come back to the office, which is good for business, and a good way to do that is to have attractive offices in good locations where it’s easy to get around and so on.
