Dive Brief:
- Sweden-based developer and builder Skanska took impairment charges worth 2 billion Swedish Krona ($195 million) in its commercial property development, residential development and investment properties, the company announced Jan. 9.
- In an investor call Jan. 10, CEO Anders Danielsson said 400 million SEK of the charges were from U.S.-based work, which he called Skanska’s “weakest market currently.” CFO Mangus Persson said the low return-to-office rates in the U.S. have hurt the company’s portfolio.
- The writedowns will be reflected in Skanska’s fourth quarter earnings, but company leadership indicated the impairments are limited. “Nothing in the announcement last night relates to the construction business,” Persson said.
Dive Insight:
Part of the issue with commercial property in the U.S., Persson said, is the lack of comparable transactions in the market, a benchmark companies use to determine the value of their own property assets.
“There is a large uncertainty around the value of properties today, because it is difficult to find relevant comparable transactions,” he said.
Commercial and residential property development has presented a rough patch for the company in previous quarters. In Q3 2023, Skanska reported a drop in revenue from residential work due to weak markets in nearly every area in which the company operates, Persson said.
That quarter, Skanska reported a 900,000 SEK hit from asset and goodwill impairment charges as a result of those weak markets.
Office occupancy rates have slipped in the U.S. since the start of the COVID-19 pandemic. The Dodge Construction Network recently predicted that office starts will tumble 6% in 2024, about 22% off of the peak in 2019. Those numbers are paired with an increase in office alteration and update work, meaning the actual starts of new offices are even lower than they seem.
Nonetheless, major companies continue to break ground on corporate campuses, a trend which Dodge Chief Economist Richard Branch said is likely to continue this year.