Central Eastern Europe Construction Market Report 4Q 2023
Slovakia
Local economic indicators
Slovakia’s gross domestic product (GDP) in 2Q 2023 produced the most growth since 1Q 2022 at 1.3% (seasonally adjusted; constant prices) in a year-over-year (YoY) comparison, attributed to all GDP contributors having positive quarterly results as reported by the local statistical office.
Construction grew by 5.5% in volume (unadjusted data) in 2Q 2023, while real estate activities only grew by 1.6%.
The Organisation for Economic Co-operation and Development (OECD) maintains its original forecast for the year at 1.3% and 2.0% in 2024.
The most recent data from the Statistical Office of the Slovak Republic shows inflation at 8.2% in September, the seventh consecutive month to produce declining rates since February’s peak at 15.4%. The Eurostat Harmonised Index of Consumer Prices (HICP) has produced similar results, with a peak in February (15.4%) and a steady decline to October’s 7.8%.
The OECD forecasts inflation to continue declining in the second half of the year, reaching 7.4% by year’s end, resulting in a yearly rate of 11.0%
Construction materials
The industrial producer price index shows some price recovery over the past twelve months, mostly in wood, clay building materials, hollow steel profiles and structural metal products.
While HVAC and electrical distribution remain high, both have reduced in recent months — a welcomed change after several months of unpredictability.
The table below, with data from the Statistical Office of the Slovak Republic, shows the change in cost indices month-over-month (MoM), YoY, and lastly, with respect to the start of the global pandemic:
Contracts
Preparations for a new construction law changing the rules of the game in the construction market will mark the end of 2023 and the beginning of the new year.
Construction suppliers will be subject to higher demands for ISO quality certifications, completely revamping some established processes.
As written, the legislation allows for multiple interpretations; the implementing decrees are still missing, and only the application of the new law in practice will test its robustness.
However, from a timing perspective, it currently looks more like impending chaos in the building permit process and, subsequently, in the contractual relationships between suppliers and investors.
Market outlook
The construction confidence indicator has been negative since May and reached a new low in October at -14, mostly due to the evolution of the current overall order books (-18.0) and a downturn in work expectations over the next three months (-10.0). Insufficient demand and labour shortages are ongoing challenges, but material availability is a dwindling concern.
Currently, the construction market is in a phase of great expectations. While orders from the private sector are stagnating, the share of public projects is beginning to grow. High hopes are placed on the hospital construction projects in Banská Bystrica and Martin, with more projects in preparation. The extensive reconstruction of the Rusovce mansion is also expected to start soon.
In the private sector, attention has focused on industrial investors. The long-awaited start of Volvo's construction in eastern Slovakia is approaching.
However, the story is different with the residential and office sectors. While large projects are being completed, the launch of new ones is being postponed. Apartment sales continue to stagnate, and mortgage interest rates keep rising.
The uncertain financial situation in the financing and energy markets is also causing concern for projects in the planning stage. The end of plans to build Volkswagen's gigafactory was recently announced, while Jaguar has declared its intention to establish the production of its electric models in Slovakia.
As always, Gleeds advises regular project budget updates that consider recent market pricing and local risk factors that may impact project programmes and costs. Undertaking risk analysis studies enables better evaluation and preparation of appropriate contingencies for your particular project conditions and risk exposure.
Eurovea, Bratislava, Slovakia — Gleeds provided Construction Management and Quantity Surveying/Cost Management services.
