Is the mild winter calming nerves?

Not surprisingly, construction confidence in central European countries remains lower than that in western European Union (EU) countries, largely due to the direct effect of their proximity to the war in Ukraine.

Contractors report supply chain issues and decreased demand as ongoing challenges. At the same time, some of our offices note sufficient material pricing stability to consider lump sum contracts on short-term agreements. There is also rising use of contract management and two-stage tendering, as price review clauses leave a factor of risk preferred to be avoided by contractors and owners alike.

Our experts have noticed change amongst those businesses dependent upon bank financing, placing their projects on hold whilst re-evaluating feasibility studies to determine how best to proceed. Across most countries, the residential sector has declined as interest rates deter potential buyers. However, logistics and data centres continue to flourish, with demand remaining in most markets.

The biggest driver in the market in the coming year will be public infrastructure works financed through NextGeneration EU funding. Investors will need to look for public-private-partnership (PPP) opportunities as several countries have targeted renewable energy, building efficiency, 5G networks, healthcare services and education. All of these have potential to feed secondary needs like data centres, build to rent schemes, factories for increased production of energy efficient building materials and more.

The EU reports that current gas storage remains at 80%, well above the 53% recorded in January 2022 before the war in Ukraine made gas storage a critical issue across countries relying on Russian fuel supplies. The mild winter conditions experienced thus far have helped maintain above-average levels and the sense of urgency for swift answers, experienced last June, has given countries time to initiate long-term solutions with renewable energy options. Furthermore, the EU has approved price caps for liquified natural gas (LNG) to avoid unsustainable cost increases reoccurring. Some factories may still need more price certainty to accurately calculate their operating costs and determine if they should resume regular operations, maintain partial closures or even close altogether.

However, it would seem that the recent mild winter weather has been the gift that governments needed to advance energy independence initiatives and bring an element of stability to industries crippled by unpredictable operating costs. NextGeneration EU projects will maintain the tendering pipeline for contractors of all sizes, reducing the risk of insolvencies for the industry as a whole. Although challenges remain, 2023 is expected to be less volatile with materials prices anticipated to experience a more predictable inflation rate.