Europe Biannual Construction Market Report 1Q/2Q 2025
Germany
Top opportunities
Data centres: Growing demand for digital infrastructure.
Education: Increased investment in educational facilities.
Energy: Focus on renewable energy and transition projects.
Government and municipals: Strong demand for public sector projects.
Infrastructure (Rail): Investment in rail infrastructure.
Life sciences and pharmaceuticals: Growth in healthcare and pharmaceuticals.
Top trends
Green financing: In Germany, there is growing support for green financing, with increased focus on funding eco-friendly projects in line with the EU’s sustainability goals.
Sustainable construction/Net Zero: Germany’s commitment to energy transition (Energiewende) is driving the trend towards net zero buildings and sustainable construction practices, in line with its climate targets.
Local economic indicators
Germany's year-over-year (YoY) gross domestic product (GDP) for 2024, as reported by The European Commission is expected to have contracted by 0.1% YoY, driven by reduced consumption and investment, due to uncertainty and reduced demand for manufactured goods. The construction sector has also faced challenges from both labour shortages and weak domestic demand. When viewing GDP compared to the previous period, QoQ, Eurostat reports that Germany experienced a growth of 0.1% between 2Q and 3Q 2024.
However, a recovery is forecast, with GDP growth projected at 0.7% in 2025 and 1.3% in 2026, supported by increased domestic demand, higher consumer spending, and business investment driven by rising real wages as inflation eases. The construction sector is also expected to rebound in 2025, bolstered by recovering housing and infrastructure demand, as indicated by already seen improving orders and mortgage loan activity.
Eurostat also reports that in 2024, the construction industry’s gross value added, which measures its contribution to Germany’s overall GDP, remained stable at approximately 5% of the total GDP.
Eurostat's Harmonised Index of Consumer Prices (HICP) in 2024 was reported at 2.4%, down significantly from its peak of 11.6% in October 2022, reflecting falling energy prices. Further reductions to 2.1% in 2025 and 1.9% in 2026 are anticipated as energy prices continue to decline.
Unemployment figures remained stable at 3.3% in 2024, with forecasts suggesting stagnation in 2025 with a slight increase to 3.4% in 2026.
Construction materials
Eurostat's local industrial producer price index data reveals significant month-over-month (MoM) price movements in flat glass, -2.3%, and electrical distribution, 3.4%. YoY data also shows a substantial price recovery in glass, -17.3%, and notable increases in HVAC, 17.2%, and wood, 9.6%. When indexing for June 2022, when oil prices peaked due to the Russia-Ukraine conflict, we can see strong recoveries in flat glass and wood of 39.2% and 26.7% respectively and a price increase in HVAC of 49.3% standing out. It is paramount to regularly update project allowances as market pricing and conditions change weekly. See the following table for MoM, YoY and indexed pricing inflation:
Market outlook
Germany’s construction confidence indicator, CCI, has steadily worsened since August, when it stood at -11.7, reaching -23.2 in December 2024. This ongoing negative trend is attributed to declining figures in both the evolution of order books and employment expectations, which fell from 2.2 and -25.5 in August to -11.5 and -34.8, respectively, by December. While these figures reflect the various challenges Germany is currently facing, it is important to recognise that the decrease in the CCI during the winter months in countries with colder climates is also part of a cyclical trend influenced by adverse weather conditions, which slow order books and reduce work expectations.
Insufficient demand has continued to decline throughout 3Q and 4Q 2024, rising from its August low of 35.3 to 41.3 in December, marking it as the most significant challenge to construction activity. Other notable constraints include labour shortages, which have improved over the same period, dropping from 31 to 24.8. Weather conditions also became a key factor in December, with the figure surging to 24.8 from November's 8.5 — a recurring seasonal pattern expected during the winter months.
Local office input
The German construction market is expected to remain under pressure in 2025, with a projected 1.4% overall decline and a 5% drop in residential construction, though infrastructure projects, public spending, and transportation initiatives are anticipated to help offset the downturn. There are however early signs of stabilisation, such as improvements in the S&P Purchasing Managers' Index (PMI) and the German Institute for Economics Research’s (ifo) survey indicators and a slight increase in the production index. Housing prices also indicated a positive trend with an uptick in 4Q 2024, suggesting a potential rebound in the sector; furthermore, with more favourable mortgage rates now available, the impact of price increases on buyers is expected to be limited. Additionally, government support through tax incentives under the "Growth Opportunity Law" and subsidies for social housing could help sustain this early momentum, potentially paving the way for stabilisation in 2026. On the other hand, other segments, particularly non-residential construction, are expected to have completed their correction phase in 2024 and should return to modest growth in 2025. Office rentals reflect this trend, with leasing activity having increased by 6% in 2024 when compared to 2023 and the top seven cities now accounting for 2.7 million m² of rented space. This growth has been driven, in part, by demand for modern, ESG-compliant offices, though the data reflects only the rental market and excludes offices owned by larger industrial companies, which are a significant but separate part of the sector. Looking further ahead, the German construction industry is projected to grow at an average annual rate of 2.4% from 2025 to 2028, largely driven by investments in transport infrastructure and renewable energy projects. The government’s commitment to expanding offshore wind capacity to 70GW by 2045 is expected to support long-term construction demand and the civil engineering sector, particularly energy, telecommunications, and public transport, is already showing resilience and may become a key driver of market stabilisation. While structural challenges, such as high energy costs, regulatory burdens, and labour shortages remain, improving economic conditions including stabilised inflation and better access to financing should help ease constraints on investment. By 2026, non-residential construction activity is expected to recover to 2023 levels, though it will still fall short of its 2020 peak. While infrastructure and energy investments will be critical in driving the sector’s long-term recovery, ongoing political uncertainty and weak economic sentiment present significant risks, potentially slowing momentum and prolonging the industry's challenges in the years ahead. As always, Gleeds advises regular project budget updates that consider recent market pricing and local risk factors which 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.
Ford Research Centre, Aachen, Germany — Gleeds provided Quantity Surveying/Cost Management services.
