Europe Biannual Construction Market Report 3Q/4Q 2024
Austria
Top opportunities:
- Strong activity in hospitality sector
- Improved competition
- Strong level of international investments.
Top risks:
- Further downturn in the residential sector
- Inflation
- Failure in market recovery.
Local economic indicators
Gross domestic product (GDP)
In the first quarter of 2024, Austria faced economic challenges; as reported by Statistics Austria, the country saw a 1.1% year-over-year (YoY) decline in GDP and a modest 0.2% increase from the previous quarter, 4Q 2023. This marks the fourth consecutive quarter of GDP YoY decline, a trend primarily driven by downturns in the industrial and wholesale sectors.
The gross value added of the construction industry mirrored this trend, with Eurostat reporting a 1.0% reduction YoY and no change compared to the previous quarter. Despite this, construction’s contribution to Austria’s GDP has remained stable at 6.7%.
The Organisation for Economic Co-operation and Development (OECD) has also offered projections for GDP growth in 2024 and 2025, with 0.2% growth forecast in 2024 and an increase to 1.5% predicted in 2025.
Inflation
Statistics Austria reported a decrease in the annual rate to 3.4% in May, down from 3.5% in April and 4.1% in March. This reduction has largely been attributed to falling gas prices.
Eurostat’s harmonised index of consumer prices (HICP) corroborated these findings, showing a decline from 4.1% in March to 3.4% in April, with a slight further decrease to 3.3% in May and 3.2% in June.
The OECD predicts inflation rates of 3.7% in 2024 and 2.9% in 2025, indicating a gradual easing of inflationary pressures over the forecast period.
Construction materials
Eurostat's May data on industrial producer prices suggest relative stability across most industrial producers in Austria's construction materials market. However, notable recoveries have been observed in electricity, gas, steam and air conditioning, with prices decreasing 18.0% year-over-year (YoY).
Regular updates to project allowances are essential to ensure alignment with evolving market conditions. See the following table for month-over-month (MoM), YoY and indexed pricing inflation:
Market outlook
Despite the economic challenges Austria faces, there are signs of cautious optimism in the construction sector, with the construction confidence indicator displaying a positive trend from a low of -28.0 in November 2023 to -3.9 in June. This upward trajectory was mainly due to enhanced employment expectations, which have risen from -37.5 in November 2023 to 6.5 in June and an improvement in the evolution of current overall order books from -28.5 in January 2024 to -14.3 in June.
However, there are still challenges to overcome, particularly concerning labour shortages and insufficient demand, which remain significant constraints on building activity, with figures of 21.0 and 16.4 respectively reported in June. Insufficient demand has been steadily improving throughout 2024, as can be seen when comparing the reported June figure with the 2024 average year-to-date of 25.1 and May’s figure of 26.1. On the other hand, although showing a marked improvement from May’s figure of 21.0, labour shortages remain persistently high and fall in line with the 2024 year-to-date average of 24.7.
Construction output is projected to shrink for the first time since 2010, largely due to tightened lending conditions for private housing loans. High interest rates, which rose from 1.18% in January 2021 to approximately 4.2% in November 2023, have made homeownership less affordable, forcing many to remain in rented accommodation and decreasing demand for new homes. Increases in the European Central Bank base rate primarily drive these interest rate hikes. Stricter loan rules further complicate the process of securing financing for new home construction. Consequently, investors and large housing companies are adopting a cautious approach, hoping for a decline in raw material costs and interest rates.
Nevertheless, the construction industry in Austria remains resilient, supported by proactive measures and adaptive strategies to navigate the evolving economic landscape. As the country progresses through 2024, continued monitoring and agile responses will be crucial to capitalise on emerging opportunities and mitigate potential risks, ensuring sustainable growth and stability in the construction sector and the broader economy.
Gleeds recommends revising previously set project budgets to present-day figures based on local statistical information, our internal data and forecasts. Additionally, we advise investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
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.
