Europe Biannual Construction Market Report 3Q/4Q 2024
Czechia
Top opportunities:
- A competitive environment gives clients and developers a strong position
- BIM and other digital tools help to facilitate construction projects (e.g., common data environment, etc.)
- New MEP technologies to support reduction footprint (photovoltaics, smart technologies, etc.)
- Construction waste management to support material circulation (recycling and reuse of construction waste, etc.).
Top risks:
- New Building Act valid from 07/2024
- Labour shortages
- Continued conflict in Ukraine
- Lack of raw materials.
Local economic indicators
Gross domestic product (GDP)
The latest report from the Czech Statistical Office (CZSO) paints a picture of steady but modest growth in 1Q 2024, with a 0.3% increase compared to the previous quarter and a 0.2% increase year-over-year (YoY). These increases were driven by higher household expenditures and increased gross capital formation; however, they were tempered by external demand, which experienced a decrease. Eurostat's figures echo these findings, with GDP growing by 0.3% quarter-over-quarter and 0.4% year-over-year.
While GDP shows promising signs, Eurostat reports that in 1Q 2024, the gross value added (GVA) of the Czech construction industry experienced a decline of 5.1% YoY, with the largest quarterly decline, 1.8%, occurring between the second and third quarters of 2023. Consequently, the construction industry's share of overall GDP fell slightly from 5.1% to 4.8% over the same period.
The Organisation for Economic Co-operation and Development (OECD) predicts a strengthening, forecasting GDP growth to improve to 1.1% in 2024 and 2.4% in 2025.
Inflation
Inflationary pressures have notably eased in the Czech Republic, with the YoY figure dropping to 2.6%, significantly lower than the 2023 average of 10.7%, and month-over-month (MoM) inflation reported by the CZSO at 0% in May. Eurostat's harmonised index of consumer prices (HICP) corroborates these findings, with the latest published figure for May 2024 being 2.8%.
Looking ahead, the OECD predicts inflation of 2.4% in 2024, followed by a slight decrease to 2.1% in 2025.
Construction materials
Eurostat's local industrial producer price index shows MoM price reductions across all industrial producers Gleeds monitors in Czechia, with notable figures of over 2% reported for HVAC and electrical distribution.
Looking at the YoY figures, most sectors have remained relatively stable, with substantial price decreases in both clay and steel tubes reported. When indexing to pre-pandemic levels, most sectors fall between 30% and 40% higher, with HVAC and electrical distribution remaining stubbornly high at above 90%.
The following table provides details on MoM, YoY and indexed pricing inflation:
Market outlook
The Czech construction confidence indicator has experienced a downturn throughout 2Q 2024, from its highest position of -7.2 in March to the latest figure of -12.4 in June. This decrease was primarily driven by a steady drop in employment expectations from 2.6 in March to –5.1 in June and a more minor but similarly negative movement in the evolution of current overall order books from -17.0 to -19.6 over the same period.
The other significant factor currently contributing to the limitation of building activity is labour shortages. June's figure of 48.4 is in line with the average figure for 2024 year to date (46.0). When compared with the average for 2023 (35.5), it shows a marked worsening with no current sign of improvement. Continued monitoring and adaptive strategies will be crucial for navigating the evolving economic landscape and capitalising on emerging opportunities.
Several significant trends and developments are shaping the current landscape in Czechia's construction sector. Construction companies are operating at 82% capacity, with expectations of reaching 92%, indicating optimism for growth despite an overall market decline compared to previous years. The first half of this year witnessed a notable increase in technical due diligence (TDD) activities, marking a substantial uptick from prior periods. Companies typically secure contracts about nine months in advance, reflecting a stable yet cautiously optimistic sentiment in the industry.
Price trends reveal a modest annual increase of about 2% in construction works, while costs for materials and construction products have slightly decreased by approximately 1.5%.
In addition, the Czech National Bank's recent reduction of interest rates to 5.25% provided some relief to developers. However, significant further decreases are not forecast in the near future, which is predicted to affect mortgage loan interest rates particularly. Reflecting this stability, price indexation in construction contracts has generally not been applied, except for long-term projects under the "GC risk" model, where inflation conditions are closely monitored.
As always, Gleeds advises regular project budget updates considering 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.
Project 4B of Commercial Bank, Prague, Czech Republic — Gleeds provided BS Tech Compliance, Construction Inspections, Employer's Agent/Contract Administration/Client Representative, Project and Programme Control and Risk Management services.
Project 4B of Commercial Bank, Prague, Czech Republic — Gleeds provided BS Tech Compliance, Construction Inspections, Employer's Agent/Contract Administration/Client Representative, Project and Programme Control and Risk Management services.
