Europe Biannual Construction Market Report 3Q/4Q 2024
Germany
Top opportunities:
- Infrastructure
- More level market, not so buoyant
- Renewable energy.
Top risks:
- Skilled labour shortages
- Inflation
- Energy.
Local economic indicators
Gross domestic product (GDP)
The Federal Statistical Office of Germany (Destatis) reported a modest GDP increase of 0.2% in 1Q 2024 compared to 4Q 2023, primarily driven by an uptick in exports and gross fixed capital formation in construction. There was, however, a 0.2% decline in GDP year-over-year (YoY), adjusted for price and calendar effects. Eurostat also corroborates these figures, reporting 0.2% GDP growth compared to the previous period and a 0.2% decline YoY.
Despite these GDP figures, Eurostat reported encouraging data on the gross value added (GVA) of the construction industry in Germany, with a 2.5% increase between 4Q 2023 and 1Q 2024. Consequently, the construction sector’s share of overall GDP in Germany increased by 0.1% to 5.8% over the last quarter. In a recent press release, Deutsche Bundesbank also highlighted significant growth in the construction sector in 2024, attributed to favourable weather conditions and reduced energy costs.
The Organisation for Economic Co-operation and Development (OECD) lowered its forecasts for GDP growth in 2024 and 2025 from 0.6% to 0.2% and from 1.2% to 1.1%, respectively.
Inflation
As Destatis reported, inflation figures remain stable in Germany, with a rate of 2.4% for May and a slight fall to 2.2% reported in June, which aligns closely with the EU's 2% target. Eurostat's harmonised index of consumer prices (HCIP) corroborated these figures, reporting 2.8% in May and a similar downward movement to 2.5% in June.
With its latest predictions, the OECD revised its inflation forecasts for 2024 and 2025 from 2.7% to 2.4% and from 2.1% to 2.2%, respectively.
Construction materials
Eurostat's local industrial producer price index reveals stability across most industrial producer categories in Germany; however, there was a significant month-over-month (MoM) reduction in flat glass, -2.6%. YoY data also shows a substantial price reduction in glass, -28.4%, and a notable increase in HVAC, 14.4%.
With regards to pre-pandemic pricing, stubbornly high electrical distribution and HVAC prices can be seen when compared to all other industrial producers.
It is paramount to regularly update project allowances as market pricing and conditions change weekly. 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
The construction confidence indicator for Germany has been steadily improving since its low of -25.7 in December to its June figure of -13.5. This positive trend is driven by significant improvements in employment expectations, rising from -14.1 to -2.1, as well as the evolution of current overall order books, improving from -37.2 to -27.7 over the same period. Notable improvements were also observed in reported figures for building activity over the past three months, which rose from -49.7 in February to -7.7 in May, along with a significant decrease in the weather impact index from 58.0 in January to 5.8 in May.
Despite these positive indicators, challenges remain. The construction sector in Germany continues to face insufficient demand and labour shortages, reported in June at 37.4 and 29.2, respectively. Although slightly higher, these June figures are in line with the average figures since the start of 2023, painting a picture of a persistent underlying issue in the market. However, these challenges can be navigated effectively with careful management and strategic planning.
Positively for the German construction market in 2024 there is a strong pipeline of infrastructure projects, mainly in renewable energy and local infrastructure, as well as an expected increase in real estate investment due to recent, and further predicted, decreases in interest rates.
Refurbishments focusing on ESG measures to enhance market value are taking off, and many projects registered in the past year are now progressing with reinvestment. There is also notable international interest in semiconductor production, highlighted by Intel's €20–30 billion investment in Germany, alongside increased activity in the life sciences and pharmaceutical sectors nationwide.
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.
Ford Research Centre, Aachen, Germany — Gleeds provided Quantity Surveying/Cost Management services.
Ford Research Centre, Aachen, Germany — Gleeds provided Quantity Surveying/Cost Management services.
