Europe Biannual Construction Market Report 3Q/4Q 2024
Italy
Top opportunities:
- Next Generation EU plan to fund construction projects
- Energy Performance of Buildings Directive requires building improvements to meet energy performance requirements
- Increased demand for cloud and artificial intelligence services to boost opportunities in the data centre sector.
Top risks:
- Elevated construction costs due to high demand in data centres and infrastructure sectors
- Delays in obtaining building permits due to high demand and regulation gaps for some construction sectors
- Geopolitical situation may affect the level of investment.
Local economic indicators
Gross domestic product (GDP)
Italy's economic landscape saw modest growth in the 1Q 2024, as reported by the Italian National Institute of Statistics (Istat), with a year-on-year (YoY) increase of 0.7% and an increase of 0.3% when compared to the previous quarter, 4Q 2023.
Noteworthy among these figures was the robust performance of the construction industry, whose gross value added (GVA) grew 2.9% over the previous quarter and an impressive 9.6% YoY, as reported by Eurostat. This surge has increased the construction industry's contribution to Italy's overall GDP from 4.7% in 1Q 2023 to 5.0% in 1Q 2024.
The Organisation for Economic Co-operation and Development (OECD) maintains an optimistic GDP growth forecast for Italy, projecting a 0.7% growth in 2024, followed by a slightly accelerated rate of 1.2% in 2025. Istat's June report also aligns with these trends, forecasting a 1.0% growth rate in 2024 and 1.1% in 2025.
Inflation
Inflation in Italy has shown signs of stability, with a marginal 0.1% monthly increase and a 0.9% YoY increase reported by Istat in June. Eurostat’s harmonised index of consumer prices (HICP) further corroborated these findings, reporting a 0.8% YoY inflation rate in June.
Looking to the future, the OECD reduced its inflation forecasts for Italy from 2.6% to 1.1% in 2024 and from 2.3% to 2.0% in 2025.
Construction materials
The pricing dynamics of local construction materials have exhibited relative stability on a month-to-month (MoM) basis, with the exception of a notable increase of 2.1% in the price of HVAC.
On a yearly basis, there is evident price relief for most industrial producers, particularly in glass, electrical distribution and steel tubes, which reported significant decreases of 14.9%, 9.8% and 6.2%, respectively, compared to the previous year.
Referencing December 2019 figures, comparatively high HVAC prices persist and show no signs of significant price recovery.
See the following table for MoM, YoY and indexed pricing inflation:
Market outlook
In June, Italy's construction confidence indicator improved by three points from May's figure of 1.8 to 4.8. This strengthening was prompted by improvements in employment expectations and the evolution of the current overall order books, which rose from 7.1 to 9.8 and from -3.6 to -0.1, respectively, between May and June.
While this is positive news, some factors still limit building activity, the principle of which is labour shortage. With a figure of 23.9 reported in June and an average figure of 22.1 reported between January 2023 and the present, it is clear that this is a persistent issue that shows little sign of improvement.
In the first half of 2024, Italy's real estate sector saw substantial growth, with total investments reaching €3.5 billion, a 65% increase from the previous year. This surge was driven by significant transactions in Milan and Rome, particularly in the retail and hospitality sectors. The office sector has also regained prominence, leading the Italian real estate market with approximately €830 million invested, concentrated largely in Milan and Rome, which together account for 90% of office market investments.
Milan has also emerged as a key hub for data centre development, driven by the country's investment of EU Recovery and Resilience funds towards their 5G network expansion. This trend is expected to catalyse significant investments starting from 2025, with projections indicating Italy's total data centre wattage could reach 1.3 GW by 2030, with 30–35% dedicated to supporting artificial intelligence applications.
In addition, the hospitality sector continues its growth trajectory, particularly in North West and Southern Italy, bolstered by robust international tourism demand, leading to a notable increase of over 90% compared to 1Q 2021. These developments underscore Italy's dynamic real estate market, shaped by strategic investments across multiple sectors amidst evolving economic dynamics.
Furthermore, an uptick in public investments has been noted compared with the previous quarter as EU Recovery and Resilience funding is being used before its nearing expiration date in 2026.
Gleeds recommends revising previously set project budgets to current-day figures based on local statistical information, our own internal data and forecasts. Additionally, we advise investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
