Europe Biannual Construction Market Report 3Q/4Q 2024
Portugal
Top opportunities:
- Portugal’s recovery and resilience plan gives EU funding for residential and climate transition projects
- Major infrastructure projects approved, such as the construction of an airport, bridge and high-speed rail in Lisbon
- Data centre expertise in Portugal due to ongoing projects.
Top risks:
- Labour shortages
- Inflation due to high demand but a lack of capable companies to meet it
- Purchasing power has been outstripped by inflation over the last few years.
Local economic indicators
Gross domestic product (GDP)
According to Statistics Portugal’s (INE) 1Q 2024 quarterly report, real GDP growth was 1.5% year-over-year (YoY) and 0.8% compared to the previous quarter. However, this growth rate has decelerated compared to the 2.1% YoY growth observed in 4Q 2023, mainly due to a slowdown in both investment and private consumption.
Eurostat reports that the gross value added (GVA) by the construction industry for 1Q 2024 showed a YoY increase of 2.0%, although there was a 0.9% decline compared to 4Q 2023. Consequently, the construction industry in Portugal now accounts for 3.7% of the overall GDP, a 0.1% rise compared to the previous quarter.
The Organisation for Economic Co-operation and Development (OECD) has maintained its GDP forecast for 2024, predicting a growth rate of 1.6% and has furthermore predicted an increased growth rate of 2.0% in 2025.
Inflation
Recent data from INE shows local inflation at 2.8% in June, slightly down from May’s 3.1%. Eurostat’s harmonised index of consumer prices (HICP) corroborates these findings, recording a rate of 3.8% in May with a fall to 3.1% recorded in June.
The OECD has maintained its inflation forecast of 2.4% for 2024, anticipating a decline to 2.0% in 2025, which perfectly aligns with the EU’s target of 2.0%.
Construction materials
According to Eurostat, the local industrial producer price index reveals that month-over-month (MoM) prices have remained relatively stable, except for electricity, gas, steam and HVAC supply and electrical distribution, which saw significant increases of 5.3% and 5.5%, respectively.
An ongoing price recovery in glass is evident with a YoY reduction of 10.2%, and prices, particularly for electricity, HVAC and electrical distribution, are moving towards pre-pandemic levels.
See the following table for MoM, YoY and indexed pricing inflation:
Market outlook
In June, the construction confidence indicator rose by 0.4 points from -3.1 to -2.7, the highest recorded score since September 2023 (-2.5). This moderate strengthening can be attributed to an improvement in the evolution of current overall order books from -12.1 to -9.0, partly offset by a negative shift in employment expectations, which fell from 5.9 to 3.6. Other notable figures from the survey include persistently high labour shortages, 27.6, and the lowest figure reported for price expectations, 8.4, since December 2020, 7.6, reflecting the improving inflationary situation previously discussed. The European Commission's Spring forecasts have revised down Portugal's construction investment growth projections for 2024 and 2025. Expectations for this year decreased from 2.9% to 2.5% and from 3.3% to 2.8% in 2025. Municipal licensing data for the first quarter of 2024 revealed significant declines of 17.6% in residential buildings and 31.7% in non-residential buildings, with new housing unit licenses down by 20.3%. However, public works experienced an 18.7% YoY increase. The new urban SIMPLEX program, implemented in March, has positively impacted the sector by simplifying the licensing procedures for urban operations. However, it has also caused delays in ongoing processes as licensing authorities adapt. Despite these challenges, SIMPLEX presents an opportunity to enhance the sector's efficiency, quality and sustainability, thereby addressing Portugal's housing shortage. Despite a slowdown, the residential market continues to grapple with a supply-demand imbalance. Uncertainty stemming from national elections influenced market dynamics, yet high-quality projects continue to attract robust sales and reservations, bolstered by strong and diverse international demand. Meanwhile, the commercial real estate market remained steady, signalling cautious optimism. The office sector led with 37% of total investment, followed closely by retail at 35%. International capital dominated transaction volumes, while domestic buyers led in transaction numbers. In the office sector, Greater Lisbon's market quadrupled in take-up volumes year-on-year due to major deals. A substantial future supply of 400,000 sqm is currently under construction or pre-leased, with ongoing development efforts aimed at alleviating the shortage of high-quality supply. Greater Porto also saw robust growth and boasts a significant pipeline of new developments. Conversely, the retail sector saw no new projects in early 2024 but anticipates increased development of retail parks in the coming years. Despite a decline from the unusually high volumes recorded in early 2023, the industrial and logistics sector maintains a strong pipeline, with approximately 690,000 sqm currently under construction. Finally, Portugal's tourism sector continues to show a positive trend, reflecting renewed confidence. Ambitious plans to enhance transportation infrastructure include constructing a new airport in Alcochete, establishing a high-speed rail link to Madrid and building a third bridge over the Tagus River, underscoring Portugal's commitment to economic growth and development. Gleeds recommends revising previously set project budgets to present-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.
