Europe Biannual Construction Market Report 3Q/4Q 2024
Spain
Top opportunities:
- Economic stability
- Construction market stability
- Reindustrialisation — new factories being built.
Top risks:
- Political uncertainty
- Unique laws per region can be a challenge for investors
- Lengthy licensing approval times.
Local economic indicators
Gross domestic product (GDP)
In the first quarter of 2024, the Spanish economy displayed robust growth compared to other European countries, with the Spanish National Institute of Statistics (INE) reporting a 2.5% year-over-year (YoY) increase in gross domestic product (GDP) and a 0.8% rise over the previous quarter.
As reported by Eurostat, the construction sector demonstrated impressive performance, with gross value added (GVA) showing a 3.3% YoY increase and a 2.0% growth from the previous quarter, consequently raising construction's share of GDP from 4.9% to 5.2%.
In addition, the Organisation for Economic Co-operation and Development (OECD) has revised its GDP prediction for Spain, increasing the 2024 growth expectation from 1.7% to 1.8%, as well as forecasting a more positive outlook for 2025, with a projected growth rate of 2.0%.
Inflation
Further to the above encouraging figures, inflationary pressures have fallen, with the INE reporting a reduction in annual inflation to 3.4% in June, down from 3.6% in May. This decrease was primarily driven by a reduction in fuel pricing compared with the increases experienced in June 2023.
Eurostat’s harmonised index of consumer prices (HICP) mirrored this trend, with inflation falling to 3.5% in June from 3.8% in May. The OECD has updated its inflation forecasts for 2024, reducing its forecast from 3.7% in 2024 to 3.0% and maintaining its projection of 2.3% in 2025.
Construction materials
Eurostat's May data on industrial producer prices reveal stability across all Spanish industrial producer categories Gleeds monitors month-over-month (MoM) except electrical distribution, which saw a significant increase of 8.5%.
When viewing the YoY figures, we can see price relief in most instances, a couple of examples of stability and a reduction in electrical distribution of 30.1% standing out.
When indexed to December 2019, it becomes evident that electrical distribution prices are nearing pre-pandemic levels, while steel tubes, pipes and hollow profile prices remain elevated at 46.9% higher.
It is paramount to regularly update project allowances as market pricing and conditions are changing weekly.
See the following table for month-over-month (MoM), YoY and indexed pricing inflation:
Market outlook
Spain's construction confidence indicator had been exhibiting a solid upward trajectory, improving from a low of -1.4 in January to 16.6 in May, the highest level recorded since June 2023; however, it fell significantly in June to 1.5. However, this substantial decrease is not cause for alarm, as it merely reflects the seasonal slowdown in work during the summer months and not the actual confidence in the construction sector. This observation is supported by the decline of the figure reported for employment expectations over the next three months, which fell from 23.9 in May to -6.9 in June, while the figure for overall order books remained stable at 9.2 in both May and June. Despite the challenges, the Spanish construction market shows potential for growth. Insufficient demand, the most significant factor limiting business activity, remains a persistent issue with a figure of 58.3 reported in June. However, this figure, although high, does not stick out as an outlier given the 2023 average of 52.3 and the 2024 year-to-date average of 59.1. It points to a persistent and long-lasting want in the market, where Spanish builders have the capability and desire to take on more work, inspiring confidence in the future. Significant commitments from data centres, gigafactories, commercial centre refurbishments, office developments and even the new Madrid North re-urbanisation project are well received by municipalities, investors, consultants and contractors, obtaining competitive bids from desirable stakeholders. The tourism industry also continues to drive investment with new build and refurbishment projects. All in all, Spanish construction remains a stable industry for the country, as can be seen in the previously reported GDP results. 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.
Ritz, Madrid, Spain — Gleeds provided Project Management services.
