Europe Construction Market Report 1Q 2024
Czechia
Local economic indicators
Gross domestic product (GDP)
The latest flash report released by the Czech Statistical Office (CZSO), shows GDP fell by 0.4% in 2023. Contributing to this final figure for 2023 was a 0.2% fall in 4Q 2023 (seasonally and calendar adjusted; market prices) in a year-over-year (YoY) comparison and a 0.2% rise in 4Q 2023 relative to the preceding quarter. This decrease in GDP has been attributed to a reduction in final consumption expenditure of households and by a change in inventories.
Although detailed data for the fourth quarter is still pending publication, 3Q gross value added (GVA) figures suggest that the construction sector sustained its share of the overall GDP at 5.3%, despite experiencing a 1% decline between 2Q and 3Q as well as a 0.4% YoY decrease.
The Organisation for Economic Co-operation and Development (OECD) updated its previous yearly GDP forecast from 0.3% to -0.3% in 2023 and from 2.4% to 1.6% in 2024 to reflect this new data.
Inflation
The most recent data available on the CZSO website reveals that the average inflation rate for the year was 10.7%, with January marking a steep drop to 2,3% from its November and December figures, 7.3% and 6.9% respectively. Similarly, The Eurostat Harmonised Index of Consumer Prices (HICP) supports these findings, indicating 8% in November and 7.6% in December. While the latest data for January has yet to be published, local inflation figures indicate that HICP will likely also present a substantial decrease.
The OECD has updated its 4Q inflation forecast downward to 7.8% from 10% and its overall annual inflation prediction from 12.2% to 10.7%. Additionally, it has provided a forecast of 3.1% for 2024.
Construction materials
As reported by Eurostat, the local industrial producer price index reveals a notable month-over-month (MoM) price recovery in clay, while steel tubing shows inflation, and other areas demonstrate relative price stability.
However, when examining the index column, it becomes evident that electrical distribution hand HVAC prices have remained persistently high when compared to all other areas.
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
In January 2024, the construction confidence indicator significantly improved, with a score of -8.6, its highest position since November 2022. This follows December's score of -16.8, the joint second-lowest score since January 2018, with the lowest score and other joint lowest score also both being recorded in 2023, which rose 14 points from -12 in December to 2 in January, and a smaller improvement in the reported figure for order books, -21.6 and 19.2 during the same period. Factors limiting building activity remain elevated yet relatively stable — except for shortages of materials/equipment, which has seen an increase from 13.6 to 22.6.
As reported by experts in our local office, in 2023, the Czech industrial real estate sector experienced a significant surge in construction, with over 1.5 million sqm of space added under new development. However, completion rates remain modest, keeping the vacancy rate below 2%, with an increase of 182,200 sqm in modern industrial space during 3Q 2023.
Rents for both warehouse and office spaces have stabilised, ranging between €7.50–€7.70 per sqm per month for warehouses and €9.50–€12.50 per sqm per month for office space. The slower pace of project delivery is attributed to delays by tenants and developers, alongside a rise in speculative building, partly due to previous challenges like supply chain disruptions, energy crises, inflation and financing difficulties.
Despite these challenges, developers prioritise flexibility in supply to meet investor and tenant demands. With the market’s vacancy rate persisting below 2%, despite a decrease in demand during 3Q 2023, developers remain optimistic about the Czech market’s potential.
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.
Project 4B of Commercial Bank, Prague, Czech Republic — Gleeds provided BS Tech Compliance, Construction Inspections, EA / CA / Client rep, Project and Programme Control and Risk Management services.
