Europe Construction Market Report 1Q 2024
Portugal
Local economic indicators
Gross domestic product (GDP)
Statistics Portugal (INE) released its 4Q GDP data on 30 November 2024. The report highlights year-on-year (YoY), real GDP growth stood at 2.2% in 4Q 2023, marking an increase of 0.8% compared to the previous quarter.
In addition, Eurostat published figures relating to the gross value added (GVA) by the construction industry for 3Q 2023, which fell by 1.4% over the previous quarter but rose by 3.5% YoY and currently accounts for 3.6% of total GDP.
The Organisation for Economic Co-operation and Development (OECD) maintained its GDP Forecasts, anticipating a growth rate of 2.2% for 2023 and 1.2% for 2024.
Inflation
Recent data from the INE website indicates local inflation of 2.3% in January, a slight increase from the yearly low of 1.42% in December. The Eurostat Harmonised Index of Consumer Prices (HICP) corroborates these findings, recording a rate of 2.5% in January, up from the 1.9% logged in December.
The OECD has maintained its inflation forecasts at 5.5% for the 2023 average and 3.3% for 2024.
Construction materials
As reported by Eurostat, the local industrial producer price index reveals that despite their month-over-month (MoM) increase, electricity, gas, steam and HVAC supply and electrical distribution continue to show YoY price recovery, as does wood. Conversely, glass and concrete have exhibited both MoM and YoY inflation.
See the following table for MoM, YoY and indexed pricing inflation:
Market outlook
In January, construction confidence rose 0.7 points from -4.7 to -4.0, attributed to strengthening work expectations (1.6 to 2.8) and stability in order books (-11 to -10.8). Labour shortages remain the primary constraint on building activity, with the January figure remaining relatively stable at 31 compared to its November and December equivalents of 30.8 and 31.4, respectively. January’s figures also saw a small spike in insufficient demand from 8.2 to 9.4, the highest reported figure since March 2023, 10.4.
Investors in Portugal have predominantly focused their attention on the hospitality and retail sectors, displaying a notable preference for sustainable assets. This trend underscores a growing awareness and commitment to environmentally conscious developments within the investment landscape.
While Portugal continues to suffer from affordable housing shortages, just over half of the planned apartments have commenced construction over the past four years. Political instability continues to pose challenges, hindering the anticipated growth in housing supply. Notably, Lisbon has experienced a decline in licensed residential projects, worsening the demand-supply imbalance, particularly in the mid and low-range segments.
University students are also facing housing challenges as scarcity persists in the PBSA sector, prompting both private and public investment initiatives to address this demand-supply gap, indicating opportunities for growth in this niche segment.
The office sector continues to face decline, although there is a discernible increase in demand for modern office spaces, which partially offsets this trend. This suggests a shifting preference towards contemporary work environments.
While the retail sector shows signs of gradual recovery, it is notably propelled by low-cost retailers. Conversely, despite a slowdown in 2023, the industrial and logistics sector maintains a robust level of activity, indicating resilience within this segment of the market.
The tourism sector's recovery drives the opening of hotels, predominantly in the 4-star category, reflecting renewed confidence in Portugal's tourism industry.
Gleeds recommends revising previously set project budgets to present-day figures based on local statistical information, our own internal data and 1Q 2024 forecasts. Additionally, we advise investors to consider inflation contingencies in their budgets as materials and labour shortages remain unpredictable.
