Western Mainland Europe Construction Market Report 2Q 2023
Spain
Local economic indicators
The Spanish National Institute of Statistics (INE) revealed that Spain closed 2022 with an overall positive gross domestic product (GDP) growth rate at 5.5%, slightly better than 2021, recorded at 5.1%. Provisionally, 1Q 2023 is reported at 3.8%. In its March report, A Fragile Recovery, the Organisation for Economic Co-operation and Development (OECD) forecast GDP growth for 2023 at 1.7%.
INE showed 2022 annual inflation at 3.2% in May. January (5.9%) and February (6.0%) produced minimal increases while the last three months delivered overall declines. The Eurostat Harmonised Index of Consumer Prices (HICP) has mirrored these up-and-down trends, currently at 2.9% in May.
Spain has exceeded the International Monetary Fund (IMF) forecast for overall inflation recovery in 2023 of 4.1%. The second half of the year could reach stability or even better inflationary recovery results.
Construction materials
The local construction cost index from the Ministry of Transportation, Mobility and Urban Agenda (MITMA) indicates that there had been ongoing recovery since 3Q 2022 which stabilised in 1Q 2023.
The construction material cost index from MITMA shows that steel has continued to experience recovery whilst concrete has begun to see inflation this year, likely due to new carbon credit fees. Copper pipe and electrical wire should be closely monitored as they are beginning to experience increases possibly related to the EU Recovery and Resilience Facility measures requiring investments in energy efficient upgrades.
Contracts
Some contractors are proposing “open book” contracts, a change from traditional fixed price/lump sum contracts. After negotiations, the final solution is usually a bespoke contract that allows for some price revision clauses on key items.
Market outlook
Construction confidence was reported at 13.6 in May, a peak for the year which started at -10.6 in January.
Surveyed contractors are forecasting increased work expectations — currently relatively high at 17.1, following a low of -14.2 in January, although at the same time insufficient demand is being seen in the sector. This has been a continuing theme over recent years where companies are capable of taking on more work but at the same time there is no danger of not filling order books.
With an expected sector investment of over €16 billion by 2026, data centre projects continue to make a mark on local industry. Gleeds recently attended the Data Centre Dynamics (DCD) Connect Madrid event. Gleeds Spain will begin using our own embodied carbon calculator, Decarbonise, on new data centre projects. The service is designed to help clients understand their project's carbon footprint and provide project specific recommendations on how and where they can decarbonise.
Tourism continues to thrive in Spain and Gleeds is maintaining a steady stream of luxury hotel refurbishment projects throughout the country.
As always, Gleeds advises regular project budget updates that take into account recent market pricing and local risk factors which may impact project programmes and costs. Risk analysis studies are recommended to better evaluate and prepare appropriate contingencies for your particular project conditions and risk exposure.
Castellana, 81 refurbishment, Madrid, Spain — Gleeds provided Project Management,
Quantity Surveying and Cost Management services.
