Western Mainland Europe Construction Market Report 4Q 2023
Spain
Local economic indicators
The Spanish National Institute of Statistics (INE) published its latest flash report for 3Q results on 27 October 2023, reporting that the country experienced 1.8% year-on-year (YoY) growth and 0.3% growth over the previous quarter, both slightly less than 2Q results. The gross value added was positive across all industries except real estate activities (-3.8 YoY), whereas construction saw 1.0% YoY growth (chain-linked volumes). The Organisation for Economic Co-operation and Development (OECD) updated its yearly GDP forecast to 2.4% in 2023 and 1.4% in 2024.
Annual inflation data from INE reported annual inflation at 3.2% in November, 0.3 points better than that in October (3.5%). highlighting gas, tourism, and food as major negative contributors to the overall rate. The Eurostat Harmonised Index of Consumer Prices (HICP) also reported 3.2% in November, a slight increase from September’s 3.3%. The OECD forecasts 2023 inflation at 3.5% for the year’s average, then 3.7% in 2024.
Construction materials
As reported by Eurostat, the local industrial producer price index reveals ongoing price recovery in wood, flat glass, hollow steel profiles and especially electrical distribution. Clay and concrete have experienced more significant inflation throughout 2023, likely due to energy price volatility. Steel and structural metals remain relatively stable. In contrast, electrical distribution materials, especially those used in data centre construction, are experiencing some volatility as demand and lead times increase. 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
In November, the construction confidence indicator increased to 14.9 from -1.6 in August, primarily due to the recovery of the current overall order books (-9.0 in August vs. 12.3 in November). Employment expectations over the next three months also increased to 17.4 from 5.8 in August. Insufficient demand remains the highest reported factor limiting construction (50.4), solid evidence that Spanish contractors are ready to work and prepared to take on increased demands as they once did.
Regarding sector activity, hotel and data centre construction remains active. Evidence shows investors reactivating interest in the local market as technical due diligence requests have increased since 3Q.
With respect to contracts, while price review clauses have become commonplace, PCSA (pre-contract services agreement) models are becoming a standard in residential construction where the product is well-defined by the developer in the early stages. Other sectors are beginning to push for gross maximum price contracts.
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. Undertaking risk analysis studies enables better evaluation and preparation of 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.
