01 May 2008
Germany is europe's largest construction market with an annual output of more than € 190 billion, according to recent figures from both economic forecasting group Euroconstruct and the Committee for European Construction Equipment (CECE). But it is beginning to lose its lead over the other members of the ‘Big 5’- the UK, France, Spain and Italy - whose combined output accounts for about 70% of all constructionactivity in Europe.
The German market has been in almost permanent decline since the end of the post re-unification building boom in the mid 1990s and the prospects for a dramatic recovery of the German construction sector in the short term look unlikely. Nonetheless, there is confidence in the market that the decline in construction will begin to slow over the next 18 months and start to show low levels of growth by 2007.
According to Euroconstruct, the German market slumped by a further -2,6% in 2004 while, on average, construction output across Europe grew by +2,1%. Euroconstruct's latest survey predicts that construction output in Germany will fall -2,2% this year and -1,4% in 2006 before improving in 2007 with +1,3% growth.
The IFO Institute in Munich forecasts that construction volumes in Germany will fall by € 4 billion in 2005 and approximately € 2,5 billion in 2006. IFO looked at 19 European countries as part of its study and said that Germany will be the only one where construction volumes will fall both this year and next. However, IFO is also expecting the German economy to recover slightly in 2007 and is predicting construction volume will rise by € 2,5 billion.
Federation of German Contactors economist Henri White is confident that the predictions of Euroconstruct and IFO will be borne out by the market. “New construction orders rose by +5,8% in May this year, but on average new order levels in the first five months of 2005 fell by -8%, while construction output over the same period dropped by -14%,”he said.
“It is too early to say whether the upturn in May was a one-off, or the start of a new trend. But the federal budget, which normally goes through legislation in November, was delayed until March so the rise in orders in May is probably due to the release of these funds rather than the start of a recovery. The weather in the first quarter of 2005 was also poor which had an effect on both output and new orders. Overall we are anticipating that the industry will decline by -4,5% this year and between 0,5% and 1,5% next year before stabilising in 2007.”
Doka's German managing director for sales and marketing Harold Ziebula added, “The formwork business's rental nature means that the amount of rental stock out on site is a good indicator of the current economic climate. The volume has been continually falling for the last 10 years and has declined further this year. We expect the market next year to continue to be difficult and stagnant but there is general optimism in the industry that we will start to see +2% or +3% growth from 2007.”
Demand for construction equipment in Germany has also suffered as a result of the flagging economy but not as much as might be expected. Off Highway Research's latest report indicates that sales in Germany grew +6% in 2004 - fuelled by growth of +10% and +20% in the mini excavator and wheeled excavator markets, respectively.
The report predicts gains for 2005 to be less than +3% but adds that if the promised allocation of funds to the road building sector is realised, a more tangible recovery in construction equipment sales may be forthcoming in the medium term.
“Germany's tri-annual Bauma construction equipment show seems to create peaks in sales as a result of customers postponing or advancing purchases to take advantage of special show deals,”said Caterpillar's German area manager Brian Abbott. “Last year was a Bauma year and our sales, in terms of unit volume, rose by +7% but we are expecting that to drop back to between -1 and +3% this year. Next year looks like it will be as flat as 2005 but prospects for 2007 look more positive.”
CECE's latest Economic Report, published in June this year, said, “Clear increases in activity have been reported from the UK, France and Spain in 2004 but Germany again experienced a further difficult year.”
The report suggests that the small domestic growth seen came partly from replacement of aging stock by rental companies as well as replacement of equipment sold to new EU member countries in Central and Eastern Europe.
Figures from CECE's German member association the VDMA, and quoted in the CECE report, show that domestic sales of construction machinery in 2004 grew by +2% while exports increased by +16%. CECE's analysis of the statistics suggests that the jump in export sales was mainly due to increased investment in new EU member countries.
The VDMA expects domestic sales to grow to +3% this year, it is predicting that exports will drop back to +4%.
Public spending on infrastructure has suffered under Germany's current government and has had a big effect on the construction industry and an impact on the level of private investment. But the country will be voting later this month in an earlier than expected general election. Opinion polls suggest that the ruling Social Democrats will lose power and the main opposition parties are all planning sweeping economic reforms.
Nonetheless, the reforms will take time to implement and high levels of national debt in Germany mean that any new government will not be able to make any significant difference in the short term. But just the prospect of change seems to be helping to boost economic optimism.
“This optimism for growth in 2007 is not based on hard facts but on the hope that we will have a new government in place by then and the results of their policies will start to become evident,”said Mr Ziebula. “There is a real need for investment in infrastructure in Germany - the country's geographical position in Europe means that transportation routes must be maintained and upgraded. Private funding through Public Private Partnerships (PPPs) has not been used as extensively in Germany as in other European countries, but that will have to change to meet the country's investment needs.”
According to Mr White, most of the political parties - apart from the Green party - support the use of PPPs in their manifestos as an efficient and cost effective route to improving Germany's infrastructure. “PPPs are the way forward for Germany to meet the need for investment in infrastructure,”he said.
Germany's contractors have had to expand their overseas interests in order to survive and as a result are thriving. Those that did not have seen their fortunes fail and this year saw Germany's third biggest contractor, Walter Bau, follow in the footsteps of Holzmann in 2002 and file for insolvency.
The collapse of Walter Bau has been blamed on the fact that the company did not seek out foreign opportunities when the domestic German market started to decline. Most of Walter Bau's subsidiary companies have now been sold off. Strabag gained control of Dywidag Holdings and Walter Bau's majority share of Ed Züblin while Swedish investment company Industri Kapital bought out Dywidag Systems International.
“After 10 years of continual recession, the high level of bankruptcy is a big problem for the German construction industry,”said Mr Ziebula. “Companies which have coped with the economic climate have done so because they have reorganised the way they work and are now fitter and more competitive, which will stand them in good stead when the market does start to recover.”
Mr White added, “The level of insolvency in Germany is probably three times higher than elsewhere in Europe at the moment.”
Germany's surviving contractors are nearly all benefiting from the growth in Central European countries and, according to Mr Abbott, this is also benefiting Germany's construction equipment sector. “Many German companies working abroad are still buying equipment in Germany and shipping it to where it is needed in order to take advantage of the lower interest rates,”he said.
Most of Germany's bigger contractors, such as Bilfinger + Berger and Hochtief, have expanded their overseas operations which is helping them to grow their businesses despite the difficult domestic market.
Bilferger + Berger chief executive Herbert Bodner has been quoted in the German press as saying that the company intends to double its 2004 profit of € 50 million by 2007. Mr Bodner stated that he sees opportunity for growth in property management, road building and management, and public buildings but added that he sees little reason for optimism in the domestic market at the moment.
The residential and public sector construction market in Germany may be sluggish but there still seems to be a steady flow of high profile commercial projects. Some of the schemes that have been completed already this year, or will be finished by the end of 2005, are considered to be very cutting edge in terms of technical complexity.
Germany will be hosting the football World Cup in 2006 and a number of new stadia have been built, and existing ones upgraded, over the last few years to create suitable venues for the tournament. One of the most striking new builds is Munich's new Allianz Arena, which is home to both FC Bayern Munich and TSV 1860 Munich and will host the opening World Cup game.
Construction of the Allianz, designed by Herzog & de Meuron, was completed earlier this year by Austrian contractor Alpine Mayreder. The outer walls of the 66000 seater stadium are formed by 4400 polycarbonate light domes and the roof is made up of 2874 foil air cushions. The stadium's light domes can be illuminated in red, blue or neutral white depending on which team is playing. It is believed to be the only stadium in the world capable of doing this.
Frankfurt's skyline has also gained a striking new addition in the form of the 19-storey glass fronted Radisson Blue Heaven Hotel over the last 12 months. Bilfinger + Berger is expected to complete work on the 87 m tall building in the autumn with the first guests checking in by the end of the year.
Construction of the 440 room concreted framed hotel was fast tracked using a specially designed formwork system from Peri. The formwork system included use of customised 32 m2 slab tables which helped the project team construct each 1200 m2 floor slab in just four days.
“There is a growing trend for construction of unusually shaped buildings with exposed face concrete in Germany at the moment,”said Mr Ziebula. “Getting a high quality finish is very important on these projects and formwork has an import role to play in achieving this. One of the more complex schemes which we have been involved with this year is the Phæno Science Centre in Wolfsburg, which was design by Zaha Hadid.”
Construction of the € 79 million science exhibition, funded by the City of Wolfsburg, started in March 2002 and is due to be completed in November this year. The building has been described as one of the most complex building currently under construction in Europe.
Construction of the main structure has been carried out by Heitkamp and used 4900 tonnes of steel reinforcement and 29000 m3 of self compacting concrete to achieve the concept's smooth exposed concrete walls. Doka worked with the site team to develop the 68000 m2 specialist formwork system needed to enable construction of the complex geometry of the building.
“The design of the Phæno is very striking but the building's different cornices and arched elements needed a lot of bespoke formwork to meet the complex design,”said Mr Ziebula.
In Stuttgart construction of another unusual building - the new Mercedez Benz Centre - is well underway and on schedule for its 2006 opening. The focal point of the visitors centre and museum is a 24 m high concrete and glass cone shaped structure which will be topped by a Mercedez logo.
Specially adapted Ronda formwork designed by Hünnebeck was used by the main contractor - a consortium of Ed Züblin and Wolff & Müller-to construct the complex concrete. The cone's radius tapers at an angle of 12° from 14,5 m at the base to 7,5 m at the top and the wall is just 0.3 m thick.
Hünnebeck tested the formwork in its warehouse before delivering it to site to ensure that the system worked. Once on site the structure was successfully formed in four concreting stages, enabling work on the glass elements to get underway.
Despite the number of innovative projects on site in Germany, the level of construction work currently underway is estimated by many to be just 50% of the level seen in 1995. The heady days of rapid growth seen during the post-reunification boom are unlikely to ever return but the market appears to be confident that small but steady positive growth could be just 18 months away.
Germany's long recession has seen many construction firms collapse. But these insolvencies have helped remove over capacity in the market and the survivors have evolved, leaving the industry better placed to benefit when Germany reclaims its position as the powerhouse of Europe.