Central Europe to speed up
By Sandy Guthrie25 May 2016
Central European construction market growth will speed up in 2017, with fresh funding from the European Union (EU) during a new funding period expected to be the key driver behind the Central European construction growth from 2017 onwards.
This forecast comes from research firm PMR, which added that the mortgage market continued to offer low interest rates, and that house prices were attractive for a larger number of consumers.
It said this had prompted developers to launch a number of residential developments in 2015.
For Poland, despite the fact that civil engineering construction had seen a weak start to the year, PMR expected that 2016, as a whole, would see a continued rise in output – mostly on the back of an upturn in road construction and power construction.
In the non-residential segment, given strong data on building permits, the sector should grow by 3 to 4% in 2016 and 2017, it predicted. A growing interest on the part of international investors who still perceive Polish real properties as an excellent investment is great news for the commercial construction industry, PMR added.
It said that when it came to residential construction, despite the thriving segments of real property development and individual construction, Poland’s housing policies still placed the country near the bottom of the European league.
PMR said that these circumstances meant that there was still a considerable potential for the development of residential construction in Poland.
A new EU funding programme is expected to give Czech road construction a fresh impetus. However, PMR reported that state funding for road construction for 2016 had fallen, and this was jeopardising a number of planned road construction projects.
In 2016, it said, the budget for railway infrastructure construction would be substantially reduced as a result of the general budget cuts prompted by the need to reduce the state budget deficit.
With non-residential construction, 2015 brought the first marked recovery, said PMR, as the floor area of building permits increased by almost one-third.
It said the increase was expected by developers to be fuelled mostly by industrial and warehouse construction, as a number of fresh investments and commitments from strong developers had been announced in 2015.
Overall, Czech construction output is, therefore, expected to grow at a slow pace in the next five years and to exceed the CZK500 billion (€18.5 billion) threshold only after 2020.
After six years of decline, 2015 brought 20% recovery for the Slovak construction industry, according to PMR.
It said the growth had been driven mainly by civil engineering construction and transport infrastructure construction in particular.
However, it forecast that after substantial growth in 2015, the Slovak engineering market would undergo a double-figure reduction in 2016 – mostly because of the shift between the old and new EU budgets, and the very high comparative base.
It said that private investment would partly offset this deterioration and become the key fuel for gross fixed capital formation, to a great extent via foreign direct investment, such as a Jaguar Land Rover plant in Nitra, on which construction is scheduled to start in 2016.
In total, Slovakia is expected to receive almost €4 billion for transport infrastructure investments for the period from 2014 to 2020, in comparison with €3.2 billion for the previous period, of which some €1.7 billion is to be spent on road construction projects. PMR said the EU-allocated funding would allow the construction of around 130km of motorways and expressways.
Industrial and logistics construction is expected by PMR to give non-residential construction a strong boost in the next few years. It said the former Slovak government and its successor had expressed a willingness to support investments in this area in their attempt to entice companies to launch operations in Slovakia.
After a weaker 2016 – marking a transitory stage between the old and new EU budget – civil engineering construction on the Hungarian market was predicted by PMR to continue to grow from 2017 onwards. However, the rate of growth was expected to slow significantly in comparison with 2013 to 2014.
PMR said that despite all of these signs of recovery, Hungary was threatened by an unstable political situation and numerous controversies associated with the way in which the government spent public funds on infrastructure projects.
It added that an ongoing ban on the construction of large shopping malls was limiting investments in this area. As a result, no major retail facility projects were unveiled in 2014 to 2015, it said. Most of the output in the retail construction arena was accounted for by small developments in small towns.
For Romania, the absorption rate for 2007 to 2013 funds from the EU has improved from 15% at the end of 2012 to 66% in 2016, said PMR. This encouraging trend was expected to accelerate in the 2014 to 2020 programming period, it added, saying this was mostly because of diminishing corruption and the more investment-focused programmes of Romanian politicians.
In the 2014 to 2020 programming period, Romania is due to have access to €5.1 billion of EU funds for the development of its transport infrastructure, of which about €3.2 billion is to be spent on the implementation of road infrastructure construction projects. PMR said that most of this amount was to be channelled toward motorway construction projects.
In addition, it said, low wages and a well-educated labour force would be likely to attract more foreign investment, not only in industry but also in business services – in particular SSC (shared service centres) and BPO (business process outsourcing).
PMR predicted that a strong influx of EU funds from the 2014 to 2020 budget, along with an improvement in the absorption rate, would increase public investment in Bulgaria.
However, it added that in the wake of an expected slowdown of public investment in 2016, EU funds should fuel general government investment to a greater extent from 2017 to 2018 onwards.
It said a total of €5.6 billion was to be invested in constructing 597km of motorways and 914km of expressways by 2020. Most of the priority motorway projects are part of the European Corridors 4, 7, 8 and 9, said PMR.
In non-residential construction, limited demand and the scarcity of developments in the pipeline was said to suggest that the retail segment would lag behind the other parts of the non-residential construction market in the next few years.
Unlike the retail sector, industrial and warehouse construction was far more promising, it said. Pharmaceutical companies, companies from the automotive industry and companies producing electrical equipment had the largest impact on new developments.
PMR said that although pre-crisis levels would not be achieved by 2020, non-residential construction’s overall trend should bring stable growth in output in 2016 to 2020.
The research company has recently produced reports on all these Central European countries.