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65th Euroconstruct Conference 2008
European Construction Market Trends to 2010
Country Reports
June 2008
This country report has been written and prepared by the EURCONSTRUCT organisation from the country reports of the 19 EUROCONSTRUCT member institutes
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Reproduction or passing-on of the whole or parts of the report is strictly forbidden without the prior written approval from CRESME, acting on behalf of the EUROCONSTRUCT group
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CONTENTS
TABLE OF CONTENTS
The Euroconstruct network 5
Austria 9 Belgium 27 Czech Republic 43 Denmark 63 Finland 85 France 109 Germany 133 Hungary 149 Ireland 177 Italy 203 Netherlands 225 Norway 247 Poland 269 Portugal 295 Slovakia 317 Spain 341 Sweden 365 Switzerland 387 United Kingdom 411
Member Institutes 435
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THE EUROCONSTRUCT NETWORK
EUROPEAN CONSTRUCTION BUSINESS RESEARCH AND FORECASTING GROUP
www.euroconstruct.org
EUROCONSTRUCT was set up in 1975 by a number of specialised research institutes and consulting organisations as a study group for construction analysis and forecasting. It has since expanded from the core group to include almost all Western European countries (the European Union and EFTA), as well as a number of Eastern European countries. At present, EURCONSTRUCT has member institutes in 19 European countries.
EUROCONSTRUCT’S network also extends to the Baltic States (through our Finnish partner), Japan (Research Institute for Construction and Economy, RICE, Tokyo) and Korea (Construction & Economy Research Institute of Korea, CERIK, Seoul).
The aim of EUROCONSTRUCT is to provide decision-makers in the construction sector and related markets and in ministries, agencies and national and international associations with information, analyses and forecasts to enable them to plan their business more effectively.
Construction markets are regional or even local. It is, therefore, a great advantage that the analysis and forecasts for these markets are prepared within the EUROCONSTRUCT network by competent national institutes for their respective home markets.
EUROCONSTRUCT’S research and advice focuses on:
o Short and medium-term forecasts for macro-economic and detailed construction trends in Europe o Analysis of structural changes, business strategies and competition in the European and world-wide construction industry o Market studies for industrial goods and service used by the building and infrastructure sectors.
EUROCONSTRUCT’S research and forecasts are designed to meet the needs of many types of business including:
o Construction contractors and developers; housing associations; o Manufacturers and traders supplying construction materials, products, equipment and machines; architects and other construction professionals; o Banks, financial and credit institutions; o Government departments and national agencies; industry associations; o The Commission of the European Community and other European organisations.
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THE EUROCONSTRUCT NETWORK
Each country member of EUROCONSTRUCT has the project management resources to offer their customers turnkey studies of pan-European scope. They can guarantee:
o Specific know-how and experience in database research and consulting; o A consistent multinational approach; o Expertise in project co-ordination and quality control; o Reports in the languages of the customer’s choice.
Twice a year, EUROCONSTRUCT organises an international conference on:
o Short-term forecasts by the EUROCONSTRUCT member institutes for the main market segments (housing, non-residential buildings, infrastructure and civil engineering, all sub- sectors with a breakdown in new work, and renovation/modernisation activities) in nineteen European countries. o A special issue selected for its medium-term impact on the construction industry (e.g. demographics, privatisation, lifestyles, technological change, internationalisation of strategies, changes in the demand and supply structure).
Past and forthcoming conference venues:
June 2002 Dublin (Ireland) December 2002 Munich (Germany) June 2003 Budapest (Hungary) December 2003 Funchal (Portugal) June 2004 Stockholm (Sweden) December 2004 Paris (France) June 2005 Cardiff (UK) November 2005 Barcelona (Spain) June 2006 Amsterdam (the Netherlands) December 2006 Munich (Germany) June 2007 Prague (Czech Republic) December 2007 Vienna (Austria) June 2008 Rome (Italy) December 2008 Brussels (Belgium)
In addition, EUROCONSTRUCT offers special studies for selected national and international clients based on well-founded knowledge of databases, methods, correlations and measures.
For details, please contact the EUROCONSTRUCT partner institute in your own country.
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THE EUROCONSTRUCT NETWORK
MEMBER INSTITUTES
Austria WIFO Austrian Institute of Economic Research
Association pour la Qualité des Indicateurs Économiques Belgium Aquiec-Vkebi de la Construction
Czech Republic ÚRS PRAHA ÚRS PRAHA, a.s., engineering & consulting organisation
Denmark CIFS Copenhagen Institute for Futures Studies
Finland VTT Building and Transport, Business Intelligence
France BIPE BIPE
Germany IFO IFO Institute for Economic Research
Hungary Build&Econ Building Economy, Art and Architecture Consulting Office
Ireland DKM DKM Economic Consultants
Centro Ricerche Economiche e Sociologiche di Mercato Italy CRESME nell'Edilizia
Netherlands EIB Economisch Instituut voor de Bouwnijverheid
Norway Prognosesenteret AS PS – Building and ConstructionResearch
Poland PAB Polish Construction Research & Forecasting
Portugal ITIC Technical Institute for the Construction Industry
Slovakia ÚEOS ÚEOS - Komercia, a.s
Spain ITeC The Catalonia Institute of Construction Technology
Sweden Prognoscentret AB Prognosesenteret AB (Part of the Analysgruppen AS)
Swiss Institute for Business Cycle Research, Swiss Switzerland KOF ETH Federal Institute of Technology, Zurich
United Kingdom Experian Experian Business Strategies
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AUSTRIA Austrian Institute of Economic Research www.wifo.ac.at
[email protected] [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
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1 Summary
The GDP in Austria is projected to grow by 2.1 % in volume this year. Next year, the momentum may moderate further, to an annual increase of 1.7 %. The forecast, particularly for 2009, is subject to an unusually wide margin of uncertainty since the scope and duration of the current international financial market crisis cannot be predicted reliably. The credit crisis has already left a clear impact on the real economy in the USA and Europe could be affected. In Austria, exports, industrial output and investments are set to decelerate during 2008 (having still been buoyant at the beginning of the year). Private consumption is unlikely to provide major support as high inflation will prevent net real income per employee from rising. Job creation, having been strong in early 2008, will gradually abate with the economic activity slackening. The downward trend in unemployment is likely to turn around in 2009. In 2010 GDP is expected to rise by 2.5 % mainly because of the planned tax reform.
In 2008 new residential construction will grow by around 1.8% chiefly because of cautious investment activities. Recent studies show that there is a lack of housing in Austria because of strong migration. Therefore a more dynamic development can be expected for the forecast period. The effects of the US real estate crisis will be overwhelming in the next years as a result growth rates of about 2.0% and 2.5% for 2009 and 2010 are expected.
Non-residential construction reached a peak in 2007 (3.5%). Services, commerce and leisure facilities are particularly needed. The volume in rented offices increased and the office vacancies rate amounted under a rate of 5%. Due to the international financial crises, international investors are still cautious thereby causing growth rates of only about 2.0% in 2008 and 1.5% in 2009. A recovery of 3% is expected in 2010.
Civil engineering supports the construction industry particularly in the transport infrastructure. Public investment plans reached a peak in 2007 (7.5%) but long term projects assure continuous growth within the forecast period (4% in 2008 and 2009, 5% in 2010).
Total construction will only increase by 2.3% in 2008 after very dynamic years with growth rates of about 5.1% (2006) and 3.7% (2007) when construction growth was well above the overall economic growth. Due to macroeconomic constraints and last year’s peak in civil engineering, the construction industry is expected to increase by 2.3% in 2009. The recovery of the building sectors will lead to a growth of about 2.9% in total construction in 2010.
Chart 1: Construction output by sector until 2009 Index 2003=100
140 Total civil engineering
130 New non-residential construction 120 New residential
index construction 110 Building renovation
100
90
2003 2004 2005 2006 2007 2008 2009 2010 Source: WIFO, EUROCONSTRUCT Rome, 2008.
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2 Macro-economic Outlook
After Phase of Weakness - Economic Growth Picking in 2010 as a Result of the Tax Reform
Austria’s overall economic growth attained nearly 3.5 % in 2006 and 2007. GDP growth remained robust in 2008 but the pace of expansion will slow down somewhat. Real GDP growth is projected at 2.1 % in 2008 and 1.7 % in 2009 because of the real estate and financial crises. The forecast is based on international assumptions that the Euro exchange rate will stabilise at $1.60; oil prices will continue to rise marginally until 2010 and real estate and share prices will rebound again as of 2009.
In 2010 Austria’s overall economic growth is forecasted to rise by 2.5 %. According to the current political agenda, a tax reform will take off in 2010. Underlying the present WIFO’s medium-term forecast is the assumption of an overall exoneration amounting to 3 billion Euros. Tax cuts are expected to give incentives to private consumers and to the overall economy. As a result of the tax reform, real GDP growth will be raised by a half percentage point in 2010. Investments will likely remain subdued in the near term. Stronger exports and an increase in private consumption could raise capacity utilisation. Capital formation is expected to pick up by 2-3 % per year. Private consumption will increase under the impact of the planned tax reform from 2010 onwards. It is assumed that the household saving ratio, which has risen markedly in the last few years due to uncertainty in the job market, the pension reform and other imponderables, will edge up further in 2010 as a result of the tax reform. Construction is unlikely to post gains as solid as the previous five years. Nevertheless, the construction sector will gain from the infrastructure programmes. Residential construction should recover because of strong immigration and an increased shortage of existing housing space. Strong price hikes for energy and food in 2008 will be reflected in higher inflation rates compared to the past years. Construction prices will rise more than the inflation rate.
Additionally, the Austrian economy will benefit by growth opportunities in the new EU member states. As of 2010, a recovery may be expected for the EU. Austrian exporting companies should be able to take full advantage of this recovery given their high degree of competitiveness. They would have acquired a strong market position in the new member states and in south-eastern Europe. They will also benefit from the sustained favourable development of manufacturing unit labour costs in the Euro area.
Foreign and domestic components of labour supply will increase. Dynamic growth will allow employment to expand 1 % per year. The unemployment rate will decrease. The tax reform envisaged for 2010 will widen the general government deficit to nearly 1 % of GDP. The medium-term projections further assume that policy measures in the areas of research, education and infrastructure will raise Austria's growth prospects over the medium and longer term.
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Chart 2: Development of gross domestic product (GPD) against construction output 2004-2010
GDP Construction Sector Output 6,0 5,1 5,0 3,7 4,0 3,3 2,3 2,9 3,0 3,4 2,3 in % 2,3 2,0 2,1 2,0 1,3 1,7 2,5 1,0 0,1 0,0 2004 2005 2006 2007 2008 2009 2010 Source: Statistik Austria, WIFO.
Table 1: Macroeconomic Key Indicators in Austria 2004 to 2010 (Annual percentage change)
2004 2005 2006 2007 2008 2009 2010
GDP 2.3 2.0 3.3 3.4 2.1 1.7 2.5 Private consumption 1.8 2.0 2.1 1.4 1.6 1.6 2.7 Gross fixed capital formation 1.4 1.9 3.8 4.8 2.2 1.8 3.1 Unemployment rate 4.8 5.2 4.7 4.4 4.2 4.3 4.2 Inflation 2.1 2.3 1.5 2.2 2.9 2.3 2.1
Source: Statistik Austria, WIFO.
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3 Housing Market
Residential Construction is expected to grow until 2010
In 2006 housing production increased significantly due to the booming overall economy and after a period of weak demand during the first years of the century. In 2007 new residential construction increased significantly by 7.7 %. The housing boom continued in the first half of 2007. In the second half of 2007, the real estate and financial crises in the US affected the European real estate markets which resulted in more cautious investment activities also in Austria. Credit conditions have deteriorated and investors’ confidence has weakened. Since neither the scope nor the duration of the international financial market crisis can be adequately assessed at present, the current projections are subject to a particularly large margin of uncertainty. It is assumed that the slowdown of activity will come to a halt during the year 2008 and give way to a tentative recovery. The growth of new residential construction is expected to increase by 3.0 % in 2008 and by 2.5 % per year until 2010. The main reasons are the increasing migration and the increase of single households and older people. About 44.000 dwellings were completed in 2007 according to WIFO calculation. Although the number of completions has grown in recent years, from a historical perspective, the production remains at a modest level. Ten years ago completions usually exceeded 55,000.
Due to the increasing migration and demographic changes, medium forecasts expect about 50.000 to 55.000 dwellings per year in five years. A significant increase in housing demand can be observed in metropolitan areas.
One of Europe's biggest city development projects is currently in the planning phase in the capital of Austria: Vienna. A complete new city area on 15,000 hectares will be created on a former airfield next year. Additionally new residential buildings are planned with the development of the new central railway station.
The market for high-quality dwellings, roof dwellings, and terraced houses in green, quiet neighbourhoods is also continuously increasing. The rising demand for freehold flats as well as for cheap rental dwellings tends to result in a higher housing production in multi-storied buildings.
The demand for 1 and 2 family housing is increasing, particularly for prefabricated houses. More than one third of completed 1 and 2 family houses are already prefabricated. The demand for "all-inclusive" solutions is growing significantly often in combination with individual changes in the final construction phase.
Prices for 1 and 2 family houses are increasing. The main reasons for this are the continuously climbing energy prices and the expanding service infrastructure of the contractors. There is a high demand for energy-saving heating systems and ecological building materials. Despite the higher costs for low energy and passive houses the demand in this segment is increasing. The Austrian ecological, prefabricated, high-quality buildings are an accretive export product to the new EU-countries especially to Hungary.
Energy performance certificates for new buildings which are sold or rented had to be issued as of the 1st of January 2008. The following year, energy performance certificates must be issued for all buildings. This certificate mainly shows the energy consumption for heating in kilowatt hours per square meter and year. Buildings that are not completely residential need to indicate both the heating and cooling energy demands. This mandatory energy performance certificate should make
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In the period 2008-2010 the average yearly growth rate is about 2% in the area of renovation and modernisation works. The potential for energy efficient renovation in housing is very large in the long term. Experts estimate that around 140 million square meters in the existing housing stock have to be modernised.
In Austria, housing subsidisation is a central instrument to provide affordable dwellings. The latest financial equalisation assured the continuity of the housing subsidisation. The federal funds for housing subsidisation have a volume of 1.78 billion euro and are legally guarantied until the next financial equalisation in 2012. An important part of the housing subsidisation scheme is environmental protection which should be achieved by ecological construction. To get public housing support for new housing construction, low-energy housing standard has to be attained in nearly all federal states.
Another housing policy target is to force passive houses. In the capital, Vienna, a large passive house project is planned with 1,700 dwellings ("EUROGATE"- area).
Additionally, the subsidisation of alternative energy like solar and geothermal energy and district heating is an important area of housing subsidisation. Shifts within the housing grants are under discussion in some federal states where a thermal and energetics housing renovation should gain in importance.
This is especially necessary in consideration of the climate protection programme initiated by the government to fulfil the Kyoto CO2 reduction target. Until 2020, the new government programme earmarks the thermal renovation of all buildings which were constructed after 1945.
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4 Non-residential Market
In Austria non-residential construction has benefited from the good overall economic performance of the last two years. Office, industrial construction and commercial investments, mainly in shopping centres, were especially brisk. In the booming years, company revenues increased which led to higher investment activity. All in all the real construction output in new non-residential construction increased annually by 3.5 % in 2006 and 2007. With the cyclical downturn a lower growth of about 2% in 2008 and 1.5% in 2009 in new non-residential construction is forecasted. Only as of 2010 will higher investments and higher growth rates of about 3% for the whole sector be expected in the course of the economic recovery.
Office construction seems to dampen in 2008 and also in 2009. In Vienna a lower completion rate is to be expected. Currently the rate of realised projects is below the planning rate. The international financial crises caused a decline mainly in the production of office premises.
In 2010 office production and the expansion of shopping centres will recover. The development of new city areas in Vienna will cause the need for new commercial buildings which should be created in the course of the new railway station projects.
The construction of commercial buildings and shopping centres shows an upward trend. Commercial areas in the city centre are expensive and rare so a lot of new shopping centres are built on green fields. The changes in client's needs show, that shopping centres are becoming more popular. In the next years around 40 projects of around 470.000m2 are planned and waiting for realisation. The SCS in Vösendorf is the largest shopping centre in Austria. The expansion of the sales area is possible in all state capitals. The most recent projects are the Stadion-Center in Vienna, the Leoben Shopping Centre, the Rosenarkade in Tulln and the Shopping Centre North in Graz according to Regioplan.
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5 Civil Engineering Market
Civil engineering supports construction industry in the mid-term
While new civil engineering increased by 7.5% in 2007, a more moderate growth is expected in the forecast period 2008 to 2010 with average annual growth of 4 to 5%.
In the mid-term, an extensive expansion programme for road and rail infrastructure is scheduled, even if investments in road, mainly highway infrastructure will slightly decline.
The new Austrian transport infrastructure framework plan of the federal government which was decided in the Council of Ministers in March 2008 contains one of the biggest expansion plans since 1945. The total investment volume for within the next five years is about 19 billion Euro for around 500 projects.
In the period 2008 to 2013 around 8.5 billion euro is earmarked for the expansion of road and 10.7 billion euro for rail infrastructure.
Rail: Contrary to the past trend, projects will be realised and new concepts will be created several years in advance. This mainly affects the faster expansion of the East-West railway connection (Westbahn) as well as new tunnels, train stations and new road connections. The topographically difficult section between Vienna and Salzburg will not take longer than 2.5 hours of travelling time (average speed of the trains will be 200 to 230 km/h).
The expansion of the railway infrastructure is also an important target of the climate protection programme. Estimations showed that around 1000 trips longer than 20 kilometres can save 1,300 tons CO2 if a train is taken instead of a car.
Road: The complete highway network is organised by ASFINAG (Highway and Freeway Financing Cooperation). ASFINAG plans, builds, finances, operates and maintains the entire network for motorways in Austria. ASFINAG plans to invest 1.3 billion euro in 2008 (after 1 billion euro 2007). In 2009 around 1.27 billion euro and 1.02 billion euro in 2010 will be invested. The most important projects are the completion of the sections on the "Südosttangente" in Vienna, the Pyhrn, Tauer-, Inntal- and Rheintal highway and the Arlberg-, Murtal- and Stockerauer Freeway. Moreover the expansion to the eastern neighbour countries has high priority. Main projects are the sections in the Mühlviertel (Upper Austria), Burgenland, and the freeway in Fürstenfeld, as a port of the high level axis of the TEN-V network (Danzig-Brünn-Vienna).
Further new projects are: the sections of the Donauufer- und Linzer highway, the outer highway ring of Vienna as well as the Northern boundary of Vienna and the Kremser freeway. The relief of road traffic should be established by the creation of additional tunnels and by-passes in urban areas.
The ambitious expansion programmes are credit-financed. ASFINAG and the Austrian Federal Railway (ÖBB) can take out new loans for financing the new projects.
Tolls on highways are very likely to be increased within the next years to provide the necessary financial means for this expansion programme. It will be important to pay back the loan in the mid- term. The past investments in railway infrastructure had a big implication on the public household. In
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2004, the remission of the federal railway debts increased the public debts due to a EUROSTAT decision; this led the new public debt to jump from 1.2% to 3.7% of the GDP.
The traffic expansion plans cannot solve totally all traffic problems in metropolitan areas. Investments in logistic centres and structures for freight railway stations are needed. Additional investments will be made for parking lots in front of rail stations as well as new access roads.
The performance of the current transport infrastructure will be improved by investments in information and telematic technologies, as well as in parking information systems. Through telematics, efficiency as well as security will be increased. Intensified ecological investments e.g. to reduce traffic noise (noise barriers) are also planned.
Compared to traffic infrastructure, the outlook for investments in telecommunication is very low. Investments will be made for upgrading the existing network. Currently a split of Austria’s largest telecom provider (Telekom Austria) into two segments – a fixed line and a mobile network is discussed.
Future privatisation revenues of the Telekom Austria could run into the fixed line sector, where the fibre cable network could be expanded.
In the energy sector the expansion of water power for electricity production has priority. The electricity industry invested strongly in hydro power in 2007. A new master plan for hydro energy was developed which puts climate protection in its centre. Until 2020 around 7 billion kilowatt hours electric power should be produced with hydro power additionally. This would cover around 10% of the total demand or the current import volume.
The master plan targets investments in the expansion of hydro power plants with a volume of 8.4 billion euro by 2020. To put these plans into practise the political confirmation by the federal ministry and the federal states is needed. A balanced water regulation directive is also required.
A further expansion of water power can be expected after realising the framework conditions for such a programme. This implicates that dynamic investments in hydro energy could be realised after 2010.
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APPENDIX – DEFINITIONS
Table 1 • Statistik Austria • Population, Households: Statistik Austria – annual average. • Unemployed calculated by the national method (by Public Employment Service Austria – AMS) • Unemployment rate calculated by the Labour Force Concept (ILO). • Long term interest rate: WIFO.
Table 2 • Construction output refers to construction investment regarding the European System on National Accounts (ESA 1995). Source: Statistik Austria, WIFO.
Table 3 • Statistik Austria – except housing starts: WIFO calculation.
Table 4a • Education buildings: Bundesimmobiliengesellschaft, Statistik Austria, WIFO calculation • Health: WIFO calculation • Industrial: including storage buildings • Offices: Statistik Austia, WIFO calculation • Commercial: Statistik Austia, WIFO calculation • Agricultural: WIFO calculation
Table 4b • Other transport includes airports, water ways, harbours,
Table 5 • Statistik Austria, WIFO calculation. • Volume Private consumption, public consumption, etc: at market prices, VAT excluded
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Country/Pays/Land: Austria Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 8 175 8 233 8 282 8 312 8 338 8 365 8 395 Bevölkerung
Households ('000s) Ménages 3 440 3 477 3 513 3 540 3 565 3 591 3 617 Haushalte
Unemployed ('000s) Chômeurs 244 253 239 222 212 224 224 Arbeitslose
Unemployment rate (%) Taux de chômage 4.8 5.2 4.7 4.4 4.2 4.3 4.2 Arbeitslosenquote
Change of GDP Variation du PIB 2.3 2.0 3.3 3.4 2.1 1.7 2.5 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 2.1 2.3 1.5 2.2 2.9 2.3 2.1 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 2.1 2.3 3.2 3.8 3.5 2.8 2.6 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 4.2 3.9 3.9 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.2 3.4 3.8 4.3 4.1 4.0 4.0 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Austria Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 8 160 2.4 -3.2 7.7 2.0 1.8 2.0 2.5
Logement Renovation 4 834 2.2 -5.1 3.0 3.0 2.0 1.8 2.0
Wohnungsbau Total 12 994 2.3 -3.9 5.9 2.4 1.9 1.9 2.3
Non-residential construction New 7 118 -1.0 3.1 3.5 3.5 2.0 1.5 3.0
Bâtiments non résidentiels Renovation 3 597 0.5 1.1 2.3 2.0 1.0 1.5 1.0
übriger Hochbau Total 10 715 -0.5 2.4 3.1 3.0 1.7 1.5 2.3
Building New 15 278 0.8 -0.3 5.7 2.7 1.9 1.8 2.7
Bâtiment Renovation 8 431 1.5 -2.6 2.7 2.6 1.6 1.7 1.6
Hochbau Total 23 709 1.0 -1.1 4.7 2.7 1.8 1.7 2.3
Civil engineering New 6 637 2.6 4.6 7.0 7.5 4.0 4.0 5.0
Génie civil Renovation 1 489 1.0 1.1 2.5 3.5 3.5 3.0 2.0
Tiefbau Total 8 126 2.3 3.9 6.1 6.7 3.9 3.8 4.5
TOTAL CONSTRUCTION OUTPUT 31 835 1.3 0.1 5.1 3.7 2.3 2.3 2.9
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 5.61 -5.2 2.5 2.5 3.0 2.5 2.0 2.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Austria Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 15.5 15.7 17.0 17.5 17.8 18.0 18.2 Baugenehmigungen Familienhäuser
Flats Collectif 27.0 27.3 28.0 28.0 28.2 28.7 30.0 Mehrfamilienhäuser
TOTAL 42.5 43.0 45.0 45.5 46.0 46.7 48.2
Housing starts 1+2 family dwellings Logements commencés Individuel 15.5 15.7 17.0 17.5 18.0 18.3 18.5 Baubeginne Familienhäuser
Flats Collectif 27.0 27.3 28.0 28.5 28.7 28.9 29.4 Mehrfamilienhäuser
TOTAL 42.5 43.0 45.0 46.0 46.7 47.2 47.9
Housing completions 1+2 family dwellings Logements terminés Individuel 17.1 17.3 16.0 16.2 17.1 17.4 18.0 Baufertigstellungen Familienhäuser
Flats Collectif 25.2 25.2 26.5 27.0 27.9 28.0 28.2 Mehrfamilienhäuser
TOTAL 42.3 42.5 42.5 43.2 45.0 45.4 46.2
Housing stock Logements existants 3 849 3 879 3 910 3 941 3 963 3 986 4 005 Wohnungsbestand
thereof second homes dont résid. secondaires 266 268 270 271 272 273 274 davon Zweitwohnungen
thereof vacancies dont inoccupé 294 295 294 294 294 293 290 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 56.7 56.8 56.9 56.9 56.9 57.0 57.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Austria Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 320 -3.4 -1.0 1.8 1.7 2.0 1.5 1.2 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 873 -1.0 4.0 2.8 1.2 1.2 1.0 2.5 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 1 656 0.0 1.3 2.5 5.2 2.0 2.8 2.9 Industriegebäude
Storage buildings Bâtiments de stockage 59 -1.4 2.8 4.2 4.2 2.1 2.1 3.8 Lagergebäude
Office buildings Bureaux 1 925 -2.3 4.0 3.2 4.1 2.0 0.5 4.0 Bürogebäude
Commercial buildings Commerces 2 036 -2.5 3.5 3.7 3.2 2.0 1.5 3.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 14 -4.0 3.0 3.8 0.2 0.5 0.4 0.2 Landwirtschaftsgebäude
Miscellaneous Autres 235 31.1 8.4 17.4 1.0 5.0 3.2 0.5 Sonstiges
Total 7 118 -1.0 3.1 3.5 3.5 2.0 1.5 3.0 Insgesamt
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Austria Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 2 281 7.7 4.9 9.0 8.5 6.0 5.0 5.2 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 1 639 16.6 8.0 12.0 4.0 3.0 4.5 5.0 Bahnanlagen
Other transport Autres réseaux 1 067 -18.8 26.0 9.0 7.5 3.6 7.6 8.9 Übrige Verkehrsinfrastruktur
TOTAL 4 987 4.0 9.9 10.0 6.8 4.5 5.4 5.9
Telecommunications Télécommunications 116 -4.7 -1.9 2.0 1.5 2.0 1.5 1.2 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 1 173 -3.9 -5.4 4.0 7.0 2.3 2.0 3.0 Energie- und Wasserversorgung
Other Autres 1 850 3.3 -2.7 -1.6 6.7 3.5 0.6 1.5 Sonstiges
Total 8 126 2.3 3.9 6.1 6.7 3.9 3.8 4.5
1) At 2007 prices, excluding taxes.
24 - ©Euroconstruct – Rome, June 2008
AUSTRIA
Country/Pays/Land: Austria Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 131.5 1.8 2.0 2.1 1.4 1.6 1.6 2.7 Privater Verbrauch
Public consumption Consommation publique 42.7 1.4 1.9 2.1 2.5 2.5 1.0 1.1 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 52.7 1.4 1.9 3.8 4.8 2.2 1.8 3.1
of which construction
Stocks (contribution as % of GDP) Variations de stocks - 1.4 Vorratsveränderung
Exports Exportations 145.6 8.2 6.2 7.5 8.1 5.2 5.0 5.7 Exporte
Imports Importations 129.7 6.8 5.0 5.6 6.6 5.3 5.2 6.0 Importe
GDP PIB 241.5 2.3 2.0 3.3 3.4 2.1 1.7 2.5 BIP
Standard National Accounts, gross figures 1) At 2007 prices.
©Euroconstruct – Rome, June 2008 - 25
BELGIUM Aquiec-Vkebi
Jean-Pierre Liebaert e-mail: Jean-Pierre.Liebaert @Aquiec.be
65th EUROCONSTRUCT Conference Rome, June 2008
BELGIUM
1 Summary
Although the 2007 economic results appear to be in line with the estimates given in the reports of the 64th Euroconstruct conference (growth in the order of 2.7 to 2.8%), experts have, meanwhile, drastically revised their projections downwards for the years 2008 – 2009.
For construction, things are somewhat different in the sense that, overall, the 2007 results appear to be better than predicted. This is mainly following a boom in demand for non-residential building (+30% in volume). Obviously, this will have a positive effect on output in 2008 because part of this volume still has to be built or completed. Conversely, the drop in demand for new dwellings was bigger than forecast, which will have a negative impact on output in 2008.
The balance that will emerge from these two opposing effects on the 2008 output of the construction sector will also depend on the development of demand, which is marred by uncertainties, particularly for the construction of new buildings.
The neutral scenario adopted is based on a degree of recovery in the demand for housing. This recovery was, for that matter, forecast by the figures of the second half of 2007. It is also based on a gradual return of non-residential demand towards a level more in step with what the economic environment appeared to indicate. This neutral scenario points to a new slowdown in construction growth in 2008. According to this scenario, construction would then be better than forecast by the projections of December 2007 and would, once again, outperform the rest of the economy. But a more rapid return of new non-residential towards a course comparable with the one outlined in the projections of December 2007 would lead to a much more pronounced erosion of construction growth, which would then fall below general economic growth.
In the longer term, the basic scenario predicts, as for the rest of the economy, that the erosion of the growth of the sector will continue in 2009, before a hesitant improvement in 2010. But, in this respect too, uncertainties remain considerable. The faster "correction" of non-residential mentioned above would, for example, put 2009 in a better position. While, conversely, a stabilisation in the output of housing at the level anticipated for 2008 would result in only just avoiding the decline.
Whatever the case, it seems that the performance levels of construction are expected to continue to erode but that they could, nonetheless, grow by around 5% by 2010. Viewed individually, the various negative risks foreseen have a limited impact in that time frame (in the order of 0.5 to 1%). On the other hand, however, they have a fairly appreciable effect on the trajectory leading to that point in time. If the basic scenario shows a continuous erosion of growth (with a hesitant recovery at the end of the period), an uneven development cannot, therefore, be ruled out.
©Euroconstruct – Rome, June 2008 - 29
BELGIUM
2 Macro-economic Outlook
The general economic scenario that lies ahead for Belgium in the years 2008 - 2010 has deteriorated fairly badly compared to the picture that seemed most likely at the time of the 64th Euroconstruct conference.
Although the 2007 results appear to be in line with estimates from that time (growth of around 2.7 to 2.8%), in the meantime experts have drastically revised their projections downwards for the years 2008 – 2009. The various spring forecasts count on a much lower development than the growth potential of the Belgian economy (just over 2%). They see economic growth falling to 1.7% in 2008 and 1.5% in 2009 or even further still.
As in the other European countries, the Belgian economy will probably bear the brunt of a series of factors. Recent developments in those factors indicate that they will weigh more heavily than initially anticipated. This is true, for example, of the difficulties of the American economy and of the indirect consequences of the "sub prime" crisis or of the cost of a barrel of oil. The increases in that cost in late 2007 – early 2008 are, among other things, at the root of a rise in inflation.
In general, these less positive projections are expected, above all, to put a strain on domestic demand, which had, however, supported the growth of the last few years.
The slowdown in growth should lead to a reduction in new jobs. These should, however, still exceed the increase in the working population in 2008 but would no longer be able to avoid an increase in unemployment in 2009. At the same time, growth in real wages is also expected to slow down and purchasing power to become somewhat eroded given an index-linking of wages which does not fully and instantaneously reflect inflation. Consequently, household consumption will be able to continue rising only at a slow rate and will probably no longer manage to sustain the growth.
The deterioration in the economic outlook is also expected to affect the growth of business investments. However, still working on the basis of a strong demand for their production capacities, they should nevertheless continue to increase them and retain sufficient momentum to reveal them as the main engine of the economy.
Finally, public investments are the only element of GDP for which anticipated growth looks like being more favourable than that recorded in 2007. Experts believe that the main part of the fall dictated by the cycle of local investments (traditionally down following the local elections) was recorded in 2007, a post-electoral year, and they foresee a recovery from 2009.
It should be noted that this scenario is considered the most likely but that, as always, other scenarios have not been ruled out: alternative scenarios, on average more pessimistic. These include, among others, a higher rise in oil prices, more sustained and lasting inflation and, correspondingly, a rise in interest rates wherever the projections offered indicate a relative stabilisation.
30 - ©Euroconstruct – Rome, June 2008
BELGIUM
3 Housing Market
Over the whole of 2007, the number of authorised new dwellings shows a bigger fall than that foreseen at the 64th Euroconstruct conference, when only very partial figures were available. In the end, it recorded a drop of 12%: a figure which is affecting mood but which also gives an overly negative picture of the development actually observed in 2007.
For example, it should be said, first of all, that some 54,000 new dwellings were authorised in 2007. For a country such as Belgium, this is still a very good result: one of the best in the last 25 years.
And then, it should also be stressed that this drop comes after a record year during which the decline had, to a large extent, already begun: a stabilisation in demand at the December 2006 level would have led to a fall of 6% over the full year.
In addition, it should also be noted that the main part of the fall was brought about by the development in demand for apartments in Flanders and Brussels and that very local phenomena (a peak in demand as strong as it was brief having boosted the 2006 figures of Limburg and Brussels) magnified this fall.
The momentum in demand is therefore Number of authorised new dwellings less unfavourable than it appears to be. 3.500 Moreover, on closer inspection, it 3.300 shows a trend reversal, reflecting an 3.100 2.900 upturn in demand for new apartments 2.700 during the second half-year. A reversal 2.500 that some will see as surprising in a 2.300 2.100 context in which financing a dwelling 1.900
(especially new) appears to be a 1.700 growing problem. But a much more 1.500 logical development when the question 01/2005 04/2005 07/2005 10/2005 01/2006 04/2006 07/2006 10/2006 01/2007 04/2007 07/2007 10/2007 is approached from a more general Apartments (gross figures) Trend for apartments One-family dwellings (gross figures) Trend for one-family dwellings point of view
A point of view which includes the growth in costs on the secondary market, that of existing dwellings. Disregarding the last few months in 2007, these costs have undergone a sustained rise for years. For that reason, they are evidence of a demand which is tending to outstrip supply, inviting an increase in the latter through the construction of new housing: an economic theory that the National Bank indicates is particularly borne out on the Belgian market.
A point of view which can also encompass a comparison of the growth in costs on the secondary and primary markets, the former being more pronounced. This growth shows that new construction, including land – admittedly more expensive but providing a better quality dwelling (in particular less energy-consuming) – has improved its competitive position compared to the purchase of an existing dwelling.
It is, nonetheless, true that a rapid return to the 2006 level appears difficult to foresee and that the momentum which had taken demand to the levels achieved in 2005-2006 should probably be regarded as having had something temporary about it.
©Euroconstruct – Rome, June 2008 - 31
BELGIUM
Including this factor in the macroeconomic modelling therefore confirms, on the basis of the most plausible economic environment, the observations made in terms of a demand that remains sustained.
Initially (in 2008), it should even intensify somewhat again before stabilising in 2009, then suffering from the renewed rise in unemployment. In terms of planning permissions, it should thus be somewhere in the region of 55,000 dwellings a year throughout the forecast period. A considerable level, as we said, but also well below the level of 2006.
Consequently, a drop in output must therefore be expected, as already forecast in the projections of December 2007. Today, this drop looks like being bigger than predicted (in the order of 5% in 2008). But, taking into account the intra-annual profile which is emerging in terms of planning permissions issued, it should remain limited to this year only. If the recovery in demand observed in the second half of 2007 continues, it could even, taking into account time-to-site and output periods, lead to a new increase in output in 2009.
Within residential construction, the situation of renovation appears more favourable.
Traditionally, this segment plays a cushioning role because it is less subject to economic vagaries and more carried by a structural momentum of expansion. This is a market that affects an ever-growing number of dwellings because, every year, in this segment, the number of new constructions exceeds the number of demolitions. This is also a market that is structurally sustained by the development of quality standards, which are constantly being raised.
This is especially true of the energy performance of buildings, particularly in a context of rising energy prices and with regard to the European Commission’s CO2 plan1. But, in Belgium, this is not one of the main concerns of the citizens (owners or tenants), even though the authorities have already put a range of incentives in place. As some of them are not yet well known in their present form, they are still "increasing in power" and should continue to boost growth in renovation projects during the course of the years 2008-2009.
Conversely, renovation projects of a more structural nature (change in volume, allocation or number of dwellings) offer fewer prospects. The reason for this is the relative stability of the number of transactions on the one-family dwellings market, which, especially following a change of owner, are the main ones covered by these projects.
Consequently, renovation projects of a residential nature should be expected to increase, mainly those not requiring planning permission. They should also benefit from a growth impetus, which will gradually subside over the course of the years 2009-2010 if legislation remains unchanged by then. A reduction in policies to support energy-related renovation by 2010 would, of course, affect activities by that date. Conversely, the development of large-scale energy-related renovations, also necessary as part of the fight against climate change, would take output (no doubt gradually) to a much higher level.
1 The construction confederation has calculated that applying basic measures (loft isolation, replacement windows and boiler) to half of the residential stock (the least energy efficient), would cut CO2 emissions by some15% by 2020 and therefore meet the targets of the European plan in this area.
32 - ©Euroconstruct – Rome, June 2008
BELGIUM
4 Non-residential Market
The situation of non-residential construction remains completely different from that of residential, as indicated by the projections of December 2007. The differences have widened even further since then.
While the number of authorised new dwellings fell more than predicted in 2007, the volume of authorised new non-residential buildings saw an increase (+30%), exceeding expectations. The figures from the start of the decade, which were touching on 50 million m3, have thus been reached again.
Taking into account time-to-site and output periods, this observation is obviously a near-guarantee of a big increase in the output of new non-residential buildings in 2008. But it also raises the question of the nature of the developments noted in 2007. Do they reflect a readjustment of demand to the level it was before collapsing just as suddenly at the start of the century. And can it, therefore, continue on its course (rise) starting from that level? Or is it an "isolated fact", a sort of catching-up, after which demand will continue on its course starting from a new level more in line with where it was in 2006?
The answer is probably both. In one year, demand has achieved an increase beyond that predicted by the forecasts of December 2007 looking ahead to 2010, suggesting that a "correction" should probably be expected and, therefore, a fall in Volume of authorised new non-residential buildings demand. But, those same forecasts 5,5 nonetheless predicted a substantial rise in 5,0 2007 and the monthly profile of non- 4,5 residential planning permissions shows no 4,0 3,5 sign of a trend reversal. Which, at first
Millions of m³ 3,0 sight, does not therefore suggest a serious 2,5 correction. Particularly since, despite the 2,0 deterioration of the economic climate, 1,5 conditions remain favourable for business investments. Indeed, the Federal Planning 01/2005 04/2005 07/2005 10/2005 01/2006 04/2006 07/2006 10/2006 01/2007 04/2007 07/2007 10/2007 Bureau predicts that, initially at least, they will continue to rise and that the recovery of the investment rate of the economy will continue.
Under these conditions, the progressive return of demand towards the trajectory outlined in the projections of December 2007 but adjusted to the variations of the economic environment, appears to be a neutral scenario, the one most compatible with all the information available and, for that reason, probably the most plausible one.
Consequently, following a strong rise in the output of new non-residential buildings in 2008, a fall is probably what should be expected for the remainder of the forecast period. This fall should be particularly pronounced for industrial-type buildings (including warehouses), which accounted for most of the increase recorded in 2007. And could be partially offset by a rise in the output of offices, if the recovery begun in 2007 (after the sharp fall of 2006) continues. But, in this respect, it should be noted that the volume of demand is heavily dependent on a limited number of large projects. Turning these projects into reality is difficult to plan and not always linked to the short-term economic situation.
In this context, the renovation of existing buildings should, of course, show a more constant profile, since it is traditionally less sensitive to economic variations. And the nature of the demand recorded in 2007 in this regard is not, in contrast to new buildings, one that suggests the emergence of a "correction".
©Euroconstruct – Rome, June 2008 - 33
BELGIUM
5 Civil Engineering Market
In contrast to the projections relating to the other two main construction segments, the outlook for civil engineering activities looks almost unchanged compared to the conclusions of December 2007.
This outlook is dictated by a scenario with a structure that is heavily influenced by the investment cycle of the local authorities and very familiar: strong acceleration (from 10 to 20% or even more) in the run- up to the election date and strong deceleration (equally pronounced) over the course of the following years.
In its spring forecasts, the Federal Changes in public investments* Planning Bureau reconfirms its 8,0% previous indications regarding the 6,0% course of public investments for the 4,0% post-electoral year 2007 (-7.6% 2,0% neutralising the increase recorded in 0,0% 2006, which, for its part, is re- -2,0% estimated at 5.6%). Expecting a -4,0% -6,0% near-stabilisation of public -8,0% investments in 2008, it also gives -10,0% credence to the scenario of an upturn 2006 2007 2008 during the years 2009-2010.
The economic information available on civil engineering, published over the last 6 months, confirms the view of the Federal Planning Bureau regarding the phase of decline in 2007-2008. It seems that, in the end, civil engineering did hold up well in 2007, suggesting that the risk, mentioned in the December 2007 projections, of a bigger fall than indicated by the Federal Planning Bureau, now appears less.
On the other hand, the differences mentioned in regard to the type of projects remain topical. It is mainly civil engineering activities geared towards local authority infrastructure which were most affected and which, accordingly, benefit most from projections towards the end of the forecast period. Activities relating to “large-scale” infrastructure (motorways, waterways, railway, etc.) not being very influenced by the fluctuation in investments by local authorities.
34 - ©Euroconstruct – Rome, June 2008
BELGIUM
APPENDIX – DEFINITIONS
Table 1 • Unemployment and unemployment rate are given according to the Eurostat concept.
Table 2 Construction output includes only the production of construction companies. Self-production (Do It Yourself and construction output producing construction goods for their own use, such as the railway companies for instance) is excluded, as is the black economy.
Table 3 • The definition of “1+2 family dwelling” means a one-family house as opposed to “flats”, which, in fact, indicates ‘apartments’. • The stock of housing units or dwellings is given at the end of the year. • The "Home ownership rate" is calculated as the ratio between the number of households occupying a dwelling that they own and the total number of households.
Table 4b Industrial and storage buildings: The Belgian statistics do not allow for a distinction to be drawn between these two categories of buildings. The figures presented are therefore the result of an estimate based on old statistics (that did draw that distinction), which reveal that buildings intended for storage follow the demand for building for industrial use quite closely and are at the root of a more or less equivalent demand volume.
Table 5 • Stocks: For 2005, the amount corresponds to the contribution of variations in stock to GDP. For the years 2003 to 2009, the percentages correspond to the contribution made by the development of variations in stock to growth. As for growth, this contribution is expressed as a percentage of GDP. • Volume Private consumption, public consumption, etc. are given at market prices, VAT included.
Extra • VAT is excluded by construction output. The normal rate is 21% (6% for renovation of dwellings older than 5 years). • Sources of data: − Historical series: National Institute for Statistics, Institute for National Accounts and Construction Confederation (estimates). − Forecast and Outlook: Federal Planning Bureau and Construction Confederation.
©Euroconstruct – Rome, June 2008 - 35
BELGIUM
Country/Pays/Land: Belgium Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 10 421 10 479 10 522 10 544 10 565 10 586 10 606 Bevölkerung
Households ('000s) Ménages 4 357 4 397 4 432 4 457 4 482 4 508 4 533 Haushalte
Unemployed ('000s) Chômeurs 415 419 412 379 358 365 361 Arbeitslose
Unemployment rate (%) Taux de chômage 8.4 8.4 8.2 7.5 7.0 7.1 7.0 Arbeitslosenquote
Change of GDP Variation du PIB 3.0 1.7 2.8 2.7 1.7 1.5 1.9 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 2.1 2.8 1.8 1.8 3.5 2.2 2.0 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 0.0 1.9 4.0 3.4 3.5 1.9 1.9 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 4.5 4.6 4.6 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.1 3.4 3.8 4.4 4.4 4.5 4.5 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
36 - ©Euroconstruct – Rome, June 2008
BELGIUM
Country/Pays/Land: Belgium Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 6 920 11.7 7.6 15.7 1.8 -5.7 4.4 1.5
Logement Renovation 7 022 2.0 2.0 1.9 5.3 5.0 3.5 1.7
Wohnungsbau Total 13 942 6.3 4.6 8.4 3.6 -0.3 3.9 1.6
Non-residential construction New 7 632 11.9 2.9 7.6 13.6 10.7 -4.6 -0.4
Bâtiments non résidentiels Renovation 4 297 2.4 2.3 2.4 2.4 2.2 2.2 2.2
übriger Hochbau Total 11 929 7.9 2.7 5.6 9.3 7.6 -2.2 0.5
Building New 14 553 11.8 5.1 11.5 7.7 2.9 -0.7 0.5
Bâtiment Renovation 11 319 2.2 2.1 2.1 4.2 3.9 3.0 1.9
Hochbau Total 25 871 7.0 3.7 7.1 6.1 3.4 1.0 1.1
Civil engineering New 4 046 -0.9 6.8 5.8 -7.2 -0.1 2.7 4.2
Génie civil Renovation 937 -3.2 4.4 3.3 -9.4 -2.5 0.2 1.6
Tiefbau Total 4 983 -1.4 6.3 5.3 -7.6 -0.6 2.3 3.8
TOTAL CONSTRUCTION OUTPUT 30 855 5.4 4.2 6.8 3.6 2.7 1.2 1.5
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 5.95 5.1 0.9 4.2 -1.4 0.4 -0.4 0.6 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
©Euroconstruct – Rome, June 2008 - 37
BELGIUM
Country/Pays/Land: Belgium Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 24.5 27.3 26.3 23.6 24.3 24.2 24.5 Baugenehmigungen Familienhäuser
Flats Collectif 27.1 31.6 34.5 29.8 30.6 30.5 30.9 Mehrfamilienhäuser
TOTAL 51.6 58.9 60.8 53.4 54.9 54.7 55.4
Housing starts 1+2 family dwellings Logements commencés Individuel 23.2 25.2 25.1 22.1 22.1 21.7 21.7 Baubeginne Familienhäuser
Flats Collectif 24.5 28.6 30.2 27.3 27.8 28.2 28.5 Mehrfamilienhäuser
TOTAL 47.7 53.8 55.3 49.4 49.9 49.9 50.2
Housing completions 1+2 family dwellings Logements terminés Individuel 22.1 23.1 25.8 24.5 21.8 22.0 21.6 Baufertigstellungen Familienhäuser
Flats Collectif 22.7 24.9 29.6 29.7 27.1 27.9 28.1 Mehrfamilienhäuser
TOTAL 44.8 48.0 55.4 54.2 48.9 49.9 49.7
Housing stock Logements existants 4 778 4 830 4 883 4 930 4 977 5 025 5 073 Wohnungsbestand
thereof second homes dont résid. secondaires 115 117 117 118 119 119 120 davon Zweitwohnungen
thereof vacancies dont inoccupé 305 316 334 355 376 398 420 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 65.6 65.7 65.8 66.2 66.5 66.8 67.1 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
38 - ©Euroconstruct – Rome, June 2008
BELGIUM
Country/Pays/Land: Belgium Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 320 16.5 25.4 -7.0 -17.1 10.2 14.5 2.7 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 423 -7.7 13.1 17.4 19.3 -5.1 -5.3 -1.8 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 2 924 3 503 375 7.1 16.6 13.5 40.6 22.5 -14.9 1.2 Industriegebäude
Storage buildings Bâtiments de stockage Lagergebäude
Office buildings Bureaux 1 653 559 848 -2.0 3.8 -12.5 5.4 8.5 2.2 1.9 Bürogebäude
Commercial buildings Commerces 1 308 1 357 657 48.5 -25.7 30.5 7.0 6.4 -0.1 -4.1 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 504 1 572 517 14.3 24.2 24.7 7.6 -10.7 0.7 -7.8 Landwirtschaftsgebäude
Miscellaneous Autres 501 257 428 19.8 -2.9 8.8 -21.7 4.1 7.9 -5.0 Sonstiges
Total 7 632 7 250 825 11.9 2.9 7.6 13.6 10.7 -4.6 -0.4 Insgesamt
1) At 2007 prices, excluding taxes.
©Euroconstruct – Rome, June 2008 - 39
BELGIUM
Country/Pays/Land: Belgium Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier Verkehrsinfrastruktur Straßen
Railways Voies ferrées Bahnanlagen
Other transport Autres réseaux Übrige Verkehrsinfrastruktur
TOTAL 2 863 -1.2 12.3 5.2 -14.6 -1.8 3.1 5.6
Telecommunications Télécommunications Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 1 108 -3.0 -3.4 4.1 2.4 -0.3 -0.3 -0.2 Energie- und Wasserversorgung
Other Autres 1 013 -0.2 -0.7 7.1 5.3 2.5 2.6 2.7 Sonstiges
Total 4 983 -1.4 6.3 5.3 -7.6 -0.6 2.3 3.8
1) At 2007 prices, excluding taxes.
40 - ©Euroconstruct – Rome, June 2008
BELGIUM
Country/Pays/Land: Belgium Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 173.3 1.4 1.3 2.0 2.5 1.5 1.4 1.7 Privater Verbrauch
Public consumption Consommation publique 74.0 1.8 -0.2 0.0 2.6 2.4 2.2 2.0 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 70.7 7.1 6.7 4.2 5.1 2.2 1.9 2.5
of which construction
Stocks (contribution as % of GDP) Variations de stocks 3.2 0.2 0.0 0.8 -0.2 0.1 -0.1 -0.0 Vorratsveränderung
Exports Exportations 295.8 6.5 3.6 2.6 4.6 3.9 3.6 4.6 Exporte
Imports Importations 286.2 6.6 4.2 2.7 4.9 4.3 3.8 4.7 Importe
GDP PIB 330.8 3.0 1.7 2.8 2.7 1.7 1.5 1.9 BIP
Standard National Accounts, gross figures 1) At 2007 prices.
©Euroconstruct – Rome, June 2008 - 41
CZECH REPUBLIC ÚRS PRAHA, a.s. www.urspraha.cz
Jiří Hezký e-mail: [email protected]
Jan Blahoňovský e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
CZECH REPUBLIC
1 Summary
Year 2007 showed continuous high growth rates of Czech economy representing second highest growth within group of Euroconstruct countries in the 3rd millennium and they are almost three times higher when compared to the average of West Europe countries. But growth rates of the Czech construction output are almost five times higher. Main powers of the GDP growth (mainly after year 2006) are gross fixed capital, personal consumption, high export proportion including rising active balance of foreign trade (2005 = +5%, 2006 = +5.5%, 2007 = +6.3%) and strengthening of the Czech currency. The main power of construction industry in this period is residential constructions. Residential constructions together with private non-residential constructions were able to cover temporal decrement of civil engineering constructions.
The results of international comparison of the construction intensity by volume of construction output in purchasing power parity per inhabitant showed that in the case of non-residential and civil engineering constructions Czech Republic overtakes almost all West European countries. Czech Republic has slightly lower overall construction intensity than West Europe average. This is caused by still low residential constructions output but residential constructions should expand more and till 2010 should reach 6th highest intensity among 19 Euroconstruct countries.
©Euroconstruct – Rome, June 2008 - 45
CZECH REPUBLIC
2 Macro-economic Outlook
Economic growth of the Czech Republic in the period 2000–2007 is second highest within Euroconstruct countries and almost three times higher than Eurozone average. Therefore it is possible to expect that Czech Republic will reach European average economy level in year 2020. Growth of the construction output is also second highest and growth rates are almost six times higher.
Czech construction output increased by 59.3% during period 2000–2007, highest growth in this period was recorded only in Slovak Republic.
Construction output change 2000–2007 in %
1.SVK 2.CZE 3.NOR 4.HUN 5.SPA 6.POL 7.IRL 8.DEN 9.SWE 10.UK 60.5 59.3 40.3 39.4 36.8 33.1 26.5 24.9 21.6 21.1
11.FIN 12.FRA 13.ITA 14.AUS 15.BEL 16.SWI 17.NET 18.GER 19.POR West E 19.4 14.2 13.8 11.5 10.1 8.0 6.6 -13.4 -20.5 11.2
Based on the recent development, backwardness of the Czech economy level expressed by GDP in parity per capita lowered from 68.7% in 2000 to 82% in 2007 in comparison with EU average. Therefore the Czech Republic could reach the EU economic level average in year 2020. More outstanding in period 2000–2007 is comparison of six times higher growth rates of construction output in Czech Republic compared to West Europe. In contrast to 15 West European countries, growth of Czech construction output will exceed growth of GDP in whole period 2000-2010 with exceptions in years 2005–2006 and 2009–2010.
GDP and Construction output development in West Europe and Czech Republic 2000–2010, y-o-y changes in %
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000-10%
GDP CZE 2,5 1,9 3,6 4,5 6,5 6,4 6,5 5 5,7 5,8 60,4 West E 1,5 1,1 1,1 2,3 1,6 2,8 2,6 2,3 2,1 2,2 21,4
Construction output CZE 9,5 2,4 8,6 9,4 5,3 6,2 6,9 5,3 5,4 4,9 85,5 West E 1,4 -0,2 0,6 1,8 1,3 3,6 2,2 1 1,2 1,3 14,5
Note: Bold numbers mark years in which growth rate of construction output is higher then growth rate of GDP.
Hardening of the Czech currency keeps significant influence while it is the most strengthening currency in the word. It strengthened against Euro from CZK 35.61 in 2000 to CZK 24.83 in 1st quarter of 2008, it means by more then 30%! Credit of construction output high growth rates belongs at first to residential constructions which together with private non-residential constructions were able to balance recent years of stagnation of civil engineering constructions. Czech GDP and construction output development were in the period 2000–2007 second highest within 19 Euroconstruct countries.
Remarkable success of Czech economy in followed period were in lowering of unemployment, mainly after year 2006 when transformation of Czech industry was finished. Unemployment rate dropped by more then half till 1st quarter of 2008. Further development of economy is limited by lack of labour especially in construction industry. Positive influence has high increase of natality in last year and
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CZECH REPUBLIC substantial inflow of foreign workers. There were 488 thousands foreign labourers in Czech Republic in year 2006, from that 58.4 thousands in construction industry. But volume of construction works abroad is successfully rising. It was only 1.1% in year 2003; it was double in last year and currently it represents 2.8% of total construction output.
Inflation which was so far under European average started to increase mainly due to realisation of economical and social reforms. Activating of postponed economical reforms in 1st quarter of 2008 was possible as effect of changes of political orientation from social state to rather liberal.
Macroeconomic Key-indicators in Cze ch Rep ublic 2 000–2010 (y-o-y changes in %)
2001 2002 200 3 200 4 200 5 200 6 200 7 200 8 2009 201 0
GDP 2.5 1.9 3.6 4.6 6.5 6.4 6.5 5 5.7 5.8 Private consumption 2.3 2.2 6 2.9 2.3 5.4 5.7 3.9 4.8 4.6 Gross fixed capital formation 6.6 5.1 0.4 3.9 2.3 5.5 6.1 8.2 8 7.6 Construction output 9.5 2.4 8.6 9.4 5.3 6.2 6.9 5.3 5.4 4.9 Unemployment rate 8.1 7.3 7.8 8.3 7.9 7.1 5.3 4.2 4.0 3.9 Inflation 4.7 1.8 0.1 2.8 1.9 2.5 2.8 3.9 4.0 4.0
Source: Czech statistical Office
Second highest growth of Czech construction output expressed also in results of international comparison of construction intensity. Indicator of construction output in Euro in purchasing power parity per capita in 2007 showed that Czech Republic overtook almost all West European countries in non-residential and civil engineering constructions. Exceptions are Norway, Finland and Spain with Ireland. Because of still low intensity of residential constructions is current total construction intensity of Czech Republic still slightly under West European average but it should break this level in 2008 and reach sixth highest position in year 2010 among 19 Euroconstruct countries.
Development of construction output in parity Euro/capita
10000 2007 and 2010
9000 8784
8000 2010
6913 2007 7000
6000 5821 5815 5481 5253 5123
5000 4691 4460 4429 4286 4203 3861 3727
4000 3686 3532 3431 3402 3297
3000 2736 2563 2262 2000
1000
0 UK FIN IRL ITA BEL NET CZE FRA SWI DEN GER SPA POL HUN SVK AUS NOR POR SWE EC19 East E West E Source: Euroconstruct, ECP 12/2007
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Comparison of development of particular types of constructions between Czech Republic and West Europe shows higher growth of residential constructions in Czech Republic. Residential type of constructions culminated in West Europe in 2007 and slows down because the market is already saturated. In Czech Republic still rising demand for housing is restricted by quicker increase of dwelling prices than increase of incomes, therefore residential construction output remains lower also in year 2010. Structure of Czech construction industry is different than structure in West European countries and this difference has remained the same since 2000.
Structure of construction output for West Europe and Czech Republic 1990–2010
199 0 199 5 200 0 200 5 200 7 201 0
Czech Republic Residential 17,2 7,1 16,3 18,7 21,2 21,7 non-residential 44,6 58,4 46,4 38,6 41,9 40,1 civil engineering 38,2 34,5 37,3 42,7 36,9 38,1 Total 100 100 100 100 100 100
West Europe Residential 35,6 46,2 47,7 48,8 48,6 46,7 non-residential 40,1 32,2 32,4 30,8 31,1 32,1 civil engineering 24,2 21,6 19,9 20,4 20,3 21,2 Total 100 100 100 100 100 100
By contrast, proportion of non-residential constructions in Czech Republic decreased till 2005 and after temporal increase in 2006 and 2007 will settle on value around 42%, this is by one quarter higher proportion that in West Europe. High proportion emerged from openness of Czech economy and growing interest of developed countries to invest in Czech Republic. Interisting is development of civil engineering constructions which reached 42.7% in year 2005, stagnation period and almost decrease followed due to high reference value from previous years and mainly due to difficulties with using EU funds caused by administrative problems on the Czech side.
Development of construction output by construction types 2000–2010 in Czech Republic (2000=100%)
300 resid. 250 non-res. 200 civil eng
150
100
50
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Euroconstruct
Development of construction output in period 2004–2007 in Czech geography region was influenced by climatic conditions – e. g. moderate winter in 2004 and 2007.
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Development of construction output in quarters 2004–2007 (q-o-q)
1st quarter 2nd quarter 3rd quarter 4th quarter Year
2004 116.1 116.5 104.2 105.0 109.7 2005 96.8 100.1 107.3 109.7 104.2 2006 100.5 106.2 107.4 109.5 106.6 2007 128.8 103.5 99.7 105.3 106.7
High growth rates of construction output are almost reaching limitation of workers, mainly specialised construction craft workers, in spite of relatively high number of legal foreign labour (one half form Ukraine, 14% Slovaks and 10% from Poland). According to Czech FIEC, three fourths of construction companies employee more illegal foreign workers so true number of foreign labour will be almost double. Limitation is also construction materials, e. g. masonry blocks but also insulation materials.
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3 Housing Market
Residential constructions remain the power of the Czech construction output growth despite increasing prices of the dwellings and housing expenditures thanks to governmental support of loans for housing, accelerated growth rates of real incomes, higher demand initiated by industry transformations, income of capacities from developed countries and positive demographic development.
In year 2007 residential constructions output represented Euro 3.22 billions this means 22.1% of total construction output. The residential output will increase 2.5 times during period 2000–2010 but even this it still will not reach residential constructions intensity in West European countries. Only limiting factor of increasing demand is price. Price is unreachable for high number of households despite mass inflow of mortgage loans and savings for construction. The total volume of loans increased seven times, from this mortgage loans ten times and savings for constructions 4.5 times. It was CZK 302 bill. in year 2007, which equals to Euro 10.9 bill.
Clients’ loans and construction savings 2000–2007
2001-7 CZK 2001 2002 2003 2004 2005 2006 2007 (%)
Clients loans bill. 136,9 177,4 234,3 310,8 411,8 529,9 707,1 516,5 of that: mortgage bill. 14,7 22,5 36,2 52 72,1 100,8 140 952,4 avg 1 mortgage loan mill. 1,034 1,073 1,15 1,26 1,412 1,497 1,625 157,2 Construction savings bill. 37 46,3 53,6 54,2 108,1 135,5 161,9 437,6
Source: Czech Statistical Office, Hospodářské noviny 2007
Buying of new dwelling is currently represented by sum of 10 year net incomes of Czech citizen!
Housing expenditures are increasing the most quickly from households’ expenditure basket items, it increased by 190.7% from 1995 to 2007 while growth index of consumer prices increased in this period only by 63.4%. Similar situation is in comparison of housing expenditures proportion in GDP in parity according to ECP 2006; it was 14.9% in Czech Republic (average of West Europe was 11.9%) even Czech dwellings are smaller, older and lesser equipped. This is proved also by average flat price which was in Czech Republic only by 0.6% lower compared to West Europe average value in year 2006.
Extent of housing expenditures is mostly influenced by continuous deregulation of regulated housing rents and mainly housing expenditures where negative impact of monopolistic prices of water and energy occurs. This could be demonstrated by comparison of current prices of electricity that is relatively highest in less developed eastern countries and the same situation is in the case of gas and water supply.
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Prices of 100 kWh in Euro-parity 2007 30
25 24,31 20,27
20 19,34 18,24 17,4 17,3 16,66 14,49
15 14,11 14,04 12,58 11,76
10 9,77 7,88
5
0 LIT FIN CZE LAT GRE SLK GER BUL SLK SPA POL HUN AUS ROM
Total households indebtedness in Czech Republic increased so much that in year 2007 it represented amount of CZK 707 bill. which is 20.3% of GDP. Number of executions due to unavailability to pay off is also rising, each tenth household is affected! Even high positive development in quality and size of new dwellings in Czech Republic, it still do not reach West European average. Dwellings in multi- dwelling houses currently prevail in West European countries which were dominant type of last century 90s in Czech Republic. After the year 1990 the development of family houses outweighed multi-dwelling houses, nowadays the share of multi-dwelling houses is increasing again. While West Europe is already reaching the culmination of new residential construction output in year 2007 and the amount of new residential constructions will decrease, the Czech Republic still continues with increasing trend.
Main cause of only two thirds extent of new residential constructions is continuous worsening of dwelling achievability cased by faster increase of dwelling prices than households’ incomes. To reach the same dwelling achievability as is in Western Europe, the Czech Republic should produce yearly 60 thousands dwellings.
There were finished almost 42 thousands of dwellings in year 2007, about 40% in family houses. In recent time there is increasing development of developers’ construction type of dwelling complexes and also non-residential buildings.
Renovations of residential constructions represent 23.5% of residential output in year 2007, this represents only less then one half of West European countries average where this proportion will quite quickly grow to 2010.
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4 Non-residential Market
Growth of private non-residential constructions is second power of current dynamism of Czech construction industry.
Non-residential constructions output has prevailing share in total construction output – 41.9% (private 28.5% and public 13.4%). Period of highest – two digits – growth rates (2006 = 10.3%, 2007 = 12.5%) corresponds to period of civil engineering constructions decrease. Attenuation of high growth rates is expected from year 2008.
From the market segmentation perspective is interesting difference between private and public new non-residential constructions output. While demand for non-residential constructions financed from public sources (government, municipalities) is financially unsatisfied, growing market economy supports and makes possible to realise invest activities of private sector. The output of public non- residential construction remained stable during whole period 2003–2007. Private constructions increased by +32.6%. Share of public constructions therefore decreased from 38.1% to 32%.
Development of non-residential output by sub-sectors in the Czech Republic and West Europe, Euro in parity/capita and %
Schools Schools Health Industry Storage Office Commercial Agriculture Others Total
CZE 2004 62 55 213 48 154 226 11 141 910 CZE 2007 78 39 285 78 169 198 19 169 1035 West E 2007 65 46 106 54 113 117 39 76 620 %CZE/West E 120.0 84.8 268.9 144.4 149.6 169.2 48.7 222.4 166.9 %CZE 2004–7 125. 8 709. 133.8 162.5 109.7 87.6 172. 7 119. 8 113. 7
Except health services and agriculture, construction intensity of all other sub-sectors is higher then in West Europe. Greatest growth was recorded by storage buildings sub-sector where mainly in year 2007 its capacity doubled to 2.2 millions m2; about one half was built in Prague but currently are erected many storage buildings in other regions and their capacity will overtake Prague.
Proportions of renovations for public non-residential buildings represented 50.5% in year 2007 and 27.5% for private sector and in both cases was continuously decreasing; the average of both is 33.7%. Proportion of renovations in West Europe is 39.5% and it is also continuously decreasing.
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5 Civil Engineering Market
Decrement of civil engineering construction output is influenced by problems with invoicing and further by high number of unfinished engineering works and administrative problems with using EU funds.
Proportion of civil engineering constructions was 36.9% in year 2007 but from development point of view it was second year of decrease. Highest output was therefore in year 2005 – Euro 7554 millions. The causes of the decrease were described in last Country report: 1. Increase of barriers in preparation and realisation period together with invoicing of completed construction works mainly at constructions of transport infrastructure in the form of speculations with land lots, interferences to building time schedule due to ecological activities and delays caused by local municipalities 2. Administrative barriers for release of finances from EU funds (realised releases only about 42 %) that causes invoicing problems and therefore increase of works-in-progress as well. 3. Priority was to build constructions for highly developing direct foreign investments mainly in automobile industry (effort to radically reduce unemployment) 4. High comparable level for civil engineering output from year 2005 for calculation development for further years
From comparison of construction intensity by particular sub-sectors of civil engineering in Czech Republic and West Europe arise that Czech Republic realised (by three fourths) more transport structures, especially road structures and by 14% more structures for energetic and water management. Much lower is the volume of structures for river transport, air transport and telecommunications.
Development of civil engineering output by sub-sectors in the Czech Republic and West Europe, Euro in parity/capita and %
Roads Railways transport Other transport Total Telecom. and Energy water man. Others Total Czech 2004 536 147 16 699 8 156 189 1062 Czech 2007 560 129 7 695 8 168 129 1000 West E 2007 224* 91* 65* 380 79 147 45 651 %CZE 2007/WE 250.0 141.8 10.8 182.9 10.1 114.3 286.7 153.6 % CZE 2004–7 104.5 87.8 43.8 99.4 0 107.7 68.3 94.2
* excluding Belgium and Netherlands
Strategy of civil engineering development till 2015 is impressive; capacity of roads, highways and speedways should double. Construction of railways corridors will continue together with modernisation of railway stations, including renovations of junction points in Prague and Brno. Prague airport should become largest destination for East Europe. Construction of weir on the Elbe River near Děčín is in the consideration, Vltava River should become navigable from České Budějovice to Týn nad Vltavou.
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Czech program TRANSPORT 2007–2013, mill. Euro
237,0 388,3 Railway Network TEN-T 1 236,5 2 576,8 Modernisation of railways Roads Network TEN-T Modernisation of roads Transport in Prague Others 1 891,4 462,9
Source: Hospodářské noviny 2007
Renovations represents in the Czech Republic 35% of total civil engineering constructions output. This is nearly the same as in West Europe (34.5%). This proportion almost did not changed in both cases.
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APPENDIX – DEFINITIONS
Table 1 • Populations: Yearly average • Households: Housekeeping unit concept = the base is one family-unit (not one home-unit); Yearly average – data estimated from last census 2001 • Unemployed and unemployment rate: ILO method, average of 4th quarter; from year 2005 the unemployment rate is realised as the ratio of the number of available unemployed job applicants according to the new methodology • Consumer and construction prices: average index in 4th quarter of the year • Interest rate: non-financial corporations’ credits (over 30 mill. CZK); Short-term = till 12 months, Long-term = over 5 years
Table 2 • Construction output includes duplicities of sub-sectors, current repairs, export of construction output, DIY, 5% of total construction outputs outsides construction sector; Black-economy estimations are not included • Dividing into types by Sector form of calculations; Recalculations to the construction industry form of types by multiplying each output of types by relation between Total-industry-summary and Sector-summary construction output • Renovation: restorations, modernisations, extensions, conversions, excluded are current repairs and maintenance, which do not enlarged extent and time of the using, but only keep their original functions • Source: „České stavebnictví v číslech 2007“, Czech Statistical Office
Table 3 • Number of dwellings: determined only for permanent habitation with separate entrance, including: built by DIY, in non-residential buildings, pensions and hostels • 1+2 family houses: in family houses up to 2 storeys with max. 3 dwellings • Housing stock: at the end of the year: Source is last census + balance of number of completed dwellings used for permanent habitation minus taken out of use, excluding modernised units • Home ownership rate: estimations from the last census in 2001 • Building permits: official permissions for beginning of construction works • Housing starts: number of dwelling in which construction works has begun • Housing competitions: number of dwelling which were actually completed and handed over
Table 4a (numbers of CPC, published by Statistical Commission UNO 1991) In the year 2004 there was realised in Czech Republic a change in classification of splitting construction output in sub-sectors, types and branches from system CPC to CZ-CC. • 4aa) Education buildings 52 125./2 • 4ab) Health 52 126 • 4ac) Industrial 52 121/1 • 4ad) Storage 52 121/2 • 4ae) Offices 52 122/1 • 4af) Commercial 52 122/2 • 4ag) Agricultural 52 129/1 • 4ah) Miscellaneous Construction output in non-residential minus ∑ 4aa) – 4ag)
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Table 4b (numbers of CPC, published by Statistical Commission UNO 1991) • 4ba) Roads 52 211/1 + 52 211/2 + 52 221-4 • 4bb) Railways 52 212/3 • 4bc) Other transport 52 213 + 52 231-3 • 4bd) Transport total ∑ 4ba) – 4 bc) • 4be) Telecommunication 52 242 + 52 250/4 • 4bf) Energy and water works 52 231/3 +52 241/1,2 + 522 243 + 52 250/1-4 • 4bg) Other Civil engineering output minus ∑4bd) – 4bf)
Table 5 • GDP: system of National accounts ICEA-NACE • Stocks: % of GDP • Volume in Euro at market prices
Extra • VAT: 19% (social residential constructions 5% respective 9%) is excluded; in year 2008 lower VAT rate increased from 5% to 9% • Sources of data: „České stavebnictví v číslech“, „Statistical Yearbooks of the Czech Republic“ – Czech Statistical Office
Calculation of Total construction output by types: Base for calculation of „Total construction output“ are data of „Sector construction output“, divided in types from construction firms over 20 employees, delivered to Central Czech Statistical Office that estimates the resting construction outputs of smaller firms (up to 19 employees). This summary is increased by summaries of so called “services” = construction works produced by subjects outsides construction firms including DIY + construction current repairs and maintenance. This increase of “services” is divided into types by the same way as construction sector output. In 2007 year “services” represented 31.4% of total construction output, i.e. 21.3% = current repairs, 10.1% = non-construction firms including DIY.
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Country/Pays/Land: Czech Republic Table 1
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 10 207 10 234 10 287 10 381 10 420 10 450 10 470 Bevölkerung
Households ('000s) Ménages 4 313 4 348 4 388 4 433 4 465 4 480 4 520 Haushalte
Unemployed ('000s) Chômeurs 542 510 448 360 290 280 280 Arbeitslose
Unemployment rate (%) Taux de chômage 8.3 7.9 7.1 5.3 4.2 4.0 3.9 Arbeitslosenquote
Change of GDP Variation du PIB 4.6 6.5 6.4 6.5 5.0 5.7 5.8 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 2.8 1.9 2.5 2.8 3.9 4.0 4.0 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 3.7 3.0 2.9 3.9 4.3 4.5 4.5 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 3.5 3.1 3.6 4.9 4.7 4.6 4.5 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 5.1 3.4 4.7 5.1 5.7 5.3 5.2 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Czech Republic Table 2
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 3 221 18.4 5.5 15.9 14.1 6.1 6.8 5.0
Logement Renovation 989 14.6 6.0 9.2 10.9 12.1 3.9 5.0
Wohnungsbau Total 4 210 17.4 5.6 14.2 13.3 7.5 6.1 5.0
Non-residential construction New 5 436 -1.2 2.6 11.5 12.5 4.6 6.0 5.1
Bâtiments non résidentiels Renovation 2 908 -2.6 -7.0 8.1 12.5 0.0 3.1 4.8
übriger Hochbau Total 8 344 -1.8 -1.0 10.3 12.5 3.0 5.0 5.0
Building New 8 657 4.9 3.6 13.1 13.1 5.1 6.2 5.1
Bâtiment Renovation 3 897 0.9 -4.0 8.4 12.1 3.1 3.3 4.9
Hochbau Total 12 554 3.5 1.1 11.6 12.8 4.5 5.4 5.0
Civil engineering New 4 719 31.3 12.7 -2.0 -2.9 8.1 5.5 4.8
Génie civil Renovation 2 632 1.7 9.3 1.1 0.2 3.9 5.5 4.8
Tiefbau Total 7 351 19.1 11.5 -0.9 -1.8 6.6 5.5 4.8
TOTAL CONSTRUCTION OUTPUT 19 905 9.4 5.3 6.2 6.9 5.3 5.4 4.9
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 4.51 5.7 0.7 7.4 7.6 3.0 2.0 4.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 27,762 CZK
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Country/Pays/Land: Czech Republic Table 3
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel Baugenehmigungen Familienhäuser
Flats Collectif Mehrfamilienhäuser
TOTAL 51.5 48.0 49.8 48.0 47.0 46.0 48.0
Housing starts 1+2 family dwellings Logements commencés Individuel 17.5 17.6 20.6 21.0 21.6 21.2 21.0 Baubeginne Familienhäuser
Flats Collectif 21.5 22.8 23.1 22.8 20.6 21.0 22.2 Mehrfamilienhäuser
TOTAL 39.0 40.4 43.7 43.8 42.2 42.2 43.2
Housing completions 1+2 family dwellings Logements terminés Individuel 15.3 13.5 13.2 17.0 18.7 17.2 18.2 Baufertigstellungen Familienhäuser
Flats Collectif 14.0 19.4 18.0 24.6 27.7 27.2 27.2 Mehrfamilienhäuser
TOTAL 29.3 32.9 31.2 41.6 46.4 44.4 45.4
Housing stock Logements existants 4 430 4 462 4 514 4 545 4 580 4 610 4 640 Wohnungsbestand
thereof second homes dont résid. secondaires 169 173 177 181 185 175 175 davon Zweitwohnungen
thereof vacancies dont inoccupé 300 290 290 290 280 270 270 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 46.3 61.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Czech Republic Table 4a
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 20042) 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 411 369 12.6 25.8 1.5 3.4 6.9 6.5 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 209 235 -29.1 20.2 -5.0 1.9 14.3 12.5 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 1 525 1 380 6.1 11.0 30.9 3.4 -6.3 3.5 Industriegebäude
Storage buildings Bâtiments de stockage 411 681 -4.0 69.1 72.0 10.8 12.6 12.9 Lagergebäude
Office buildings Bureaux 905 1 050 22.4 -0.7 4.4 -1.2 10.8 8.9 Bürogebäude
Commercial buildings Commerces 1 059 719 1.7 -6.7 6.4 1.7 3.7 12.6 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 106 74 55.3 41.1 2.9 -5.0 -10.0 4.5 Landwirtschaftsgebäude
Miscellaneous Autres 810 707 -14.7 34.1 -3.3 16.5 20.7 -9.1 Sonstiges
Total 5 436 5 205 2.6 11.5 12.5 4.6 6.0 5.1 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 27,762 CZK 2) There are no data in column 2004 because the classification system of products changed at the beginning of year 2004
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Country/Pays/Land: Czech Republic Table 4b
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 20042) 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 4 111 15.2 7.3 -2.8 5.5 5.0 7.5 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 948 16.2 -22.7 12.1 10.0 6.5 6.0 Bahnanlagen
Other transport Autres réseaux 49 12.9 -66.7 28.9 22.4 23.3 28.4 Übrige Verkehrsinfrastruktur
TOTAL 5 108 15.4 -0.8 -0.1 6.5 5.5 7.5
Telecommunications Télécommunications 63 8.5 9.8 12.1 11.8 5.3 10.0 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 1 235 9.6 2.1 4.3 3.5 6.5 8.8 Energie- und Wasserversorgung
Other Autres 945 -1.2 -4.9 -16.6 10.9 4.3 -13.9 Sonstiges
Total 7 351 11.5 -0.9 -1.8 6.6 5.5 4.9
1) At 2007 prices, excluding taxes. 1 euro = 27,762 CZK 2) There are no data in column 2004 because the classification system of products changed at the beginning of year 2004
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Country/Pays/Land: Czech Republic Table 5
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 60.8 2.9 2.3 5.4 5.7 3.9 4.8 4.6 Privater Verbrauch
Public consumption Consommation publique 26.6 -1.1 2.6 0.1 0.9 1.2 0.1 0.1 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 30.9 3.9 2.3 5.5 6.1 8.2 8.0 7.6
of which construction
Stocks (contribution as % of GDP) Variations de stocks 3.9 1.1 0.8 2.2 3.0 3.2 3.2 3.2 Vorratsveränderung
Exports Exportations 101.2 20.7 11.8 14.4 14.5 12.0 11.0 12.2 Exporte
Imports Importations 95.2 17.9 5.0 13.8 13.7 11.9 10.0 11.1 Importe
GDP PIB 128.2 4.6 6.5 6.4 6.5 5.0 5.7 5.8 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 27,762 CZK
62 - ©Euroconstruct – Rome, June 2008
DENMARK Copenhagen Institute for Futures Studies www.cifs.dk
Anders Bjerre e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
DENMARK
1 Summary
The macro-economic outlook has turned from fair to less than fair, with 2008 GDP growth between 0 and 1%, with some improvement in growth towards 2010.
The consumption party of households is over. Consumer confidence turned to the negative side at the beginning of 2008, and the decline in home prices and high interest rates will dampen the growth of private consumption and hence domestic demand further.
Inflation will increase to 3% or more in 2008 due to oil and raw material prices. We foresee a return to 2% inflation in the more competitive economic environment of the next years.
Main positive growth impulses in 2008 are public consumption and public investments.
Unemployment is expected to stay very low in spite of low economic growth.
Construction trends are changing. The boom is over.
New home building will decrease quite significant from this year and onwards after a long boom.
New non-residential building is being affected by the negative climate in global business and finance and will decrease from next year. A reaction lag from the decisions made in the previous, better climate implies that growth will continue for the next months before declining.
New civil engineering will benefit from increased funding and a number of new larger projects, not least within transportation, in the coming years. Considering the negative outlook in new building activity, a pretty good timing.
We expect that R&M will stay essentially unchanged in housing, in non-residential building as well as in civil engineering.
Total construction activity will decrease only very modestly helped by positive impulses from investment projects in civil engineering.
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2 Macro-economic Outlook
The macro-economic outlook has turned from fair to less than fair, with 2008 GDP growth between 0 and 1%, with some improvement in growth towards 2010.
Our scenario shows an improvement in growth towards 2010. The dark clouds above the global economy indicate a downward risk, however. In our forecast we assume that the Western economies suffer only a shorter setback.
On the positive side we foresee that many consecutive years of still tighter labour market comes to an end, and the risk of overheating might evaporate. Unemployment is as low as 2% and we now enter a period with downward pressure on the active labour force, as small generations enter and large generations leave the labour market. Hence, the internal labour market balance could still create problems unless we se a continued immigration of labour.
We foresee that repercussions of the earlier tight labour market will show up as problems in external balances. Private 2007 wage settlements and present public 2008 wage settlements create upward pressure on domestic inflation and reduce competitiveness, which is unfortunate in the present global environment. Hence export prospects, trade balance and the current account will see negative impulses from these. Since the present external balances are OK, these changes will not be critical, however. Actually, the balance of goods trade has turned negative, but is outweighed by a positive balance of service trade.
This year inflation will increase to 3% well above the (more or less official) 2% target. This is mainly due to impulses from global factors such as oil prices and other raw material prices.
A couple of domestic impulses are worth mentioning. Firstly food prices have increased more dramatically in Denmark than in other countries, as it seems that the supply chain, that is retailers and producers, have used the opportunity to raise their margins. Secondly and in this Euroconstruct context it is especially relevant that the booming construction sector implied a 6½% increase in construction prices last year.
In spite of the above mentioned wage increases we don’t foresee high Danish inflation next year and onwards. The global economic environment doesn’t allow high price rises on tradable manufactured goods. And with a more depressed home economy the increased internal competitive pressure will have a dampening effect on inflation.
The consumption party is over. The decline in home prices and high interest rates dampen consumption growth and hence domestic demand. The imports of consumer goods will mirror this too.
Consumer confidence turned negative at the beginning of 2008 for the first time since 2003, and has so far declined further.
Growth in private consumption will dampen significantly in 2008. We expect consumption growth to be as low as 0-1% in 2008, increasing to 1.5% in the following two years. Consolidation will be the main tendency even though real wages are increasing and taxes have been slightly lowered.
The housing market continues to be a dark horse in relation to the household economy. Even though home prices have fallen, the imbalance between supply and demand at announced sales
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DENMARK prices continues to grow. Flats and houses in the larger cities (Copenhagen+) are hardest hit. A scenario with a price-floor much below present levels cannot be excluded.
The majority of homeowners will fare quite well, as they have owned their home for many years; rising values has prompted some borrowing for e.g. luxury consumption and secondary homes or other investments, but must still have a very comfortable equity stake in their homes, as “extra” borrowing has only been marginal. But among the first time buyers of the last years, many may face technical insolvency. Family incidences, e.g. divorces among young couples, will be painstaking and raise political concerns as bankruptcies rise.
Public consumption is influenced by the structural reform-process initiated in 2006-7. Getting the new merged municipalities etc. working properly will take time. And probably involve temporary headaches with spending exceeding budgets. We expect public consumption to grow in the range of 1.5%- 2% each year.
The General Government Budget (combined state and municipalities etc.) has a comfortable surplus, with room for expanding public investments compared to current plans, if expedient. We foresee some good news for the construction industry from politicians.
Private sector investments are the most difficult to forecast and at present much more so than usual. The business climate and psychology of decision making could continue its negative development in the coming months. And at least postponement of a number of large, private investments is to be expected. In later years, total fixed capital formation has boomed; this boom has come to an end. In our forecast we assume almost zero growth this year and the next, followed by moderate growth. This total figure comprises investments within all sorts of machinery, equipment, construction, software etc. from both private and public sector. Public sector investments fare quite well, while the private sector outlook is more mixed, and some, traditional parts of the private sector, including property/construction, must be considered weak. Of cause some high growth sectors like telecommunications continue to invest on a big scale (perhaps even over-invest in aggregate).
Construction trends have so far changed a bit slower than we expected at the last conference. However, trends are now changing much stronger and in two dimensions so to speak, both concerning new building activity.
The first dimension: Things went very fast in recent years. Driven by new home building, construction output grew 12% in 2006 and again 2% in 2007 (we expected a 1% decline). The inertia in new housing activity was high. For this reason, and due to the radical worsening of global financial conditions, the downturn in new housing activity will be much harder than expected at last conference. Housing starts will not only decline somewhat and gradually, but will decline much and steeper.
The second dimension: At last conference, we considered the professional property market to be reasonable healthy. We have changed our mind. Our new scenario has turned upside down this view of the private market, but reaction will come with a time lag. The usual inertia in large construction projects means that this year, and probably a number of months into next year, activity will continue to grow; then, a decline will set in. The sharpness depends on the development of the – very uncertain - global economic development.
Civil engineering trends will gradually become stronger, with healthy growth in the next years. New transport infrastructure is increasingly in focus due to congestion, energy-related projects are favoured
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by high oil prices and the increasing focus on global climate issues, and for a number of reasons civil engineering R&M is coming more into political focus too.
We expect a ‘revival’ of works in new transport infrastructure. For many years activity has been low and this is going to change quite radically. You could call it a return to more normal levels from today’s quite low level.
Hence in our forecast we assume large growth rates in new civil engineering the coming years. Considering the negative outlook in new building activity, a pretty good timing.
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3 Housing Market
Things went very fast in recent years. Driven by new home building, total construction output grew 12% in 2006 and surprised us a bit by a continued 2% growth in 2007, where we expected a 1% decline.
We underestimated the inertia in new housing activity. For this reason, and due to the radical worsening of global financial conditions, the downturn in new housing activity will be much harder than expected at last conference. Housing starts will not only decline somewhat and gradually, but will decline much more, as well as steeper.
New residential construction has grown at rates above 15% for a number of years, but slackened to 2% in 2007. Now we foresee that activity in new residential construction will decline about 10% in each of the years 2008-2010.
The former growth was fuelled by rising home prices, low interest rates, growing employment and some speculation combined with financial innovations – cheaper loan types.
The reversal of interest rate trends is increasingly felt, and the financial sector is getting still more cautious.
While flat prices in larger cities have been falling since mid 2006, only recently one family house prices have been falling countrywide. Whether we have just seen the top of the iceberg remains to be seen.
The market is clearly in disequilibrium, and the imbalance between supply and demand seems to increase, as the number of total homes for sale has grown by 15% since the beginning of the year. Note that this imbalance has increased during 2008 while realised prices at the same time have been decreasing. Also, the discounting of homes for sale (actual sales prices compared to originally posted prices) has grown strongly.
The appetite of housing developers has cooled down. A significant amount of new-built flats originally intended to be put on the market for sales, have instead been hired out, as they can’t be sold at the expected prices in the present market. Many more new flats will be finished in the next year or so, and most developers hesitate to start new projects.
Not least flat prices may drop further, and perhaps quite considerably in the largest cities, where the boom was strongest and the imbalance is now larger than earlier.
Our expectation is that new building of one-family houses will decline in the forecast horizon, but in comparison with the construction of flats, the downturn will be rather mild.
However, a scenario where prices of one family-houses follow suit with larger price drops on a country wide scale cannot be excluded. As the large majority of Danes live in one-family houses, the realisation of this scenario could have much larger, macroeconomic implications, involving stress in the financial system. A decline in interest rates could eliminate a lot of problems.
Building of new summer residences has been increasing in later years partly because new laws have permitted construction in new zones and partly because of the economic boom.
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The market for summer residences seems to echo the market for normal houses, but with much larger amplitudes in prices, new building relative to stock, speculation in both second-hand building sites and in new virgin project developments, etc. Exactly what we have seen, but so far only echoing the increasingly optimistic and “risk-loving” trends. Hence, the potential future risk hidden in the summer- house market – a sort of small appendix to a much larger home market - could be very large, relatively speaking.
New building of subsidized rental dwelling, for the less well off, elderly or disabled people has been very low in later years. The uncertainties relating to the recent structural reform of local government makes it hard to estimate the future of this building activity.
We are confident that the segment of special dwellings for elderly and disabled will pick up within the forecast horizon on a country-wide scale, not least due to the increasing number of elder people needing some care in suitable dwellings.
We doubt more about new building of general subsidised dwellings on a broader countrywide scale. In Metropolitan Copenhagen, there has long been political pressure for building cheap dwellings for families with ordinary income (and less well-off families), and some small-scale experiments are on their way. Actually, this type of housing just might be a realistic possibility even in Copenhagen at present trends.
The market value of building sites and building rights in Copenhagen have been prohibitive to the construction of cheap, finished homes, even with innovative industrialised construction techniques, during the boom and towards the end of it.
This (the market price of building rights) is important, as the present law stipulates that municipalities are not allowed to sell building sites to anyone at less than market value.
The market value, reflecting what private developers have been willing to pay, has been increasing along with the price boom. With not much appetite left for new housing projects, developers would pay only a very modest price for “residential” building rights, not least when there is a fixed time frame for terminating construction.
When the bottom falls out of demand, ‘market prices’ of building sites should drop quite dramatically, even though it is not a market in strict sense. Municipalities and associated public bodies (like harbour redevelopment companies) have, due to the planning law, near monopoly on supplying building sites. And neighbouring municipalities together then form a de facto cartel.
Hence the present market situation could, through cheap building rights, pave the way for much cheaper new-built dwellings/social housing in Metropolitan Copenhagen and perhaps in large provincial cities.
In the rest of the country, a further downturn in the second hand market for homes could probably give owner-occupied flats and houses a price-competitive edge compared to any new-built (and even a lot of existing) social housing. Hence it hardly makes sense to build more for general social reasons.
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Residential R&M
Residential R&M is expected to remain essentially unchanged, but at a high level. While softening home prices would indicate a decline, some activity has earlier been held back by lack of labour; the net effect could be zero.
In recent years, R&M trends have been quite strong, as disposable incomes have increased and a large segment of homeowners have enjoyed capital gains in the housing boom. Quite often, these capital gains have been used as the basis for increased borrowing – for a holiday or a new car, but very often also for residential R&M. Private homeowners desiring a new style (e.g., a “new” kitchen or a “new” bathroom) is an important factor in this market, which to a large extent is fashion driven.
There has been influx to the construction sector of migrant labour from the “new” (2004) EU members, from the neighbouring countries, as well as from the rest of the economy. This eased labour bottlenecks in construction during the boom in new construction.
Even though this boom is now history, new data show a record number of Eastern immigrant workers. Hence R&M activity by immigrant workers seems to be a lasting phenomenon, which will probably affect both the price-level and the activity-level of residential R&M works in the future. To some extent, the use of relatively cheap, legal immigrant workers may only replace work, which was already being done on a DIY or “black economy”, tax-free basis.
R&M may grow in the special sector of cooperatively owned housing (Danish: andelsboliger), as changing regulations and exploding flat prices in larger cities makes it easier to finance R&M activities for this sector, which has become much more market-oriented than it has been historically.
Not least in Copenhagen this type of ownership is very significant. Hence the effect of this market orientation will influence the general market for traditional, owner-occupied flats.
This may also foster a new housing pattern, as the incentive to stay “forever” in a cheap flat was high if you were paid only a little if you sold it; you were in effect “locked in” by low artificially prices. Now, with higher prices, the proceeds from the sale is much more likely to pay for another home somewhere else. This in itself will increase R&M activities, as more people are likely to change homes.
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4 Non-residential Market
At the last conference, we didn’t expect the new non-residential market to be hit by a slowing economy. We considered the professional property market to be reasonable healthy, and envisaged the upturn in new building of offices, commercial premises, factories etc. to continue. We have changed our mind.
Our new scenario has turned upside down this view of the private market, but with a reaction lag from the decisions made in the previous, better climate. The usual inertia in planning and building large projects, means that this year, and probably a number of months into next year, activity will continue to grow. Then, a more or less sharp decline will set in. How sharp depends on the development of the (highly uncertain) global economy.
Capital is drying up for development activity in the office market and the market for shopping centres. Such projects have turned more risky, and banks have become more cautious.
Even developers with large equity capital may prefer passive investments (like the short term money market), and/or are lining up to swallow weaker players in their market.
Mergers and acquisitions will probably be a rising phenomenon in most private markets. Consolidation and rationalisation on a sector level could decrease private demand for office premises as well as for other resources on a national scale. (Which is actually the idea behind the Danish structural reform for the public sector)
There are some plans for large, private building projects, which will be unaffected by present trends, either because they are to be financed by wealthy non-profit investors, or because they involve ‘non- market’-customers like governmental or international organisations.
Two Danish sectors have benefited from recent global trends: The energy sector and the agricultural (or food) sector. Both these will probably use their strength to invest more outside Denmark, rather than within the country.
Repairs and modernisation – non-residential buildings
In our forecast, R&M activity in non-residential building is flat.
R&M needs in schools and hospitals are very high and activity here should grow, as in various other public service facilities. However, the new municipalities face a number of demands, and most likely they will hold back spending on modernisation projects more than they really should, considering the needs.
Private R&M-activity in non-residential buildings will be affected negatively by general economic conditions. As office vacancy rates are growing, property owners will probably wait and see before investing in larger renovation works, not least because of the actual high cost of money.
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5 Civil Engineering Market
Civil engineering trends will gradually become stronger, with healthy growth in the next years. New transport infrastructure is increasingly in focus due to congestion, energy-related projects are favoured by high oil prices and the increasing focus on global climate issues, and for a number of reasons civil engineering R&M is coming more into political focus too.
Transport infrastructure
We expect a ‘revival’ of works in new transport infrastructure. For many years activity has been low and this is going to change. You could call it a return to more normal levels from today’s quite low level. Hence in our forecast we assume large growth rates in the coming years.
An official Infrastructure commission gave its recommendations in late 2007.
The Government will later this year give its own report with an investment plan based on these recommendations. This will affect activity upwards in coming years. The funds allocated and the exact projects with high priority are not known yet.
Since activity in the construction industry is easing fast, new public projects can grow faster than previously expected. As public budgets are healthy, there is room for an expansive policy. With increasing congestion in large parts of the country, transport infrastructure is coming more into focus, though the usual not-in-my-back-yard issues could cause delays.
Earlier political decisions have already increased funding for infrastructure and paved the way for fast starts of new projects.
In 2006 a political decision, the ‘road-and-rail-package’, included funding for final investigations (VVM) for a number of new projects. A number of new projects may hence be able to start fast, once decided. This package includes upgrading the rail system backbone; this work will take until 2014, but activity has increased already in this field.
In the 2008 National Budget agreement, new funds were allocated as a supplement to the same package. Among other things, a number of state road works got extra money.
The new Municipalities have so far performed a sort of go-and-stop policy concerning road investments, with a considerable cutback last year. As their budgets are tight, cutting back road investments and maintenance of roads seems to be an easy solution.
The newest Copenhagen metro line opened in September 2007: Copenhagen Airport to City center in 14 minutes, every 4 minutes, at 3 euro. The next construction phase will double the size of the Copenhagen metro during the coming decade.
The Fehmarn Bridge to Germany has now been agreed upon; construction is planned to start 2010. It will be owned by Denmark alone, not by both countries; bridge + connections in Denmark will be around 5 billion euro (2007 prices).
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Non-Transport infrastructure
Energy Investment in the energy field will grow. Growth in 2008-10 is accelerated by the construction of two very large off-shore windmill fields. One of these fields is currently under construction, while works on the other have been delayed. Investment in power distribution networks will grow, while investment in district heating falls back.
Telecommunication The supply side of digital transmission is becoming crowded, not least in densely populated areas, as suppliers scramble for market shares. One of the large power and power distribution companies invests in digital transmission too. As part of a large project to dig all power lines into the earth, they install parallel digital transmission cables too.
Environmental activity Environment-related civil engineering has been growing for a number of years, but is forecast to decline. However, sewage treatment may grow considerably, as may the construction of new coastlines for recreational purposes and similar leisure-related activities.
R&M civil engineering
R&M for infrastructure is generally much too low. There is a lot of discussion related to better long- term infrastructure management in general, but due to the changes in local government, such “invisible”, low-profile projects may be put off even more than usual. On the other hand, there is increasing focus on this issue in the public debate, in particular relating to the state of the rail system, as very visible delays due to speed limits are impossible to overlook. Along with hospitals and schools, transport infrastructure is a likely candidate for increased R&M in the coming years.
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APPENDIX – DEFINITIONS
Households From housing stock Special statistics of households
Unemployed Yearly average End of the year Other ?...... ILO methodic National methodic Other (which?)
Short term inter. rate 3-month More month……..
Long term inter.rate 10 year
Tables 2, 4a, 4b
Total constr. output = Sector + others Directly total Other (?)
VAT % 25% Included excluded
Export constr. Included excluded
Source of sector out. Surveys of Firms over … persons empl. National Accounts Firms under …. persons estimated from last survey in year……….
Current repairs Included excluded
Architect costs Included excluded
RaM Included excluded
Saldo of subcontractors Yes no
Source of RaM National Accounts Others DIY Included: Materials Not included: Labour
(services=total minus Black economy Included: Materials Not included: Labour sectors) Works abroad Included Not included
Current repairs Included Not included Works in other ind. Included Not included
Output RaM Current repairs Included Not included
Modernization Included Not included
Residential output DIY Included: Materials Not included: Labour
VAT% (25%) Included Not included
Includ. Mark number of groups of CC* 111, 112, 113
„Sector“ form „Total“ form How recalcul.?
Non-resident. output Mark numb. CPC* 52 121,..122,123,124,125,126,129
VAT% (25%) Included Not included
In „Sector“ form In „Total“ form How recalcul.? From sq. Meters Other way (which?)
Education,museum. 52 125
Health 52 126
Industrial build. 52 121, 52 261, ..263, .. 269
Storage buildings 52 121
Office buildings 52 122
Commercial build 52 122
Agricultural build 52 129
Miscellaneus 52 124, 52 129 Civil engineer.output Mark numb. CPC* 52 211 to 213,.. 221 to 224,..231 to 233,..241 to …243, …250,…271,..279, …290
VAT % (25%) Included Not included
Civil engineer.output In „Sector“ form In „Total“ form How recalcul.?
Roads 52 211, .. 214, ..221 to ..224
Railways 52 212
Other transport 52 213, .. 232
Telecommunication 52 242, 52 250
Energy and water 52 241, ..243, ..250
Other 52 271, …279,…290
Exchange rate 1 euro = 7,4591 DEK Yearly average To 31.12. Other(?)… *CPC=“Central Product Classification“
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Table 3 „Dwelling“ include Also non-occupated Also recreational Also unfit for habit
Also in pensions, etc. Also other-which?...... 1+2 family dwellings Also for more than 2 family but detached Other? Detached or
semi-detached Housing starts Architect´s permit Office permit Other? Start of
physical work on site
Average End of the year Other way: Year total Housing completed Office permission Term of using Other way: Report of owner to authorities Average End of the year Other way: Year total
Housing stock Also non-occupated Also recreational Also unfit for habit. Also in pensions, etc. Also other-which?......
Survey this year Housing stock last year+saldo of changes
Other way (which?): All buildings are registered in national database Beginning of the year End of the year Other(?)……………
Thereof:- Second Also non-occupated Also improvised (huts,cabins,shanties) homes Also unfit for habit. Also: Includes only fit for summer use
Thereof:- Vacancies Also non-occupated Also improvised (huts,cabins,shanties) Also unfit for habit. Also other-which?......
Home ownership rate Only domestic inhab. Also foreigners Exclud.cooperativ
Table 5 The basis of GDP SNA system (which?): newest
VAT % (25%) Included Not included
Stock in GDP Changes: As % of 2006: In EURO Other way(which?
GDP
Other remarks:
Table 1 • Population, Households: Number of people and households at the beginning end of the year • Unemployed and unemployment rate: Data are based on Danish ‘headline’ figures. The definition has been revised and figures are pretty close to those of the ILO-definition (used in EU- comparisons). • Change of GDP: Calculated by chain indices. For comparisons note that a number of Nordic Financial Institutions use growth data calculated by weights from the year 2000. • Consumer prices (% change): HICP, Harmonized Index of Consumer Prices in the EU. • Construction prices (% change): Construction cost index for new housing.
Tables 2, 4a and 4b. General comments and definitions • Note that data represent construction output/production, and hence represent sales value including intermediate input bought from other sectors, e.g. building materials. It is different from Value Added in construction, where the value of inputs from other sectors is deducted (value created in other sectors). Source: Detailed (unpublished) statistics in relation to National Accounts Statistics from official sources (Danmarks Statistik / Statistics Denmark • Data are in ‘Basis Prices’ excluding Value Added Tax (VAT), (unlike ‘Market Prices’/’Buyers Prices’ which include VAT). There is a uniform 25% VAT rate in Denmark. • Where original data are incomplete, estimates are made by the CIFS based on whatever material available.
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Construction output/production/activity is of cause intended to reflect what is says. However, there are some issues: Where does the construction industry begin & end - and where do other, related fields end/begin? Construction activity can be done by outsiders (not within the construction field), just as construction companies can have commercial activities in other fields (e.g. software development). • In our data, the services input from architects/engineers to construction are included. • In-house construction companies/divisions in companies in other fields of commerce are considered as belonging to the construction sector, and their activity is part of construction output. • Other/non-construction types of in-house commercial activities in construction companies are considered as belonging outside the construction field (software development for example). • The use of do it yourself (DIY) labour by private households, most of which is within R&M, and its value is not included in our data (nor in National Accounts). One exception is DIY activity on new homes, where the value of labour is included (calculated as investment in N.A.). • Materials supplied to DIY, is included in our data, as it is clearly part of the official economic circuit. For all practical purposes this can be considered as residential R&M-activity
Table 2 • New residential & New Non-residential buildings refer to new buildings plus i) when a building is totally rebuilt/converted, for example from an old non-residential building to new residences, and ii) when a building is expanded in size/area. • R&M for buildings includes both i) repair & maintenance which is considered consumption (value preserving/conserving) in the N.A. and ii) renovation/modernisation which is considered investment in the N.A. (value increasing - increases the value of a building). • New Civil Engineering: Value-improving civil engineering works (investment in the N.A.) comprises both activity in totally new works and major renovation works. • Civil Engineering Renovation: Value-conserving civil engineering works, that is repair and maintenance (consumption in the N.A.)
Table 3 • Definition 1+2 family dwellings vs flats: 1+2 family dwellings: detached, semi-detached and row houses. Dwellings in modern low-build compact architecture(‘tæt lav byggeri’), are included here. Flats are mostly in ‘high rise’ buildings and include student accommodations etc. • Historical data for permissions, starts and completions are based on the Danish Building Database with 'mark-up' estimates due to data delays. Data supplied by ‘Danmarks Statistik’ in this ‘mark-up’ form. However, categorizing in the two Euroconstruct groups is done by CIFS. • Note that historical data on starts and completions from Statistics Denmark sometimes show peculiar year-to-year fluctuations. Economic realities (such as hard frost in Jan-April causing ‘rolling’ delays in housing starts), special temporary policies/subsidies (such as favourable financing conditions on subsidized housing with construction start-up before Jan. 1.st), administrative practice (such as giving ‘go ahead’ to large construction works before certain cut-off dates), poor statistics and poor estimates of delays affect data. In our data presentation we sometimes smooth data/obvious/suspected errors in order to avoid unnecessary confusion. • The data (starts etc.) includes summerhouses/second homes, most of which are of a very high standard and often higher than the average new “official” all-season house. Due to this high standard, and in order to be able to assess the construction supply side, this is the only logical treatment. However this inclusion should be held in mind when comparing with other Danish sources, some of which exclude this segment. • Housing stock, vacancies: Beginning of the year. The total stock includes second homes. Our series (stock, vacancies) have been revised, as Statistics Denmark has applied a new definition of
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total stock. However our data differ from this new definition in order to reflect economic reality closer. • Home ownership rate: Share of households living in their owner-occupied house/flat. This does not include cooperative housing, in Danish “andelsboliger”. About 7% of total dwellings consist of this special legal type. These could be included as homeowners, even though households rent a dwelling, since households basically own the same relative share of the co-operative housing company, as they rent from it. The market used to be characterized by queuing, as prices were regulated. With the latest public valuation in 2006, market conditions are coming closer. Sales values have increased, sometimes manifold, though still within the same legal framework, and it is now possible to buy flats in many cooperatives without queuing. For a number of reasons we haven’t included these in “home ownership rate” yet. • Second homes: Mostly summer residences, but many are equipped as a full second home. About 10% of registered summer residences function as a full-year dwelling in practice.
Table 4a • NOTE that the identical growth rates in rows 1-2 and in rows 3-8 represent aggregate figures for the grouping of these rows • (NEW) Due to special statistical problems and statistical delays caused by the Danish Structural Reform we use slightly changed definitions at this conference. • Buildings for Education, Health, and Social services: Due to incomplete data and to difficulties in drawing borders, we use data split into two categories; Health and all other ‘soft’ public services (for non-housing purposes). Hence education (schools, universities) in table 4a includes social services like kindergartens etc. actually also a number of buildings for cultural purposes build by both foundations and public bodies etc. Hence there can be a difference when comparing with official statistics. • Construction for health purposes is in the group Hospitals. • Note that buildings in the ‘hard’ part of the ‘public/semipublic/semiprivate’ supply-sector, that is utilities, public transport etc. belongs to the category ‘Miscellaneous’. • Industrial Building: Factories or alike. • Office, Commercial buildings and Storage Buildings: In Danish official statistics these types are grouped together. We have made a rough estimate of the respective categories in Table 4a. • Agricultural buildings: Agriculture, Horticulture, etc. • Miscellaneous buildings: Hardware ’semipublic/semiprivate’ supply-purposes, semipublic/ semiprivate transport sector, various (semi)private sector buildings • (NEW) We have excluded a number of Ultra Low Cost buildings, buildings that in Danish official statistics are counted with a lot of m2, but little in value. Hence in the square meter table (new in Euroconstruct reports from 2008) there is a significant difference when comparing total m2 with some of the official statistics from Denmarks Statistik. When counting in value differences are of minor importance.
Table 4b Due to incomplete data from Statistics Denmark, regrettably we cannot at present give full details. We have made rough estimates of the share of each group.
Table 5 • National Account data in market prices, including VAT. Historical growth rate are calculated by chain indices.
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Country/Pays/Land: Denmark Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Estimate Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 5 398 5 411 5 427 5 447 5 476 5 500 5 525 Bevölkerung
Households ('000s) Ménages 2 481 2 499 2 516 2 532 2 545 2 560 2 575 Haushalte
Unemployed ('000s) (Revised*) Chômeurs 161 141 109 77 60 60 60 Arbeitslose
Unemployment rate (%) (Revised*) Taux de chômage 5.8 5.1 3.9 2.8 2.0 2.0 2.0 Arbeitslosenquote
Change of GDP Variation du PIB 2.3 2.5 3.9 1.8 0.5 1.0 2.5 Veränderung des BIP (% change in real terms)
Consumer prices (% change EU/HICP-def.) Prix à la consommation 0.9 1.7 1.9 1.7 3.0 2.0 2.0 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 1.9 2.4 4.7 6.4 3.0 2.0 2.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 5.0 4.3 4.0 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.3 3.4 3.8 4.3 4.5 4.3 4.0 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent). Danish DKK-denomiated short term rate 'shadows' Euro-rates. 3) 10-year government bonds (or equivalent). DKK-denominated long term rates almost equals the German euro-rate. *) Danish "headline" definition
©Euroconstruct – Rome, June 2008 - 79
DENMARK
Country/Pays/Land: Denmark Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Estim. Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 6 329 17.7 17.0 24.7 2.2 -10.0 -10.0 -10.0
Logement Renovation *) 9 972 2.8 9.2 11.0 3.7 0.0 0.0 0.0
Wohnungsbau Total 16 302 7.6 11.9 16.0 3.1 -3.9 -3.6 -3.4
Non-residential construction New 4 908 4.1 -0.6 20.0 2.2 5.0 1.3 1.3
Bâtiments non résidentiels Renovation 3 074 -3.7 1.5 3.2 2.7 0.0 0.0 0.0
übriger Hochbau Total 7 983 0.7 0.3 12.9 2.4 3.1 0.8 0.8
Building New 11 238 10.7 8.4 22.6 2.2 -3.4 -4.6 -4.3
Bâtiment Renovation 13 047 1.0 7.2 9.0 3.5 0.0 0.0 0.0
Hochbau Total 24 284 5.0 7.7 15.0 2.9 -1.6 -2.1 -1.9
Civil engineering New 3 187 -14.2 -8.2 7.1 -6.7 5.0 10.0 10.0
Génie civil Renovation 3 356 5.7 1.5 1.4 3.3 0.0 0.0 0.0
Tiefbau Total 6 543 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2
TOTAL CONSTRUCTION OUTPUT 30 827 2.0 4.8 12.4 1.8 -0.7 -0.5 -0.2
2007 Estim. Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 1.80 5.0 3.0 8.0 0.0 0.0 2.0 2.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 7,4506 *) Of which materials bought for do it yourself work is approximately 4 billion ECU
80 - ©Euroconstruct – Rome, June 2008
DENMARK
Country/Pays/Land: Denmark Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Estim. Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 17.0 18.0 18.0 Baugenehmigungen Familienhäuser
Flats Collectif 13.5 15.5 12.0 Mehrfamilienhäuser
TOTAL 30.5 33.5 30.0 0.0 0.0 0.0 0.0
Housing starts 1+2 family dwellings Logements commencés Individuel 16.0 17.0 18.0 17.0 15.0 13.0 13.0 Baubeginne Familienhäuser
Flats Collectif 13.0 13.0 15.0 12.0 10.0 9.0 9.0 Mehrfamilienhäuser
TOTAL 29.0 30.0 33.0 29.0 25.0 22.0 22.0
Housing completions 1+2 family dwellings Logements terminés Individuel 15.0 15.0 17.0 18.0 17.0 15.0 13.0 Baufertigstellungen Familienhäuser
Flats Collectif 12.0 12.0 14.0 13.0 11.0 10.0 10.0 Mehrfamilienhäuser
TOTAL 27.0 27.0 31.0 31.0 28.0 25.0 23.0
Housing stock Logements existants 2 814 2 844 2 865 2 885 2 905 2 925 2 945 Wohnungsbestand
thereof second homes dont résid. secondaires 224 226 230 235 240 245 250 davon Zweitwohnungen
thereof vacancies dont inoccupé 145 145 145 150 150 150 150 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 53.0 53.0 53.0 53.0 53.0 53.0 53.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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DENMARK
Country/Pays/Land: Denmark Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) 000' m2 mill. euro Estim. Forecast Outlook
2007 estimate 2004 2005 2006 2007 2008 2009 2010
Buildings for education (incl. social service etc) Bâtiments de l'éducation et de la recherche 1 017 1 016 13.5 3.8 8.1 2.2 5.0 5.0 5.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 254 169 13.5 3.8 8.1 2.2 5.0 5.0 5.0 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 566 984 -5.6 4.7 12.7 2.2 5.0 0.0 0.0 Industriegebäude
Storage buildings Bâtiments de stockage 229 286 -4.6 -8.1 38.9 2.2 5.0 0.0 0.0 Lagergebäude
Office buildings Bureaux 762 572 -4.6 -8.1 38.9 2.2 5.0 0.0 0.0 Bürogebäude
Commercial buildings Commerces 533 501 -4.6 -8.1 38.9 2.2 5.0 0.0 0.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 509 1 909 -7.5 -7.5 2.2 2.2 5.0 0.0 0.0 Landwirtschaftsgebäude
Miscellaneous Autres 1 038 856 25.9 6.3 27.2 2.2 5.0 0.0 0.0 Sonstiges
Total 4 908 6 294 4.1 -0.6 20.0 2.2 5.0 1.3 1.3 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 7,4506 Note that identical growth rates represent rough estimates of aggregate figures for the groupings of the respective rows and that the 2007-distributions in money and physical valuees are estimates, as official figures are not available for all categories Buildings for education is a quite broad category here, including social services as kindergartens, culture etc
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DENMARK
Country/Pays/Land: Denmark Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Estim. Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 1 439 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 393 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2 Bahnanlagen
Other transport Autres réseaux 262 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2 Übrige Verkehrsinfrastruktur
TOTAL 2 094 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2
Telecommunications Télécommunications 294 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 3 827 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2 Energie- und Wasserversorgung
Other Autres 327 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2 Sonstiges
Total 6 543 -5.8 -3.6 4.2 -1.8 2.4 5.0 5.2
1) At 2007 prices, excluding taxes. 1 euro = 7,4506
*) Note the that identical growth rates in thel rows represent the aggregate figures for all the rows together, that is the total, and note that the 2007-distrubution between the categories are rough estimates. Se text/appendix.
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Country/Pays/Land: Denmark Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Estim. Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 112.9 4.7 5.2 3.8 2.5 0.5 1.5 1.5 Privater Verbrauch
Public consumption Consommation publique 58.9 1.8 0.9 2.0 1.7 2.0 1.5 1.5 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 52.2 3.9 6.1 14.0 6.2 1.0 1.0 3.0
of which construction *) 27.2 4.3 8.8 13.0 2.3 0.0 0.0 0.0
Stocks (contribution as % of GDP) Variations de stocks 1.0 0.6 -0.6 0.6 -0.4 -0.5 -0.4 0.6 Vorratsveränderung
Exports Exportations 118.7 2.8 8.3 9.0 3.7 4.0 3.0 3.0 Exporte
Imports Importations 116.1 7.7 11.3 14.1 5.6 4.0 3.0 3.0 Importe
GDP PIB 227.7 2.3 2.5 3.9 1.8 0.5 1.0 2.5 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 7,4506
*)The level of construction in capital formation is here in market prices inclusive of VAT(Tab 2 and 4 are ex. VAT)
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FINLAND VTT – Technical Research Centre of Finland www.vtt.fi
Pekka Pajakkala e-mail: [email protected]
Erkki Lehtinen e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
FINLAND
1 Summary
Global economic growth is expected to dwindle to just over 3 percent for the next few years. The outlook has clearly weakened, for instance, due to the U.S. credit market crisis.
The world economy will nevertheless continue to grow at a quite robust rate although there will be big regional differences. Developing economies like China, India and Russia will post strong if somewhat slower growth. On the other hand, growth in developed countries will contract considerably.
Finnish economic development has remained robust until recently when clearer indications of a weakening economy have appeared and GDP forecasts have been revised down. The 2007 GDP forecast is 4.4 percent.
The country's economic growth is expected to slow down clearly from the rate of the last few years but yet remain above the average for the Western nations. GDP growth of 2.5 percent is forecast for 2008. In 2009 growth is likely to fall under 2 percent, only to pick up towards the end of the year, finally reaching around 2 percent in 2010.
In 2007 the total construction volume increased at a brisk 7 percent rate. The new residential construction volume contracted 3 percent while the new non-residential volume surged by nearly 30 percent. The volume of renovation is estimated to have increased by just under 3 percent and that of infrastructure construction to have remained the same.
In early 2008 the outlook for construction as a whole remains favourable. The volume is estimated to increase further but little compared to previous years (3 %). The new residential volume is anticipated to fall about 7 percent while new non-residential will still increase 10 percent. New building starts are going to decrease, but ongoing projects will be enough to increase volume. Renovation will increase a couple of percent while civil engineering will see exceptional growth at over 4 percent.
The total construction volume will diminish around five percent in 2009 with all new construction sectors contracting, non-residential the most. A turn is expected around the middle of 2009, in 2010 the annual volume is expected to reach the 2009 level. Renovation will increase while civil engineering will decline.
CONSTRUCTION OUTPUT BY SECTORS IN FINLAND index 2000=100 160
Renovation and modernisation 140 Residential construction
120 Total construction
100 Civil engineering
80 Non residential construction
60 2000 2002 2004 2006 2008 2010 Sources: Statistics Finland and VTT VTT 5/2008
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2 Macro-economic Outlook
Peak of economic cycle is behind
The peak growth years of the global economy appear to have gone. The clearly over 4 percent rate of recent years is expected to decelerate to a good 3 percent. The economic outlook has weakened considerably. Inflation has picked up widely in both developed and developing countries due to the price of oil and food. Central banks are facing a contradictory situation where they should lower interest rates to revive economies while price stability requires higher rates.
The U.S. credit market crisis does not seem to be easing. Its impacts are widely felt by the developed economies but developing economies cannot escape them totally either. Fortunately, the impacts have been relatively mild. The Fed's interest rate policy is to promote economic development and stability of the financial markets by lowering the discount rate.
The world economy is expected to continue to grow quite robustly although there will be big regional differences. Developing economies like China, India and Russia will post strong if somewhat slower growth. On the other hand, growth in developed countries will contract considerably.
U.S. GDP growth declined to 2.2 percent in 2007 following growth of 3 percent in the three previous years. The U.S. is officially in a recession (two consecutive quarters of a shrinking economy). The recession would appear to become longer than earlier estimated. GDP growth in 2008 and 2009 is forecast to remain under 1 percent, and a pick up is only expected in 2010.
A four year period of good economic growth (2.6 % in 2007) is ending in Europe, but the decline should be less steep than in the U.S. Euro area inflation has accelerated rapidly – a good 3.5 percent is the 2008 annual estimate. The strong euro combined with the slowing growth of the world economy are a strain on European development as the ECB maintains a stable discount rate. The growth estimate for the euro area is around 1.5 percent early in the forecast period extending to the end of 2010; it is expected to accelerate only slightly towards the end. Growth expectations for the most recent EU countries are better than for the euro area.
Asian growth remains strong. China is expected to continue to grow at nearly 10 percent and India at about 8 percent. In Japan, where exports have been the engine of economic growth, the weakening global economy is expected to cut GDP growth to half of the around 2 percent of recent years.
Finnish economic development has remained good, or even very good, until recently. Yet, clearer indications of a weakening economy have recently appeared, and GDP forecasts have been revised down. The 2007 GDP forecast is 4.4 percent which is two-tenths of a percentage point higher than the previous Euroconstruct forecast (Vienna, November 2007). For the third time in a row, statistical indicators predicted slower than actual development almost to the end of the year.
The country's economic growth is expected to decline clearly from the pace of the past few years but yet remain stronger than in developed countries on average. The 2008 GDP is expected to increase 2.5 percent (3.1 % in November 2007). In 2009 growth will slow further to under 2 percent but should pick up towards the end of the year and reach about 2 percent in 2010.
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The risks to Finnish economic development are both foreign and domestic. Worse than predicted decline of the global economy would curtail Finnish export opportunities and impair development directly. It would also have an indirect impact by undercutting consumer confidence.
Domestic consumer confidence might dip more than anticipated, for instance, due to job cuts as a result of production streamlining. That might increase the low household savings rate thereby reducing consumption growth. Accelerating inflation could also have a similar impact.
The construction industry's confidence in the future remains strong in spring 2008. Order books are fuller than normal, and more personnel is being hired. The industrial confidence indicator has turned clearly downward. Production is expected to increase but at a slower than the accustomed rate. Capacity utilisation has fallen and stocks have increased. The confidence indicator for service companies, on the other hand, has remained high and stable, even improved slightly.
Consumers remain fairly confident in the future. Their confidence indicator has, however, been trending down already for 6 months. Especially confidence in the country's economic development has suffered; confidence in own finances has weakened only slightly.
The monthly number of new housing loans taken has remained stable for about a year. Home sales are about as brisk as earlier, prices have risen slightly, and interest rates have stabilised at just under 5 percent. The consumer barometer shows that the desire to buy housing has remained stable.
Private consumption grew 3.7 percent in 2007 – only slightly less than in the previous record year. Although employment continues to improve, and incomes have increased quite significantly due to the pay settlements, inflation is eating into purchasing power which will slow future consumption growth. Towards the end of the forecast period private consumption is expected to decelerate to about 2.0 percent. Public consumption will even pick up slightly as the public economy has revived during strong economic growth.
Investment growth accelerated to about 7.5 percent in 2007. Construction accounted for much of the growth, but investments in machinery and equipment increased by nearly as much. In 2008 machinery and equipment investments are anticipated to increase strongly and construction investments will also grow. In the remaining period unfavourable development of construction will cut investments.
Exports peaked in 2006. Last year was also quite favourable, and the trade balance increased. In future, foreign trade will grow more slowly.
In 2007 Finnish consumer prices increased 2.5 percent, a percentage point more than the previous year. In early 2008 inflation rose to nearly 4 percent – the annual rate is expected to be around 3.5 percent. Next year inflation should slow noticeably. Rises in housing prices and the interest on housing loans have spurred national inflation. In future, increases in the prices of energy, alcohol and food will accelerate inflation. Higher wage increases will also have a similar effect.
In 2007 the unemployment rate fell to 6.9 percent. New jobs have been generated continuously, primarily in the service sector, but also in construction and industry. Unemployment is predicted to fall further in 2008. The shortage of skilled labour is constraining production in many sectors. Especially construction has suffered from it. Unemployment is not likely to decrease further in the remaining forecast period due to the slowing economy.
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FINLAND
Macroeconomic Key Indicators in Finland to 2010 (Annual percentage change)
2004 2005 2006 2007 2008 2009 2010
GDP 3.7 2.8 4.9 4.4 2.5 1.8 2.0 Private Consumption 3.0 3.3 4.1 3.7 2.9 2.2 2.0 Unemployment rate 8.8 8.4 7.7 6.9 6.2 5.9 5.9 Inflation 0.2 0.9 1.6 2.5 3.4 2.0 2.0
Source: EUROCONSTRUCT, June 2008
Finnish GDP Figures Released in Rome and Vienna (Annual percentage change)
2004 2005 2006 2007 2008 2009 2010
Rome, June 2008 3.7 2.8 4.9 4.4 2.5 1.8 2.0
Vienna, Nov. 2007 3.7 2.8 5.0 4.2 3.1 2.2 2.1
CONSUMER CONFIDENCE CONSTRUCTION CONFIDENCE Balances %, latest value April 2008 Balances %, latest value April 2008 30 60
20 Finland 40 Finland
20 10 0
0 -20 EU -40 -10 EU -60 -20 -80
-30 -100
-120 -40 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 VTT 5/2008 Sources: Statistics Finland and EU Comission VTT 5/2008 Sources: EK and EU Comission
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FINLAND
3 Construction Sector
Construction is levelling off
The Finnish outlook for construction as a whole remains favourable in early 2008. The new construction projects launched in 2007 will keep the sector busy, although new starts will decrease some. The growth trend in renovation continues, and the situation in civil engineering is also good despite the postponement of some projects due to cost increases.
Total construction also increased rapidly in 2007 – about 7 percent. The volume of new housing construction fell about 3 percent while the volume of new non-residential building construction surged by nearly 30 percent. The volume of renovation is estimated to have grown by just under 3 percent. VTT estimates that the volume of civil engineering works remained stable even though the amount invested increased. The extra investment was consumed by price increases.
In 2008 total construction is believed to continue to grow, but less than in past years (3 %). The volume of new housing production is anticipated to decline by 7 percent. New non-residential building production will still see 10 percent growth.
In 2009 the total construction volume will drop about 5 percent, all sectors of new construction will decline, non-residential buildings faring the worst. A turn is predicted around the middle of 2009; in 2010 annual growth will be the same as in 2009.
New construction starts increased 17 percent in 2007, their volume was almost 52 million m3. Housing starts fell 10 percent while non-residential building starts increased 30 percent. Growth was strong especially in commercial, office, health, industrial and storage buildings.
The volume of starts in 2007 was record high. It could not be predicted a year earlier; it became apparent only in autumn 2007. A corresponding volume was last achieved in the economic boom at the turn of the 1990s: the volume was the same in 1989 and 1991, only in 1990 was the 2007 volume exceeded more clearly.
Building contractors' confidence has not wavered. Their confidence index has remained stable. In April 2008 the index rose slightly and was clearly above the long-term average. Order books were fuller than normal, and enterprises reported that they would be hiring more personnel. In early 2008 the turnover index of construction companies was growing at an annual rate of 15 percent.
The construction cost index is rising slightly slower than in the middle of 2007. In March 2008 the annual increase was about 5.5 percent, somewhat bigger in material inputs than in labour inputs. The price of lumber, that rose significantly over the last couple of years, has recently trended down slightly. The price of reinforcement steel, again, started trending up in early 2008.
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FINLAND
NEW BUILDING STARTS IN FINLAND Mill. m3 60
50 Permits
40
Starts 30
20
10
0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 VTT 5/2008 Sources: Statistics Finland and VTT
GROWTH OF GDP AND CONSTRUCTION OUTPUT IN FINLAND 1999–2010 7.0 7.0 GDP CONSTRUCTION 7.0
5.1 4.9 4.4 4.4 3.7 4.0 3.4 3.7 2.8 3.0 2.2 2.5 1.8 1.8 2.0 1.21.0 0.8
1999 2000 2001 2002 2003 2004 2005 2006 2007* 2008* 2009* 2010* -0.6 -0.8
*forecast -5.0 Sources: Statistics Finland, and VTT (forecast) VTT 5/2008
CONSTRUCTION OUTPUT IN FINLAND TOTAL EURO 27.4 BILL. Y 2007
Residential Residential new renovation 20 % 17 %
Non-residential renovation 16 %
Civil engineering renovation Non-residential new 5 % 29 % Civil engineering new 13 % VTT 5/2008
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FINLAND
4 Housing Market
Downward trend in new residential construction continues
In 2007 the four year growth trend in the volume of new residential construction ended in a decline of about 3 percent. Starts fell a little less than 10 percent, but projects under way at the turn of the year checked the fall.
New housing construction is predicted to continue to contract for the rest of the period: initially about 5 percent annually and in 2010 by less than 1 percent.
There were about 31,000 housing starts in 2007 (-8.5 %). The forecast for 2008 is 29,000, and a thousand less the following year. In the last year of the period starts are likely to show slight growth at about 5.5 dwellings per 1000 inhabitants.
Despite the slight decline, the prospects for housing demand remain quite good. In 2007 there were about as many existing home sales as a year earlier. According to the consumer barometer, people are as willing to buy dwellings and take housing loans as earlier. The rising trend in interest rates levelled off in autumn 2007 and has since even fallen slightly. The long loan repayment periods keep annual loan costs in check. Consumers' confidence in their own finances, higher earned incomes, the improved employment situation, tax cuts and the continual internal migration create need for dwellings and new residential construction.
On the other hand, the high interest rates compared to a few years ago combined with high prices are cutting demand. The rise in the prices of existing dwellings has consequently slowed down considerably as economic growth appears to be faltering. The number of unsold finished homes has doubled in a year but is nothing to be alarmed about yet.
VTT has calculated that about 30,000 new dwellings are needed annually from 2005 to about 2015. The need is the result of population growth, migration, changes in population structure and family status as well as the increased loss of housing stock and a growing housing reserve. Present demand and production exceed that long-term trend which also serves to diminish production.
Finnish residential construction is largely dominated by flats, although the share of one- and two-family houses has increased in recent years along with increased production. There are still less dwellings in one- and two-family houses than in blocks of flats. In Finland blocks of flats, however, include the unique row houses which account for about 15 percent of housing production.
Municipalities around growth centres are better able to offer plots for one- and two-family houses than central cities which means that especially younger families often move there to improve their standard of living despite the longer distance to work. This is in contradiction with sustainable development as a private car is often used to drive that longer distance to work. Row houses have not regained their popularity after the slump of the early 1990s.
State-subsidised production fell to a third (just under 3,500 units) in a few years by 2007. The dwellings are built primarily in blocks of flats and are largely rental units. The impact of subsidisation has weakened relatively speaking during low interest rates. An increase in subsidised production in the near future appears unlikely. Moreover, people find a self-owned home safer and more advantageous than a rental unit.
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Production of rental dwellings has declined markedly, and rental units have been converted into ownership dwellings. This, again, has led to a shortage of rental units in the largest cities. Consequently, housing authorities have intervened, and a lively discussion about methods to increase the production of rental units has started. The state and municipalities of the metropolitan area have signed a letter of intent aimed at launching the construction of 13,000 dwellings annually. The letter also sets forth the objective of increasing rental dwelling production.
The growth in new housing loans seems to have levelled off in summer 2007 and remained stable since. Interest rates on new housing loans rose from under 3 percent to about 5 percent in a couple of years since the autumn of 2005 – more than two-thirds in relative terms. In the last few months the rates have fluctuated slightly, for instance, due to the pick-up in inflation.
In the last quarter of 2007 the prices of existing flats rose on average about 0.4 percent over the previous quarter. They rose at a slower pace towards the end of the year and were 5.1 percent higher at the end of the year than a year earlier. In the metropolitan area prices rose slightly more than in the rest of Finland. At the end of the year, the average price of an existing flat in the metropolitan area was €3,050/m2, in the rest of the country €1,450/m2, and the national average €2,000/m2.
The actual sales prices of dwellings have been made public in Finland. The Internet service of the Ministry of the Environment provides price and quality data on realised housing sales in the fifteen largest cities of Finland. Exact, identifying data on dwellings will not be publicised, but searches can be made, for instance, on the basis of street names.
NEW HOUSING STARTS IN FINLAND NEW HOUSING STARTS BY TYPES dwellings dwellings 50000 30000
Permits 25000 40000
Detached houses 20000 30000 Blocks of flats Starts 15000
20000 10000 Terraced houses 10000 5000
0 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Sources: Statistics Finland and VTT VTT 5/2008 Sources: Statistics Finland and VTT VTT 5/2008
Housing repair and maintenance is slowing down
The total value of residential repair, maintenance and improvement in 2007 amounted to about MEUR 4,600. This sector has been growing steadily and quite strongly along with the strong demand for dwellings. As new construction has proceeded at full tilt, resources have become scarce which has clearly impacted the development of renovation.
By 2010 the growth of residential renovation is expected to slow to under 3 percent. Slightly slackening home sales, a small decline in moves, increased costs of renovation, pressure to raise interest rates and the general economic slowdown decelerate the growth of renovation. In the middle of this decade growth was around 5 percent annually which was at the upper limit of the range indicated by need-based calculations.
The growth and ageing of the housing stock, bringing its technical standard up to today's requirements, and the improvement of the standard of equipment and finishing made possible by the affluence of consumers increase the need for renovation.
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FINLAND
The age structure of the housing stock and the inadequate quality of the building materials of earlier decades mean that the renovation need of building envelopes and building services will grow markedly in coming years. This is expected to be true especially as regards indoor plumbing and facades. In the case of facades, extra insulation will have to be added as energy conservation regulations are tightened, besides renovating surfaces. The renovation of precast concrete facades is forecast to double in ten years.
Domestic help credit is a means by which the state supports residential renovation. Households can make a tax deduction of 60 percent of the compensation for work (incl. VAT) paid to entrepreneurs for maintenance or renovation of their dwellings or free-time homes or 30 percent of paid wages plus employer contributions. The deduction can be made by both spouses and its maximum amount is EUR 1,150 per year.
Renovation of residential buildings is also promoted by state subsidies granted for the renovation of dwellings of elderly and handicapped people, the elimination of health hazards, improvement of water supply and energy efficiency, etc. Lifts have not been installed in existing blocks of flats to the extent expected despite the availability of subsidies.
Presently half of the housing subjected to renovation was built in 1961–1980 and a quarter in 1941– 1960. The total volume of housing-stock renovation will increase over the next 10 years especially due to renovation of row houses and blocks of flats built in the 1970s.
A Finnish assessment of the state of the country's built infrastructure predicts that over the next 10 years renovation of one- and two-family houses will increase 1.5-fold (4 %/a), that of row houses will double (7 %/a) while renovation of blocks of flats will increase 1.3-fold (2.5 %/a).
Surveys 20 years into the future indicate that the need to renovate one-family, two-family and row houses will increase throughout the forecast period. In the case of blocks of flats, a downward trend appears likely in 10 years. This is due the fact that an abundance of blocks of flats were built in the 1970s, and most of them are likely to be renovated in the next 10 years.
The total spent on housing repair, maintenance and improvement in Finland in 2007 was about MEUR 4,600 (MEUR 1,650 on one-and two-family houses, MEUR 650 on row houses and MEUR 2,300 on blocks of flats). The sum grew nearly 1.5-fold in 10 years in real terms.
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5 Non-residential Market
2007 record growth petering out
In 2007 the volume of Finnish new non-residential construction increased by a record-setting nearly 30 percent. Continued volume growth of 10 percent is predicted for 2008 although new starts are expected to decrease. In the four years after 2004 the non-residential volume will increase 1.6-fold. Starts will fall for the remaining forecast period which will also reduce the volume from 2009 on.
In 2007 growth was strongest in offices (65 %) and commercial (58 %), storage (48%) and industrial (26 %) buildings. Only the volumes of buildings for education and health declined.
In 2008 the volumes of all types of building are growing with buildings for health, offices and schools increasing the most. In 2009 and 2010 construction of all other types of buildings except schools and miscellaneous buildings is anticipated to decline.
The long decline in the construction of buildings for education is coming to an end this year. The volume has fallen very low – to the level of the 1990s recession. Moderate growth is forecast for the remaining period. Construction of buildings for education is concentrated in areas of net in-migration, especially the five growth centres (the metropolitan area, Turku, Tampere, Jyväskylä and Oulu) and surrounding municipalities. Schools are being built, for instance, in new and expanding residential areas. Concentration of educational activity in larger units in municipal centres creates need for construction also elsewhere. Improved municipal finances have made it possible to respond to the investment needs of the school sector.
The volume of buildings for health will grow strongly in 2008 and remain steady for the remaining period. Some large and fairly long-term hospital projects were launched in 2007 which increases the 2008 volume and those of the next few years. There is no need for large hospitals in the near future; construction will focus mainly on smaller units such as health centres and service flats.
Industrial building construction is brisk thanks to four years of continued growth which has doubled the volume to nearly the level of the early 2000s before the most recent sharp drop. Industrial capacity utilisation has improved as production has increased as a result of domestic demand and exports. This has created the need to build more space or to make replacement investments. The volume will increase further this year, but a downward trend is expected to start next year and continue in 2010.
Construction of storage buildings is truly booming. Industry and commerce have been building local storage facilities, and construction of different logistics hubs has been and remains lively. For instance, the construction of the Vuosaari Port in Helsinki has given birth to logistics hubs and warehouses in the vicinity of the port as well as widely across southern Finland. In 2007 the volume of storage building construction increased 1.5-fold. This year will see growth of about 15 percent, likely to be followed by a downturn. The volume of construction is expected to be high compared to a few years ago even at the end of the period.
The volume of office construction has been quite low in recent years. Although vacancy rates remain high, starts have increased 2.5-fold since 2006. By the end of 2007 the volume doubled and moderate growth will occur also in 2008. Vacancy rates are increasing further as new space is completed which is bound to cut volumes in coming years. The increased need for office space has been based partly on the demand created by the reviving economy, and partly on companies relocating to new premises
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FINLAND with a better location and equipment. Owners of old premises are faced with finding new uses for their premises or modernising them.
Commercial building construction is very lively, livelier than ever. Starts have increased strongly since the middle of 2006. Volume growth was record high in 2007 – nearly 60 percent. The volume is so high that a contraction is unavoidable although an abundance of new projects are under planning.
Migration into growth centres and the building of new residential areas have given a big boost to commercial construction along with high consumer demand and confidence. These factors have speeded up the consolidation of commerce into larger units on the outskirts of cities and in neighbouring municipalities. In Finland, the rate of return on real estate investments and the profitability of the retail trade are so high that both foreign investors and chain stores keep coming here. The retail parks being built close to large centres offer besides shopping also entertainment, opportunities for pursuing different hobbies, and other leisure activities. The quite low vacancy rates of commercial premises invite new investments.
Construction of agricultural buildings is quite brisk, and no major changes in the volume are expected in the next few years. Agriculture is undergoing a major structural change. The number of farms is falling while their size is increasing. These changes put pressure on the remaining farms to invest, but volume growth is unlikely.
NEW NON-RESIDENTIAL CONSTRUCTION IN FINLAND TOTAL EURO 8.0 BILL. Y 2007 Buildings for education Miscellaneous 3 % Buildings for Health 19 % 4 %
Agricultural Industrial buildings buildings 22 % 9 %
Storage buildings 7 % Commercial buildings Office buildings 27 % 9 % VTT 5/2008
Breakdown of new non-residential construction volume based on Finnish classification:
New non-residential construction 2007 volume, € mill
Commercial and office buildings 3,300 commercial buildings 2,170 office buildings 700 transport and communications buildings 430 Public service buildings 800 ▪ buildings for institutional care 320 ▪ assembly buildings 220 ▪ educational buildings 260 Industrial buildings and warehouses 2,300 ▪ Industrial buildings 1,700 ▪ warehouses (storage buildings) 600 Miscellaneous 1,550 ▪ free time residential buildings 380 ▪ agricultural buildings 720 ▪ Other buildings 450 TOTAL NEW NON-RESIDENTIAL 7,950
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Slight growth in non-residential renovation
Non-residential renovation has been growing at a quite stable 2–3 percent in recent years. Growth has slightly exceeded the calculated long-term trend which, according to VTT studies, is 1.5– 2.5 percent annually.
During the new construction boom renovation has suffered from a lack of resources as contractors have preferred to focus on new construction. This was especially apparent last year when the growth of the renovation volume slowed markedly. Resources will be tied up in new construction also this year, and even though the shortage will ease, declining economic growth will severely constrain renovation growth for the rest of the period.
The impact of age structure is not nearly as significant in the case of the non-residential stock as with residential buildings. Yet, the roofs, facades and building services systems of some non-residential building types are reaching the age when repairs are needed as are those of residential buildings. The remodelling of non-residential buildings to meet the requirements of modern activities will require further renovations in customer-service and production buildings. Increased industrial production has also required renovating industrial buildings while commercial buildings are being rebuilt to meet the standards of modern commerce.
The heightened standards of users due, for instance, to the existing examples of recently built well- equipped buildings increase the need of renovation in nearly all building types. Increased use of services and outsourcing create needs in the service sector. In public buildings, such as schools and hospitals, problems with indoor air quality necessitate repairs and development of new repair solutions.
The value of Finnish non-residential renovation was about MEUR 4,250 in 2007 meaning an increase of about 30 percent in ten years. The breakdown was as follows:
Non-residential renovation 2007 volume, MEUR
Commercial and office buildings 900 ▪ commercial buildings 410 ▪ office buildings 370 ▪ transport and communications buildings 120 Public service buildings 1,730 ▪ buildings for institutional care 440 ▪ assembly buildings 210 ▪ educational buildings 1,080 Industrial buildings and warehouses 1,060 ▪ Industrial buildings 850 ▪ warehouses (storage buildings) 210 Miscellaneous 570 ▪ free time residential buildings 250 ▪ agricultural buildings 200 ▪ Other buildings 120 TOTAL NEW NON-RESIDENTIAL 4,260
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6 Civil Engineering Market
In spring 2008 the outlook for civil engineering is positive: output is expected to grow around 4 percent. The allocations would allow even bigger growth, but cost rises will eat into volume growth. In 2009 the volume is forecast to fall but stay about the same in 2010.
In 2007 civil engineering construction output remained at the previous year's level although allocations increased. The construction cost index shows that cost increases accelerated to almost 7 percent which prevented volume growth. Due to an increase in bid prices, it was decided to postpone the launching of four quite large state road and rail projects. Civil engineering clients and contractors perceive the situation to be good, even excellent, according to an economic survey. And they expect further improvement in the near future.
Average growth in 2008–2010 will be only about 1 percent annually (new 0.6 %, renovation 1.1 %). The phasing of larger projects will, however, result in volume growth this year, decline in 2009 and stable growth in the last year of the period.
Railway construction is the subsector of transport infrastructure construction that will grow the most. Projects to be launched will increase the volume, which fell drastically earlier, especially this year. The biggest new projects are the Ring Rail Line, the western Metro extension in the metropolitan area and the modernisation of the Ostrobothnia Line. The average growth in railway construction during the period is huge – nearly 15 percent annually.
The volume of road and street construction follows the same cycle as railway construction due to the scheduling of projects: there will be growth in 2008 followed by decline in 2009. The average growth for the period is negligible. Projects nearing completion in 2008 are: the Motorway E18 Lohja–Muurla; Tampere Western Ring Road, phase II; and Main Road 2 Vihti–Pori. Ring Road I in the metropolitan area, the E18 special parking area for articulated vehicles in Vaalimaa, Main Road 6 Imatra– Lappeenranta, and Main Road 4 at Kemi will be launched in 2008.
The volume of other infrastructure projects will contract clearly with the completion of the Vuosaari Port. Investments in air traffic are down, and no major airport projects are under way. Most work involves normal resurfacing of runways.
Investments in telecommunications will fall in 2008 leading to an average annual total volume decline of 2 percent for the subsector.
The volume of energy and water sector works will remain quite stable. The energy sector is waiting for the decision on the building of a natural gas pipeline to Finland's western coast. The application for permission to build the country's next nuclear power plant is presently being prepared.
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CIVIL ENGINEERING IN FINLAND TOTAL EURO 5.0 BILL. Y 2007
Other 13 %
Roads 35 %
Energy and water works 26 %
Railways 9 % Tele- Other transport communications 4 % 13 % VTT 5/2008
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APPENDIX – DEFINITIONS
Tables 1 • Population and households at the end of the year • Unemployment and unemployment rate an average of the year, source: Statistics Finland
Tables 2, 4A, 4B • Additions included in new construction, VAT excluded, DIY, services, construction by other sectors and black economy included
• New construction: Output of construction. Volumes based on registered building starts in m3, estimated building costs and building times in different categories of buildings, calculations of money used in separate years. Sources Statistics Finland and VTT`s estimations and forecasts.
• Buildings classification for Euroconstruct: o buildings for education: buildings for general and vocational education, university and research institute buildings and other educational buildings o buildings for health: all kind of buildings for institutional care, like health care buildings, social welfare buildings and other social service buildings o industrial buildings: buildings for industrial production and buildings for energy supply o storage buildings: industrial, commercial and other warehouses o office buildings o commercial buildings: wholesale and retail trade buildings, hotel buildings, residential buildings for communities, restaurants and other similar buildings o agricultural buildings: livestock buildings, other agricultural buildings (grain drying and storage, greenhouses, fur farms, buildings for forestry and fishing) o other buildings: private free-time residential buildings, transport and communication buildings (incl. car parks), assembly buildings (theatres, concert halls, libraries, exhibition halls, club buildings, buildings of religious communities, buildings for sports) and other buildings like saunas and outbuildings
• Renovation: Includes investments and maintenance VTT has made regular researches defining the volume of R&M.works in different categories of buildings which are also the basis for official statistics. Sources Statistics Finland and VTT`s estimations and forecasts.
• Civil engineering: Output of construction. Sources Statistics Finland and VTT`s estimations and forecasts.
Table 3 • Sources Statistics Finland and VTT`s estimations and forecasts. Permits, starts and completions are registered in Finland. The data comes late to the register and has underlap. VTT estimates frequently the underlap of the data. o 1+2 family dwellings: detached and semi-detached houses o Flats: blocks of flats and attached houses (row houses or terraced houses with more than 2 dwellings
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Country/Pays/Land: Finland Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 5 237 5 255 5 277 5 300 5 320 5 340 5 360 Bevölkerung
Households ('000s) Ménages 2 402 2 430 2 454 2 480 2 500 2 520 2 540 Haushalte
Unemployed ('000s) Chômeurs 229 220 204 184 168 161 160 Arbeitslose
Unemployment rate (%) Taux de chômage 8.8 8.4 7.7 6.9 6.2 5.9 5.9 Arbeitslosenquote
Change of GDP Variation du PIB 3.7 2.8 4.9 4.4 2.5 1.8 2.0 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 0.2 0.9 1.6 2.5 3.4 2.0 2.0 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 2.5 3.6 3.8 5.9 5.0 2.5 2.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 4.2 4.0 3.5 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.1 3.4 3.8 4.3 4.0 4.0 3.5 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Finland Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 5 580 9.6 5.8 6.6 -3.1 -7.2 -5.2 -0.5
Logement Renovation 4 590 5.0 5.1 5.1 3.0 2.9 2.7 2.4
Wohnungsbau Total 10 170 7.5 5.5 5.9 -0.4 -2.6 -1.4 0.9
Non-residential construction New 7 950 -0.6 10.7 4.6 28.3 10.2 -13.8 -5.4
Bâtiments non résidentiels Renovation 4 260 2.9 2.0 2.3 1.7 1.3 1.5 1.7
übriger Hochbau Total 12 210 0.9 7.0 3.7 17.6 7.1 -8.8 -2.8
Building New 13 530 4.2 8.3 5.6 13.2 3.0 -10.6 -3.5
Bâtiment Renovation 8 850 4.0 3.6 3.7 2.4 2.1 2.1 2.1
Hochbau Total 22 380 4.1 6.2 4.8 8.6 2.7 -5.6 -1.1
Civil engineering New 3 520 2.7 -2.5 2.6 0.5 5.3 -3.9 0.7
Génie civil Renovation 1 490 1.4 -2.5 -2.3 -0.7 2.0 0.5 0.7
Tiefbau Total 5 010 2.3 -2.5 1.1 0.1 4.3 -2.6 0.7
TOTAL CONSTRUCTION OUTPUT 27 390 3.7 4.4 4.0 7.0 3.0 -5.0 -0.8
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 2.03 2.5 3.5 3.0 10.0 -1.0 -3.0 -1.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Finland Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 15.8 17.3 17.0 15.6 14.0 13.5 13.5 Baugenehmigungen Familienhäuser
Flats Collectif 19.2 19.8 19.4 18.1 17.0 16.5 17.0 Mehrfamilienhäuser
TOTAL 35.0 37.1 36.4 33.7 31.0 30.0 30.5
Housing starts 1+2 family dwellings Logements commencés Individuel 15.2 16.4 15.7 14.5 13.1 12.5 12.5 Baubeginne Familienhäuser
Flats Collectif 18.6 18.3 18.3 16.6 15.9 15.5 15.9 Mehrfamilienhäuser
TOTAL 33.8 34.7 34.0 31.1 29.0 28.0 28.4
Housing completions 1+2 family dwellings Logements terminés Individuel 13.8 15.4 16.3 16.2 14.5 13.0 12.5 Baufertigstellungen Familienhäuser
Flats Collectif 17.2 18.8 17.6 19.5 16.5 16.0 15.5 Mehrfamilienhäuser
TOTAL 31.0 34.2 33.9 35.7 31.0 29.0 28.0
Housing stock Logements existants 2 635 2 667 2 700 2 730 2 760 2 785 2 810 Wohnungsbestand
thereof second homes dont résid. secondaires 215 215 215 215 215 215 215 davon Zweitwohnungen
thereof vacancies dont inoccupé 30 30 30 30 30 30 30 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 60.0 60.5 61.0 61.0 61.5 61.5 62.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Finland Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 255 120 -0.5 -12.5 -37.0 -23.5 17.0 12.0 10.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 325 140 -5.5 13.5 27.0 -3.0 46.0 0.0 -6.5 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 1 710 1 000 3.5 28.5 13.0 26.0 6.5 -18.5 -10.5 Industriegebäude
Storage buildings Bâtiments de stockage 595 710 15.5 26.0 -19.5 47.5 13.5 -16.5 -11.5 Lagergebäude
Office buildings Bureaux 700 300 -19.5 8.5 14.0 65.0 34.5 -23.5 -15.5 Bürogebäude
Commercial buildings Commerces 2 170 1 000 14.0 5.0 13.5 57.5 7.0 -26.5 -11.5 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 720 920 -15.0 19.5 7.5 13.0 -1.0 -2.5 1.5 Landwirtschaftsgebäude
Miscellaneous Autres 1 475 1 300 -5.5 5.0 6.0 11.5 3.0 3.5 6.5 Sonstiges
Total 7 950 -0.6 10.7 4.6 28.3 10.2 -13.8 -5.4 Insgesamt
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Finland Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 1 760 3.5 -5.0 2.5 0.9 7.1 -5.8 -1.1 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 430 -0.4 2.2 -16.3 -12.7 29.7 2.6 4.3 Bahnanlagen
Other transport Autres réseaux 200 61.3 7.2 7.1 -0.9 -7.4 -34.1 -10.3 Übrige Verkehrsinfrastruktur
TOTAL 2 390 5.2 -2.5 -1.6 -2.0 10.0 -6.0 -0.3
Telecommunications Télécommunications 650 1.7 2.9 0.6 -2.4 -5.3 -1.2 0.3 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 1 300 -1.6 -5.4 7.4 4.6 -0.7 1.5 2.3 Energie- und Wasserversorgung
Other Autres 670 -0.4 -2.4 0.7 2.2 3.3 1.4 1.3 Sonstiges
Total 5 010 2.3 -2.5 1.1 0.1 4.3 -2.6 0.7
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Finland Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 90.5 3.0 3.3 4.1 3.7 2.9 2.2 2.2 Privater Verbrauch
Public consumption Consommation publique 37.9 1.7 1.9 0.6 0.8 1.4 1.5 1.5 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 36.3 3.6 3.5 4.7 7.6 5.2 0.0 0.6
of which construction 23.3 5.0 4.2 4.9 8.2 3.0 -4.0 -0.5
Stocks (contribution as % of GDP) Variations de stocks 5.7 0.3 1.5 -0.1 0.3 -0.2 0.2 0.0 Vorratsveränderung
Exports Exportations 80.1 8.6 7.0 11.8 4.8 3.0 3.0 4.0 Exporte
Imports Importations 71.8 7.2 11.8 7.8 4.1 3.5 3.0 3.5 Importe
GDP PIB 178.8 3.7 2.8 4.9 4.4 2.5 1.8 2.0 BIP
Standard National Accounts, gross figures 1) At 2007 prices.
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FRANCE BIPE www.bipe.com
Patrick de la Morvonnais e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
FRANCE
1 Summary
2007 clocked in as the fourth straight year of sustained growth for the construction market in France. Demand for non-residential buildings and civil engineering projects increased significantly last year. The market for new housing, on the other hand, reached its apex with a record number of construction starts, while signs of a reversal (marked decline in prices of existing units, increase in stock of unsold units, drop in credit, tightening of loan requirements) were observed.
A noticeable downturn will occur in 2008. Within a depressed macroeconomic context (growth expected to reach a mere 1.7%), construction of new housing should come close to stabilizing with tax measures partly compensating the negative effects related to low household incomes and heightened selectivity by banks where creditworthiness is concerned. The market for non-residential buildings should also begin to slow, with investments down and a contraction in local government expenditures following the municipal elections. Similar changes are expected with regard to civil engineering projects, given the projected downturn in roadwork.
There is concern that France may not benefit next year from the expected rebound at the European level: our economy's shortcomings in terms of competitiveness, coupled with public spending constraints, will no doubt lead to an increased tax burden (VAT and/or social contributions) that will curb growth in net household disposable income and consumption. Demand for new housing may suffer as a result, particularly since interest rates will climb. Weak growth is expected for the non-residential sector, in particular due to a lack of robust demand in the industry. The downturn in roadwork, expected to continue, will also penalize the civil engineering sector. Overall, the French construction market is expected to grow by a mere 1% next year.
The outlook for 2010 is much the same overall. Household disposable income will remain very low, which likely points to a continued downturn in the new housing sector (-2%). For non-residential buildings, the beginning of a new electoral cycle will spur a renewed upturn in community facilities construction work (education and healthcare facilities in particular), but office space projects will likely level off on the heels of five years of strong growth. A more marked turnaround could take place in civil engineering, with a slight improvement for roadwork and with an increase in spending on other transportation infrastructures, water distribution projects and work related to telecommunications networks.
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2 Macro-economic Outlook
2.1 France falls behind Europe
Recently, growth in France tends to fall behind the European average. For the past two years, France has trailed the rest of Europe in terms of performance. Like its partners, France will see its growth impacted by the worldwide slowdown. Last year fiscal package should help minimize the damage in 2008 with an expected 1.7% increase in GDP. However, the country will not share the recovery enjoyed by its partners the following years and growth would remain near 1.7% in 2009 and 2010. We are maintaining our scenario of a partial decoupling of the Euro zone thanks to the strength of exports to emerging countries, the sharing of the dollar adjustment (finally!), the sound balance sheets of non- financial companies, fiscal room for maneuvers & strong labor markets. France’s current poor competitive position will have a bearing on the public account constraints and this will drive down consumption, the main growth engine. As a positive note, the negative contribution of external trade to growth is expected to disappear over the next two year as long as the Euro doesn’t appreciate too much against the dollar.
2.2 Public finances under duress
The tax windfall approved at the start of the new five-year period virtually eliminated any chance of reducing the government deficits quickly: the decision to transfer more than 13 billion euros to households (tax credit on interests of housing loans; fiscal shield establishing a ceiling for direct taxation; lowering of succession and gifts taxes; tax exemptions when investing in SMEs and lower costs for supplementary hours) leaves now the government with very few margins of action ahead of difficult reforms to implement (pension, government spending size, labour markets). It will be difficult for France to avoid an austerity plan aimed at cutting costs and, more importantly, increasing revenues by raising taxes, such as through an increase in the VAT rate, the general social contribution (CSG) or the social debt repayment tax (CRDS). The overall aim of these measures is to increase the tax burden on households and reduce corporate taxes in order to improve competitiveness. Avoiding breaching the 3% limit on deficits will be a close thing in 2008 and it is doubtful at the time that France will be able to bring back its public finances to equilibrium by 2012. The government has announced it wants to curb public spending; but, for the time being, we lack details to appraise the extent of the veracity of that claim.
2.3 Household’s consumption still the main engine of growth
Household consumption will be affected in the same way as purchasing power which is already feeling the effect of price increases. The slowdown in business activity will slow the decline in unemployment. This will place an additional constraint on household purchasing power. The 2.8% rise in consumer prices in February affected such items as essential services and food products and we do not expect this rate to go back to around 2% any time soon. Concerning wages, no second round effects are expected. But one can think of second round effects concerning indexed pensions or social minima. The main uncertainty bearing on the developments of households’ consumption lies with the fiscal evolutions: in the event of a CSG or VAT hike, the slowdown could be much more pronounced as evidenced by the case of Germany in 2007.
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2.4 Risks bearing on investment
A decline in household investment is expected, while companies’ gross fixed capital formation (GFCF) should hold strong. The sub-prime crisis and the problems faced by some banks threaten to lead to a reduction in the total amount of available credit. Although the housing loan sector should not be greatly impacted by this tightening of credit terms, it is already slowing down as a result of previous interest rate hikes and consumers’ poor credit standing. As a result, households will continue to limit their investment spending despite the incentives offered by the government. However, because equipment upgrades and improvements in product competitiveness have become a priority, we predict that productive investment will be relatively strong even if so far companies are the most affected by credit restrictions.
2.5 Housing market is slowing but no subprime crisis
The financial sector in France has been affected even if less than in other countries. We don’t for the moment fear bank runs or collapses; but we are looking for signs of a hardening of credit conditions as it could impact our growth scenario. That said, although our housing investment is slowing significantly and second hand houses prices are likely to decline in 2008, France is not a candidate for a sub prime crisis: risky customers are not served by French banks! Moreover housing credit is a key product of retail banks commercial strategy; hence a massive rationing is unlikely, further more given the very low risks of these assets.
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3 Housing Market
3.1 2007: A market holds its breath
A dual assessment must be drawn of the past year: in 2007, the residential real estate cycle reached its peak, while signs of a market turnaround simultaneously increased in number. • Construction starts reached a high point (426,000 housing units in Metropolitan France) but building permits were down by 4%; • Sales of new housing units hit a record high (127,000 units) but the volume of unsold units continued to increase (with 100,000 unsold units on 31 December 2007 - the equivalent of 11 months of sales); • New housing prices stood firm but the year saw a net decrease in prices for existing housing (2.5% year on year, compared to 6.7% in 2006); • New mortgages were down in 2007 due to a rise in interest rates, slightly more restrictive lending requirements and a decrease in demand due to weakened creditworthiness.
Production of new housing thus stabilized in 2007 after expanding by 28% over the previous three years. The stagnation is due to the downturn in single family homes (-1.5%), compensated by the continued growth in the group housing sector (4.0%).
3.2 2008: A pivotal year for new housing, ahead of a downturn in 2009 and 2010
3.2.1 A deteriorated macroeconomic context
As mentioned above, international macroeconomic conditions, with the financial crisis brought on by the subprime crisis, increased oil and other raw materials prices, a sharp increase in inflation and the soaring euro, have led to a marked downward revision of the 2008 outlook for France.
The rebound expected elsewhere in Europe starting in 2009 may not be observed in France, since our economy's shortcomings in terms of competitiveness will weigh heavily on public accounts and require an increased tax burden (VAT and/or employer contributions), which will curb growth in household disposable income and consumption.
3.2.2 A subtle balance of other factors behind change
Possible impact of stock market progression With share values plummeting, real estate - whether for occupancy or rental - could soon play a larger role in wealth management strategies. Although rental yields are low, real estate continues to serve as a hedge against inflation, since under all circumstances it is less volatile than stocks or raw materials. The drop may, however, have a negative wealth effect, by cutting into down payments or generating concerns over the future, when real estate requires a certain amount of long-term visibility.
An aggressive public housing policy Significant housing legislation [la grande loi sur le logement] will be introduced in France's Parliament in April. The legislation is expected to include the following: • Measures to encourage private sector involvement in public housing construction; • Provisions for improving the governance and efficacy of the "1% logement" housing policy;
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• Aggressive measures to free up public housing units "unduly" occupied by high income families (simply increasing rent supplements would have a more moderate effect, by granting some additional resources to public housing stakeholders); • An extension of the 5.5% VAT for "low-income access to home ownership" [accession populaire]; • An ambitious program to harness public property.
Positive factors Positive factors include: • Potential demand sustained by France's robust demographics, the desire to break with shared occupancy and for domestic residential mobility; • A continued decrease in unemployment, at least in the short term; • A drop in real estate prices, for both new and existing units, starting in 2008 and becoming more pronounced in 2009; this will re-boost household demand in the immediate term, as households no longer want to or are able to wait (even though it could also lead other households to adopt a wait- and-see attitude) and will gradually reconstitute a potential for appreciation in the intermediate term, which today has become highly hypothetical; • High volatility in stock market valuations, which could lead to increased investment in real estate; • Previous government measures, which in 2007 had not yet reached their full effect: "Zero Rate Loan" program extended to existing properties, tax credits on mortgage interest (which we calculated in September would likely lead to an increase of 30,000 to 45,000 additional creditworthy households, in turn leading to 10,000 additional construction starts), tax measures in favor of inter-generational transfers (gifts); • The government program to boost public rental housing (see above). • Even if credit terms tighten (increase in rates, greater selectivity by banks), mortgages are seen as good risk in France: high-risk clients do not receive approval, housing loans consume minimal equity, and this type of loan remains the key product in bank marketing strategies.
Less favorable factors Of the various factors likely to negatively impact the market, we wish to point out the following: • Mediocre growth in household GDI in 2008 and 2010 in particular; • The stock market drop, which could lead to lower down payments due to a negative wealth effect, thereby creating an imbalance in projects and damaging household morale by spreading fear of contracting the subprime crisis (ghost of the Great Depression), in turn feeding into a climate of distrust scarcely conducive to investments in the future (see above); • A tightening of financial terms: marked increase in rates in 2009 and an end to the process to extend mortgage terms; • Developers’ stocks of unsold housing units up significantly, causing pending projects to be tabled; • A widespread increase in vacancy for both new and existing housing, particularly in medium-sized cities; • A drop in turnover and existing housing transactions in the Île-de-France region; • Increased hesitation given price drop-off and expectations of a downturn, followed by a wait for the end of the downturn once it has begun; • A drop in rental yields and an end to hopes for appreciation.
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3.2.3 A rather gloomy outlook for new construction
Overall, we expect housing starts to come close to stabilizing in 2008, with a slight increase in public rental housing starts (+ 5,000) and in low-income home ownership (also + 5,000), but a downturn in the free sector. A very slight rise in new construction (1.3%) is expected this year.
We expect public rental housing starts to remain steady in 2009 and 2010 but see a likely correction in low-income housing ownership due to constraints set to negatively impact public finances.
A turnaround in the new construction market, on the other hand, appears inevitable in the private sector, no matter what efforts the government has in store. The shift, which we had originally forecast for 2007, will thus take place a year later than first expected. The likely reaction of developers, faced with their growing stocks, should lead to a quite marked correction starting in 2008 and extending into 2009 and 2010, in a context where households are suffering from a significant decrease in purchasing power.
We therefore expect to see 410,000 housing starts in 2009, followed by 400,000 in 2010 - a fairly moderate downturn all in all, yet one that discounts the possibility of reaching the government's goal of 500,000 units per year. Under such conditions, new housing production will likely drop by 1.6% in 2009 and by 2% in 2010.
3.2.4 A somewhat brighter outlook for maintenance and improvement
According to the barometer established by France's national housing improvement agency (ANAH), the department of economic and international affairs (DAEI) and the Club de l'amélioration de l’habitat housing improvement association, the market for maintenance and improvement of existing housing picked up somewhat in 2007, with an average annual increase in volume of approximately 2.0%, compared to 1.0% in 2005 and 1.4% in 2006.
Overall, we are forecasting a 1.7% increase in volume for 2008, followed by 2% in 2009 and 1.3% in 2010. As was previously the case, an imbalance will be observed over these three years between private market and government funded projects. For the private market, the rise in interest rates and low disposable household income will negatively impact demand. In the second case, the increased scope of the National Program for Urban Renovation (PNRU) leaves room for relative optimism, as payments by the government, the Caisse des Dépôts and the 1% Logement program are expected to double from 2007 (EUR 4.8 billion) to 2009 (EUR 9.5 billion). The payments will primarily fund demolition and reconstruction work (which our public rental housing starts forecasts have taken into account) as well as maintenance and improvement work.
In the longer term, the priority placed on energy efficiency retrofitting of existing housing, given efforts at the EU level to reduce fossil energy consumption and CO2 emissions, is a key factor and will open the door to significant prospects. Improvement projects in particular will be promoted via a multitude of incentives, such as: • energy efficiency assessments; • thermal regulations for existing housing; • tax credits for energy-efficient equipment, materials and machines improved and extended to 2008 and 2009: previous measures favored double glazing in particular, whereas the current objectives also target condensing boilers, thermal insulation of opaque walls and expansion in renewable energies;
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• "green loans"; • energy efficiency certificates; • implications of the "Climate Plan" [Plan Climat] within France; • future impact of the Grenelle de l’Environnement conference.
Together, these measures will at one point or another lead to a sharp increase in energy efficiency retrofitting of the existing housing stock. Their impact on the volume of maintenance and improvement work, however, will be vulnerable to "quality" effects.
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4 Non-residential Market
Following an already robust year in 2006 for construction of non-residential buildings, the first half of 2007 was surprisingly strong. The second half of the year, however, saw a drop in construction starts. Given BIPE's macroeconomic forecast, growth will pause in 2008, a trend to continue in 2009 and 2010. Consumption will suffer from this slowdown, with growth to decline through 2010 - a context scarcely conducive to heavy investments in the non-residential sector.
4.1 Education and Research Buildings
In France, close to 80% (in surface area) of school, instruction and research buildings are built for public sector clients. France's départements are responsible for junior high schools, while regional governments are in charge of high schools. The national and regional governments both contribute funding for universities. Building starts in this sector dropped significantly during the second half of the 1990s, in the after-effect of previous efforts to boost high school renovations and build new universities. They then very gradually picked up starting in 2000.
Repercussions from the boom observed in 2004 were felt in 2005. The downturn extended into early 2006 and it wasn't until the second half of the year that a slight turnaround was observed. 2007 was another year marked by a quite chaotic progression: a period of strong growth early in the year was followed by a drop in permits and construction starts for community facilities. 2008 and 2009 should see moderate growth for schools, due to the combined effect of the downturn in housing starts and the post-electoral slowdown in local government capital spending; in terms of new construction projects, then, growth should clock in at 1.5% and 1.0% for 2008 and 2009, respectively, and then take off with a more marked +4.5% in 2010 given the effects of the construction projects related to the government's university renovation program.
4.2 Healthcare Buildings
This category includes all buildings related to healthcare such as hospitals, private clinics and retirement homes, as well as social work buildings such as day care and community centers. Unlike the education sector, private initiatives are dominant here, accounting for close to 60% of total surface area in construction starts. As in the education sector, construction starts for healthcare buildings dropped significantly in the second half of the 1990s, to later pick up again starting in 2000, increasing from 1.4 million m² in 1999 to 2.4 million in 2005.
Following already exceptional growth in 2005 (+6%), 2006 saw a wave of growth in construction starts of surprising amplitude at +23%. The increase can be attributed to the final phase of the "Hôpital 2007" plan, since several of the program's projects were finalized late in the process (at the close of 2006, only 60% of the planned-for expenditures had been made). Expectations for 2007 were therefore quite high, but first quarter results broke all records. This gave way, subsequently, to a significant reversal in construction starts due to the time-lag between the close of the first plan and implementation of the new "Hôpital 2012" program (which plans for 10 billion dollars in capital spending and will ensure high-level sustainability of activity in this sector).
We believe there will be a positive level of investment (with high numbers) over the 2007-2010 period, with a pause in 2008 nonetheless (0.0% growth in volume in 2008 followed by 2.0% and 9.0% in 2009 and 2010).
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4.3 Industrial Buildings
After already modest growth in 2006 (+0.2%), industrial production saw improved growth in 2007 (+1.2%). Despite an unfavorable context, (soaring raw materials prices, decreased competitiveness due to an expensive euro), France's industry proved its ability to withstand jolts at the international level. Construction starts for industrial buildings furthermore remained fairly intact in 2007 (+12.3% and +3.0% for new construction). This growth can be attributed to an increase in the use of production capacity, coupled with an upsurge in productive investment.
We expect to see 3.0% growth in new construction in the sector in 2008, +2.0% in 2009 and 3.0% in 2010. Several factors explain this: • Forecasts for growth in industrial production are favorable, thanks to robust worldwide demand for capital equipment and growth in German salaries, which will contribute to re-establishing France's competitiveness; • Use of production capacity, despite a slight drop in early 2008, should remain above average in the long term; • Growth in productive investment should remain strong from now until 2010 (corporate balance sheets are solid and real interest rates will remain reasonable).
The outlook in the intermediate term will nonetheless depend for the most part on productivity gains at the national level, within a highly competitive international environment. A significant improvement in productivity could result in an even stronger increase in industrial production than expected, but this will not necessarily lead to an increase in construction starts for industrial buildings, inasmuch as greater productivity and increased priority on streamlining could result in a drop in capacity needs.
4.4 Office Space
Over the coming years, growth in this sector will depend as much on a revitalization of existing facilities and a shift in demand toward new locations as on growth in office-based employment at the national level. Indeed, ever since the NICT revolution created a potential for productivity gains in the service sector that is far from having been fully exploited, growth in the tertiary sector over the intermediate term has slowed. Net creation of jobs in the services sector was nonetheless very robust in 2007, which gave a significant boost to demand for office buildings. The outlook for 2008 and 2009 remains encouraging, but has been revised downward; the financial crisis, along with the slowdown in the residential real estate sector, will affect certain areas of business (banking, corporate services, real estate development), which will place office-based employment at a particular disadvantage.
Construction starts for office space showed robust dynamics in 2007, with 8.5% growth (after + 22% in 2006). Given the over-arching macroeconomic scenario we forecast, our outlook for 2008 through 2010 remains positive, yet several areas of uncertainty loom over this market segment, including those related to risk of a credit crunch and a slowdown in growth. At the macro level, construction starts should slow slightly in 2008 (+4.0%) then drop in 2010 (-7.0%).
Growth in new construction was outstanding in 2007 (+11%) and will remain headed in the right direction in 2008 (+5%) thanks to the construction starts of 2007. Barring a major banking crisis, new construction should continue its progression in 2009 (+4.5%), but will drop off in 2010 (+1.0%).
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4.5 Stores
Following a strong end-of-year period in 2006, construction starts for stores shifted significantly in early 2007. They then picked right up again and even broke the historic levels recorded in 2006. The year closed out with +2.0% growth.
This health of this sector can be attributed to changes largely structural in nature: • Household consumption has been growing steadily at approximately +2% annually; • Changes in consumer habits have been reshaping the business offerings landscape for several years now (expansion of hard discount, theme stores, shops in transit areas, etc.); • Traditional supermarkets are revitalizing their store networks.
According to our forecasts, the favorable factors at play in 2007 should last into the short term, particularly since demand in the domestic market should remain intact (impact of the Labor, Employment and Purchasing Power Act (loi TEPA) and the release of profit sharing funds). We predict the following for 2008 and 2009: +7.5% and +0.0% for construction starts; +3.0% and +2.5% for new construction. 2010, on the other hand, will see a marked slowdown (-1.0% for new construction and construction starts) given forecasts of a more marked drop in household consumption.
4.6 Other Buildings
This category includes two very different types of buildings: agricultural buildings (11.3 million m² of construction started in 2007, yet only 2 billion euros in new construction) and community facilities not related to education or healthcare (3.3 million m² of construction started in 2007, with 3.6 billion euros in new construction).
4.6.1 Agricultural buildings
The first half of 2007 made up for the late 2006 drop in construction starts for agricultural buildings, and the third quarter was even stronger. The final quarter saw a drop in construction starts, however, along with a collapse in the number of permits granted. Overall, construction starts fell by 0.5% in 2007.
This strong turnaround could be due in part to a breakdown in the government statistics tool SITADEL, but several factors lead us to believe that the market was indeed bearish: soaring energy and raw materials prices on one hand, and the priority placed, within the CAP, on new European Union Member States on the other.
Our forecasts fall in line with a negative-leaning trend for 2010, yet with a resurgence of growth in 2009, in tune with BIPE's macroeconomic scenario. We expect to see an overall drop in agricultural production by 2010, a key variable behind the construction start figures for agricultural buildings, for several reasons: • CAP reforms are heading in the direction of eliminating of quotas, which may negatively impact French producers; • Members of the baby-boom generation will start retiring over the next three years, which will inevitably lead to a drop in the number of farmers.
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Agricultural construction should nonetheless see renewed growth in 2009 thanks to investments by collective farming groupings (GAECs), which will spur a shift toward more profitable production and will require additional infrastructures.
According to our hypotheses, then, construction starts should drop by 4% in 2008 and new construction should decrease in volume by 3%. New construction could rise again in 2009 (+2.5% in volume), as well as construction starts (+6%). 2010 will likely show negative trends, with -3.0% for construction starts and +2.0% for new construction.
4.6.2 Community facilities not related to education or healthcare
The vibrancy of late 2006 continued into the third quarter of 2007, after which the level of construction starts fell sharply; capital spending in this sector is expected to decrease significantly due to the start of the unfavorable phase of the local electoral cycle. After +10.0% growth in investments in 2007, we expect to see positive trends in the sector in 2010, yet only after negative years in 2008 and 2009: - 2.0% in 2008, followed by -1.0% and +4.0% in 2009 and 2010.
4.7 Maintenance and Improvement Projects
According to data from the ANAH/DAEI/Club de l’Amélioration de l’Habitat Scorecard, 2007 saw +1.0% growth in the volume of maintenance and improvement projects in the non-residential sector, following three years of growth at 1.5%. We therefore observed a slight slowdown by the year's end: companies leaned toward creating surface area rather than renovating or maintaining existing facilities.
Our forecasts for the 2008-2010 period draw from the following hypotheses: • for local governments: 2008 will likely be a slow year for public maintenance and improvement work orders; 2009 and 2010, on the other hand, should benefit from capital spending via hospital and university renovation programs, which will be favorable to maintenance and improvement work at community facilities; • for companies: the private sector should benefit from larger-scale work, since some companies will focus capital spending on productivity gains rather than the construction of new capacity.
Overall, we expect to see +1.5% growth in the volume of maintenance and improvement work on non- residential buildings in 2008, and +1.8% in 2009 and 2010.
4.8 Summary
Overall, the production of new, non-residential buildings increased in volume significantly in 2007, at a rate of +7.4%, compared to +5.0% in 2006. From 2008 to 2010, we should see a significant slowdown in the rate of growth (+1.9% in 2008, +2.5% in 2009 and +3.0 in 2010). Maintenance and improvement work will fluctuate less after 2008, tending to fall in line with GDP growth.
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5 Civil Engineering Market
5.1 Factors influencing the market
5.1.1 Latest round of local elections will curb capital spending at the local level
Local governments made record capital expenditures in 2007 (+8%): in addition to the pre-electoral period, always favorable to expenditures, local elections were postponed to 2008, which meant that local governments had an extra year to bring projects to completion.
The requirement to reduce local government debt will curb spending in 2008 (-0.5%) and 2009 (-1.1%) and the local investment cycle will likewise tend toward postponing new facilities projects to the post- 2009 period. Experience has shown that local government capital spending reaches its low point in the year following local elections, even though an affirmation of the role of intercommunalities tends to smooth out the depreciatory effect of those elections.
The cantonal elections that took place in 2008 could also have a moderating influence on capital spending, particularly in the area of roadwork. 2010 will be characterized by a return to the upswing in the local government capital spending cycle (+2.2%).
5.1.2 National agencies continue to face limitations due to public debt
In 2007, the national government alone saw capital expenditures drop. National government agencies in fact continue to face limitations given the national public debt load and the fiscal stability program, which calls for a -0.5% deceleration in national agency spending over the 2008-2010 period.
The "National/Regional Government Projects Contracts" [Contrats de projets Etat/Régions] launched in 2007 and set to extend into 2013 have replaced the "National/Regional Government Planning Contracts" [Contrats de Plan Etat/Région] and focus primarily on alternatives to road transportation. The measure falls in line with decisions made at the "Grenelle" environmental conference, which set the objective of achieving 25% non-road freight within the next 15 years.
Areas of uncertainty nonetheless remain regarding the capacity to fund those projects required to achieve such an objective. Indeed, France's Agency for Transportation Infrastructure Funding (AFITF) may reach a deficit in 2009 and 2010, for its balanced 2008 budget is attributable only to a lighter load of capital investment projects. The Grenelle measures plan for AFITF funding to come from environmental taxes on heavy vehicles (EUR 800 million annually), but this funding mechanism can only become operational starting in 2011. The AFITF's financial concerns, if left unresolved, could have a depreciatory effect on public works activity in the intermediate term.
5.2 Market segment dynamics
5.2.1 Transportation infrastructures
5.2.1.1 Urban and inter-urban railway infrastructures Rail transportation infrastructure markets will be characterized in the short and intermediate term by an increase in RATP (Paris public transport agency) work to extend tramway lines, the launch of high- speed train lines in 2008/2009 (Bretagne-Pays de Loire and Sud Europe Atlantique LGV lines, for example), the Nîmes-Montpellier railway workaround and the resumption of work on several railroads
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(2007-2010 network renewal plan, providing EUR 1.2 billion in additional funding to RFF, France's rail network).
5.2.1.2 Road and Highway Infrastructure Roadwork has been excluded from the coming Project Contracts (2007-2013) due to measures to reduce funding overlaps. The financial independence of roadwork budgets will nonetheless benefit from the completion of previously-planned projects. Spending will focus more on the maintenance and improvement of main roads.
The highway program granted is also expected to undergo a slowdown, yet one that is greater in scope and set to last longer. A 50% cut in the highway line item of the AFITF master budget as early as 2008, due to a transfer of those funds to rail and reserved-track public transport, will spur this change in 2009 and 2010.
5.2.1.3 Engineering structures Construction of engineering structures1 was generally on the rise in 2007, given the finalization of several large-scale projects (the TGV Est high-speed train project in particular). Furthermore, urban transport (tramway) projects rebounded in 2007/2008: it should therefore be possible, with the new TGV projects, to maintain construction of engineering structures at more reasonable levels in 2008 and 2009, before entering into a new growth phase starting in 2010 (phase 2 of TVG Est).
5.2.1.4 Maritime and river works "Maritime and river works" activity was sustained in 2007 by capacity-widening and port modernization investments. The plan to renovate EDF hydraulic dams led to a one-off additional investment that will total EUR 530 million over the 2007-2011 period. Regarding waterways, the 2007- 2013 National/Regional Government Project Contracts account for EUR 3.5 billion in capital spending, a total increase of 54% over the 2000-2006 period. The greater part of the spending, estimated at EUR 3.1 to 3.5 billion, will be allocated to the Seine-Nord canal, with construction set to begin in 2010.
5.2.2 Networks and water
5.2.2.1 Power With regard to power, the boost in electricity production in France announced by EDF spurred an upsurge in projects over the 2007-2012 period (Flamanville PWR). The extension of thermal production capacity over four sites represents an additional investment of approximately one billion euros through 2010. What is more, the 2007-2016 GRT-Gaz de France development plan seeks to gain an average of 200,000 new clients per year, and to reach that objective the company has planned for a significant boost in capital spending, with the development of five gas pipelines in particular. Close to EUR 903 million was pledged over the 2007/2008 period and total expenditures could fall between EUR 3.7 and 5.7 billion. The level of spending must nonetheless be re-evaluated in dynamic fashion, according to demand, and thus in large part remains a rough indication.
5.2.2.2 Telecommunications Orange/France Télécom launched the pre-rollout of its Very High Speed network in a dozen large cities, setting the stage for EUR 270 million in projects for 2007 and 2008. National roll-out should follow, starting in 2009, for an overall investment estimated at over 10 billion euros (half of which falls
1 Reminder: work related to reserved-track public transport falls under the Engineering Structures line item, unless related to the installation of railway tracks.
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under civil engineering, according to telecommunications regulatory authority ARCEP estimates). High speed, for its part, will continue to benefit from local government efforts, particularly in rural areas.
5.2.2.3 Water purification, treatment and distribution On World Water Day, French Minister of Ecology Jean Louis Borloo set the goal of bringing 100% of France's treatment facilities into compliance with EU standards before 2011. Currently, 88 facilities fall short of complying with the EU criteria. A total of EUR 7 billion will thus be allocated, 2.3 billion of which is to be funded by the water agencies, 2 billion by the CDC and 2.7 billion by local governments. The capital spending needed for purification and treatment is subject to a higher degree of regulatory urgency (now coupled with penalties) than in the area of water distribution. Over the coming years, the focus will nonetheless shift to the maintenance and replacement of water distribution infrastructures (replacement of lead piping, stepping up resource security).
5.2.2.4 Miscellaneous civil engineering In 2007, land improvement work was in large part sustained by the vibrancy of the utility companies. The high-speed train line (LGV) program will help boost the market, which nonetheless may suffer from the forecasted decline in new housing from 2008 to 2010. This drop could be compensated in part by the urban planning activity related to efforts led by the National Urban Renewal Agency (ANRU).
5.3 Market outlook
Following an exceptional year in 2007 (+8.8%), activity should stabilize at a high level in 2008 (+1.1%), with repercussions from the electoral cycle having the greatest impact starting in the second half of the year. Capital spending by local governments will pick up again starting in 2010, whereas national agencies will continue to be penalized by the public debt over the long term. Given the situation for government agencies, large companies will drive spending in the public works sector over the 2007-2009 period. The outlook for 2009 and 2010 will in part depend on what is accomplished in terms of the Grenelle environmental conference objectives, a factor that remains the largest question mark in terms of what changes will take place in public works activity over the intermediate term. As of now, certain decisions with regard to allocation of AFITF funds have pointed to a preference for shifting a significant portion of resources away from road and highway projects, which were previously the priority (accounting for 42% of spending in 2007) and toward rail and reserved-track public transport (80% of the budget in 2008). The impact of that shift in funding remains very difficult to assess at this time, given the agency's funding difficulties. Finally, inflation will remain high over the short and intermediate term due to the rising prices of heating oil, diesel and materials. 2009 (+0.9%) is expected therefore to be a transition year, ahead of a more marked recovery in 2010 (+2.8%).
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APPENDIX: DEFINITIONS, DATA, SOURCES
Table 1 • Population and household data are given on 1rst January of the year. Figures for 2008 are estimates from the new census (INSEE) and relate to metropolitan France only. • In France, by definition, the number of households is equivalent to the number of “main homes”.
Table 2 • All figures given in this table are based on the concept of branch and not sector. Therefore it covers the turnover of construction firms (including a correction for undeclared works), but also the construction activity realised by firms which do not belong to the construction sector (metallic construction for example, maintenance done by their own by non construction firms), architects fees, engineering expenses. • All data are given VAT excluded (19.6% normal rate or 5.5% reduced rate). • According to national accounts, the total construction output includes both investment and consumption, but excludes land expenses. • Data refers to national accounts (INSEE) and yearly survey for construction (Enquête Annuelle d’Entreprise).
Table 3 • Permits and starts refer to official construction statistics (SITADEL) ; • Housing completions are estimates based on starts and delay models ; • Housing stock data relate to the latest census (01/01/2005) ; Total stock = main homes + second homes + vacant dwellings ; • Home ownership ratio measures the percentage of households living in their own house ;
Table 4a • This table refers only to new construction; • Commercial buildings concern only retail; • Miscellaneous includes hotels, restaurants, leisure and sport facilities (public or private) and so on;
Table 4b • This table refers to civil engineering as a whole;
Table 5 • This table refers to National Accounts ; • Values are given at market prices, including VAT.
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Country/Pays/Land: France Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 60 460 60 825 61 165 61 540 61 875 62 220 62 570 Bevölkerung
Households ('000s) Ménages 25 431 25 740 26 045 26 350 26 635 26 925 27 210 Haushalte
Unemployed ('000s) (*) Chômeurs (*) 2 411 2 428 2 439 2 214 2 121 2 089 2 057 Arbeitslose (*)
Unemployment rate (%) (*) Taux de chômage (*) 8.9 8.9 8.8 7.9 7.6 7.5 7.3 Arbeitslosenquote (*)
Change of GDP Variation du PIB 2.3 1.7 2.2 1.8 1.7 1.7 1.8 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 2.1 1.7 1.7 1.5 2.7 2.2 2.2 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 4.4 3.2 5.1 4.7 3.2 2.7 2.5 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 2.8 3.8 3.7 4.1 4.3 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.1 3.4 3.8 4.3 3.9 4.4 4.5 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent) (*) : Unemployed data have been revised due to a change in unemployment definition
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Country/Pays/Land: France Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 48 692 9.1 9.5 7.4 0.1 1.3 -1.6 -2.0
Logement Renovation 49 446 1.0 1.0 1.4 2.0 1.7 2.0 1.3
Wohnungsbau Total 98 138 4.6 5.0 4.3 1.1 1.5 0.2 -0.3
Non-residential construction New 32 107 2.9 1.1 5.0 7.4 1.9 2.5 3.1
Bâtiments non résidentiels Renovation 31 369 1.5 1.5 1.5 1.0 1.5 1.8 2.0
übriger Hochbau Total 63 476 2.2 1.3 3.2 4.2 1.7 2.1 2.6
Building New 80 799 6.5 6.1 6.5 2.9 1.6 0.0 0.1
Bâtiment Renovation 80 815 1.2 1.2 1.4 1.6 1.6 1.9 1.6
Hochbau Total 161 614 3.6 3.5 3.9 2.3 1.6 1.0 0.8
Civil engineering New 32 720 4.6 2.0 7.4 9.5 1.6 1.1 3.6
Génie civil Renovation 15 476 0.0 2.0 5.8 7.5 0.0 0.5 1.0
Tiefbau Total 48 196 3.0 2.0 6.9 8.8 1.1 0.9 2.8
TOTAL CONSTRUCTION OUTPUT 209 810 3.5 3.2 4.5 3.7 1.5 1.0 1.3
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 24.80 6.1 2.6 5.6 4.0 0.4 -0.2 0.2 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: France Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 248.0 265.0 275.0 263.0 265.0 260.0 255.0 Baugenehmigungen Familienhäuser
Flats Collectif 210.0 244.0 281.0 268.0 255.0 250.0 245.0 Mehrfamilienhäuser
TOTAL 458.0 509.0 556.0 531.0 520.0 510.0 500.0
Housing starts 1+2 family dwellings Logements commencés Individuel 216.0 229.0 231.0 227.5 230.0 225.0 220.0 Baubeginne Familienhäuser
Flats Collectif 147.0 181.0 190.0 198.5 190.0 185.0 180.0 Mehrfamilienhäuser
TOTAL 363.0 410.0 421.0 426.0 420.0 410.0 400.0
Housing completions 1+2 family dwellings Logements terminés Individuel 205.0 220.0 227.0 225.0 225.0 222.0 217.0 Baufertigstellungen Familienhäuser
Flats Collectif 120.0 145.0 178.0 187.0 196.0 187.0 182.0 Mehrfamilienhäuser
TOTAL 325.0 365.0 405.0 412.0 421.0 409.0 399.0
Housing stock Logements existants 30 264 30 610 30 952 31 283 31 604 31 920 32 231 Wohnungsbestand
thereof second homes dont résid. secondaires 2 987 3 020 3 052 3 083 3 114 3 145 3 176 davon Zweitwohnungen
thereof vacancies dont inoccupé 1 846 1 850 1 855 1 860 1 855 1 850 1 845 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 57.0 57.5 58.0 58.5 59.0 59.4 59.8 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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FRANCE
Country/Pays/Land: France Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) 1000 m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 3 058 2 015 10.5 -3.0 -5.0 1.0 1.5 1.0 4.5 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 5 237 3 435 20.5 6.0 12.0 19.5 0.0 2.0 9.0 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 6 205 9 130 -5.0 -4.5 5.0 3.0 3.0 2.0 3.0 Industriegebäude
Storage buildings Bâtiments de stockage 1 657 3 040 13.5 -1.0 5.8 5.0 5.0 7.0 1.0 Lagergebäude
Office buildings Bureaux 6 496 4 480 -3.5 5.5 9.5 11.0 5.0 4.5 1.0 Bürogebäude
Commercial buildings Commerces 3 752 4 690 4.0 5.5 1.9 3.0 3.0 2.5 -1.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 2 095 11 290 -1.0 -3.0 5.0 0.0 -3.0 2.5 2.0 Landwirtschaftsgebäude
Miscellaneous Autres 3 607 3 250 2.0 2.0 1.9 10.0 -2.0 -1.0 4.0 Sonstiges
Total 32 107 41 330 2.9 1.1 5.0 7.4 1.9 2.5 3.1 Insgesamt
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: France Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 21 159 3.1 3.6 7.8 7.8 -1.6 -1.6 0.6 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 1 673 6.0 10.0 7.5 5.0 4.0 5.0 8.0 Bahnanlagen
Other transport Autres réseaux 5 173 3.9 -3.6 6.9 7.1 2.5 3.2 4.6 Übrige Verkehrsinfrastruktur
TOTAL 28 005 3.4 2.5 7.6 7.5 -0.5 -0.3 1.9
Telecommunications Télécommunications 9 351 2.0 3.0 6.0 12.0 4.0 3.5 6.0 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 6 495 1.8 2.8 5.0 9.7 2.9 1.4 1.4 Energie- und Wasserversorgung
Other Autres 4 345 4.5 -4.0 7.0 10.0 2.0 2.0 3.0 Sonstiges
Total 48 196 3.0 2.0 6.9 8.8 1.1 0.9 2.8
1) At 2007 prices, excluding taxes.
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FRANCE
Country/Pays/Land: France Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 1 031.0 2.5 2.2 2.3 2.1 2.0 1.9 1.8 Privater Verbrauch
Public consumption Consommation publique 459.7 2.2 0.9 1.6 1.4 0.8 0.6 0.9 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 392.6 3.3 4.1 4.1 3.9 2.8 2.5 3.5
of which construction
Stocks (contribution as % of GDP) Variations de stocks 19.9 0.4 0.1 0.0 -0.1 0.0 0.0 0.1 Vorratsveränderung
Exports Exportations 498.1 3.3 3.2 6.3 2.7 2.7 4.4 6.2 Exporte
Imports Importations 533.4 6.2 5.4 7.1 3.6 2.9 4.3 6.4 Importe
GDP PIB 1 867.9 2.3 1.7 2.2 1.8 1.7 1.7 1.8 BIP
Standard National Accounts, gross figures 1) At 2007 prices.
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GERMANY Ifo Institute for Economic Research www.ifo.de
Erich Gluch e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
GERMANY
1 Summary
The German economy remains in an excellent state. Only a few years ago, some experts were conjuring up images of Germany’s demise. After two good years in 2006 and 2007, with a growth in GDP of ca. 3% for each year, the recovery is now proceeding at a slower pace. Growths rates in the years 2008 to 2010 should amount to about 1½% p.a.
The upturn will continue to be strongly supported by exports, but also investments should grow at an above average pace. Consumption will not play a role until 2009.
After a strong upturn of 6% in 2006, new residential construction will decrease by 5% in 2007. Extensive construction measures as a result of anticipation effects to safeguard the home owner allowance are still dampening demand. Not until 2009 is a slight revival in demand for new residential construction to be expected. This is indicated by an improved income situation for households as well as a decreased insecurity among consumers. In addition, a role is also played by the still relatively low mortgage interest rates and only moderately increased prices for construction and real estate.
Housing completions will not reach their lowest point until 2008, when only 175,000 units will be completed. Despite a favourable economic environment, the number of completions will rise only moderately, reaching 213,000 units by 2010.
In the forecast period 2008 to 2010, the non-residential market will show the highest growth of all three construction sectors. Average growth will probably amount to about 2½% p.a. Differences between new construction and renovation are relatively minor here. In a differentiation according to building types, construction measures in education and health services fare the best. Investments in these types of structures will increase by ca. 3½% p.a. on average for 2008 to 2010.
Civil engineering will increase on average by a good 2% p.a. from 2008 to 2010. Investment in infrastructure will be increased at an above average pace, especially in the railway and road construction sectors.
After a long downturn, German construction is rapidly recovering. After total construction output growth of +3.8% in 2006 and +2.8% in 2007, growth in 2008 will amount to ca. 3½% and to ca. 2½% in 2009; in 2010 it will still amount to ca. ½%.
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2 Macro-economic Outlook
In the course of 2007 the economic dynamics weakened in comparison to the swift preceding pace, but aggregate capacity utilisation remained high. The upswing has been borne by business investments, stimulated by favourable profit and sales prospects at home and abroad. The worsening of monetary conditions due to financial market turbulence has apparently hardly affected investment activity. Exports were the second pillar of economic activity. Private consumption, which also last year did not revive, remains the weak element of the upswing. In 2007 German GDP increased by 2½% in real terms.
In Germany the economic situation up to spring 2008 remained favourable despite a number of adverse influences, and the economy started the year with much momentum. Unlike many other industrialised countries, confidence indicators, though weakened, remain at high levels; demand and output figures are still trending upwards. This is remarkable in light of the numerous negative shocks that have occurred recently: In addition to the restrictive fiscal policy of last year, these were particularly the strong revaluation of the euro, the massive rise in oil and food prices as well as the impact of the US real estate crisis.
In return, the growth in production potential has accelerated in past years. In addition, Germany’s international competitiveness has improved. The real estate market in Germany is also not marked by excessive prices so that a correction here, which may dampen economic activity in other countries, is not likely. And finally the German banking system has proven to be relatively robust vis-à-vis the international financial crisis.
While German economic activity started the year 2008 with much momentum, the negative external economic influences will become increasingly noticeable in the further course of the year. Export dynamics in particular will clearly weaken. On the other hand, domestic demand will expand a little more rapidly than last year. Private consumer spending will increase perceptibly after a very long lull. Enterprise investments, however, are not likely to grow as rapidly as in the two previous years, especially since the sales outlook abroad has clouded over and since the cost burden has increased somewhat.
Forecasts for 2008 and 2009 are based on the following assumptions:
• Crude oil prices will remain at around US$100 per barrel (Brent) during the whole period. • World trade will expand in 2008 by 5% and 2009 by about 5½%. • The assumed exchange rate is 1.58 US dollars per euro. • The European Central Bank will keep the key interest rate at 4.0%. Capital market interest rates will increase at the end of next year up to 4.6%. • Negotiated wages will, on average, increase by 2.2% this year and by 2.6% in 2009. Price competitiveness of the German economy within the euro area will not improve as strong as the years before. • Enterprise investments will grow by around 2.6% in 2008 and by 2.1% in 2008. • Fiscal policy will be noticeably expansion oriented in 2008 and neutrally oriented next year. Perceptible tax reductions are not scheduled, and government spending will be expanded.
Based on these assumptions, GDP should grow by 1.8% in 2008 and by 1.4% in 2009.
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3 Housing Market
The residential construction sector clearly revived in 2006, after an 11-year weak phase. This was mainly due to two special factors: the ultimate cancellation of the home-owner allowances and declining-balance depreciation, both as of 1 January 2006. It was possible, however, to safeguard the preceding, better conditions. To do this, numerous flats and houses were competed in 2006, whose construction had been planned before this data. In order to “save” the home owner allowance, it was even sufficient to apply for a building permit or to sign a notarized contract of acquisition. The anticipation effects of the elimination of the declining-balance depreciation were probably much weaker.
The number of new housing completions in one and two family houses fell as a result in 2007 from 150,000 to ca. 127,000. In contrast, in housing completions in multi-family units, the low level of 70,000 units was maintained. Building permits, however, clearly fell in 2007 from the 2006 level of 216,600 to 157,100 units. Also the awarding of planning contracts to freelance architects remained at a low level. For this reason the low point in housing completions will not be reached until this year with ca. 100,600 completions in one and two family houses and ca. 69,000 in multi-family units.
In 2008, and especially in 2009 and 2010, the following positive factors should stimulate housing demand:
• The good state of the economy should continue. In the first quarter of 2008, price-adjusted GDP grew by 1½% over the previous quarter; this was the strongest first-quarter increase in 16 years. • For the first time in many years, new wage contracts are above the level of inflation. This has even been welcomed by politicians: “We have indications that employees are now also benefiting from the successes of the economic recovery”. As a result, average real incomes should increase somewhat in 2008 and also 2009. After an unemployment rate of 11.2% in 2005 and 8.7% in 2007, a drop to 7% is likely by 2010. The long-standing insecurity of large parts of the population will thus diminish considerably. In prosperous regions and among higher income groups, sufficient purchasing power will be available to stimulate housing demand. • Mortgage interest rates – according to expert forecasts – will rise only moderately. • Building costs increased strongly in 2007 (+7.2%). This was above all due to the strong demand in the commercial sector as well as to clear price hikes for some materials (e.g., steel, heating oil, diesel and bitumen and especially insulation material. However, the rate of increase has clearly slowed in the course of recent months. At most, in regions with stronger housing demand, construction prices could rise clearly up to 2010. • Despite a decrease in population, the number of households will rise well into the next decade. The dramatic decrease of the most important group for housing demand – the population aged between 25 and 35 – is drawing to a close.
On 8 April 2008 the government approved draft legislation for a law promoting retirement savings in connection with home ownership (Eigenheimrentengesetz). The legislation is intended to integrate self-owned and self-used real estate in federally promoted retirement plans. This means that money saved in a so-called Riester plan will be able to be used in future to the complete amount for the purchase of a home. Also the subsequent amortization payments qualify for the support. The government hopes that this will significantly stimulate new construction activity and also increase the amount of home ownership, with an increase in the number of units that renters purchase for their own use. Most experts agree that the effects of such legislation are likely to be small since the concept is very complicated and thus less attractive for most potential users.
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Dampening effects will continue to come from the excellent housing supply. This fact, however, continuously favours the future development in renovation and modernisation.
In 2009 and 2010 the number of housing completions will clearly surpass the level of 2008: in 2009 ca. 114,000 units and in 2010 129,000 units will be completed in single and two-family houses and ca 74,000 (2009) and 83,000 (2010) in multi-family units. This means than in 2010, about 20% more residential units will be completed than in 2008.
Already now, more than half of total residential construction results from renovation and modernisation activities. Due to rising energy prices, investments to reduce energy consumption
have increasingly been made. The CO2 building rehabilitation programme (CO2- Gebäudesanierungsprogramm) of the Bank for Reconstruction (KfW – Kreditanstalt für Wiederaufbau) was a huge success in 2006. Loans of ca. €7 billion for energy-related renovation measures in homes were awarded in 2006, with ca. €5 billion expected in 2007. The total investment volume that went to construction measures is thus likely to be twice this amount.
In the meantime politicians have grasped the immense importance of energy consumption in the huge building stock. On 5 December 2007 the government approved an integrated climate and energy
programme, which is intended to implement the target, set in August 2007, of reducing CO2 emissions by 40% by the year 2020. A key role in reaching this goal has been assigned to the housing sector. The extent of federal support is hence not likely to be reduced in the coming years.
At the moment, the demand for photovoltaic units is particularly strong. Here there could be some dampening next year, since in the reform of the renewable energy law (Erneuerbare-Energien Gesetz – EEG) the amount of subsidies for these units is expected to be reduced.
Since 2006 expenditures to refurbish and modernise flats or houses are tax-deductible for landlords and tenants: as a result of the law on the approval of household-related services (Gesetz zur Anerkennung haushaltsnaher Dienstleistungen) 20% of the expenditures for renovation and modernisation are tax-deductible up to a limit of €3,000 per year (only services, no material costs). After some difficulties at the start, these benefits are likely to be used more often by home owners.
The new energy saving regulations (Energieeinsparverordnung – EnEV) took effect on 1 October 2007. House owners must now present new “energy certificates” to buyers or tenants. Since 2002 energy certificates have been compulsory for new buildings. The energy certificate assesses the energy loss via a building’s outer shell. According to a German-wide survey among issuers of energy certificates, more than half feel that the introduction of energy certificates will lead to a visible revival of the market for modernisation. Measures to reduce energy consumption in existing residential buildings are thus likely to increase even more in the coming years.
Residential construction profited from huge anticipation effects in 2006; in 2007 only a modest plus of 0.6% was achieved. In 2008 total spending on residential construction will shrink by almost 1%, which is above all due to extremely weak activity in new construction. In 2009 (+ ½%), and above all in 2010 (+ 2%) residential construction activity will recover again.
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4 Non-residential Market
The sector for non-residential construction is dominated by investments of private persons and enterprises. Public investors are active mainly in the education and health-care segments.
After a sharp rise of investment in producers’ durable equipment in 2004 and especially in 2005, investment in non-residential construction picked up in 2006. After eleven years of continuous decline, the upswing of 4.5% was significant. In 2007 a plus of 5.7% is even likely. Also in the following years, growth will continue, even though growth rates will steadily decline. The main reasons for this development are as follows:
The German economy is still in good condition despite some slowing in economic activity. The Ifo Business Climate Index remains at a high level, albeit below the highs of Spring/Summer 2007. The business cycle is favourable in nearly all sectors. This is all the more surprising since the world economy has been overshadowed by the crisis in the US real-estate and financial sectors since early 2008 and by the financial market turbulence that this has touched off. Companies have increased profit margins in recent years through reductions of overcapacities and costs, mainly by downsizing their staff. Recently concluded wage contracts, however, are clearly higher, which could affect the profit situation of many companies, since their scope for price increases is not very large. In addition, export-oriented enterprises must adjust to a weakening of demand as a result of the continuingly strong euro and a slowing in world economic growth. However, a clear expansion of private consumption in the forecast period is also expected.
Clearly positive stimulus also continues to come from still relatively low interest rates. But also government support is exerting a positive influence. A first step was the Agenda 2010 programme implemented by the government of former chancellor Gerhard Schröder, which brought about major reforms in social welfare legislation. Additional impacts will come from the corporate tax reform that took effect on 1 January 2008, which will lead, on balance, to a reduction of enterprises’ tax burden.
Thus, the international competitiveness of German enterprises will further improve but at a slower pace than in recent years in light of recent wage agreements. Still, further capacity expansion in industry and in the service sector will continue to be necessary.
This is primarily evident in industrial buildings. Even a few years ago, complete production sectors were being shifted abroad, especially because of the low wage levels in Eastern Europe. In the meantime, wage costs in these countries have risen much more strongly than forecast only a few years ago. In individual cases firms are bringing production back to Germany. In several sectors, companies have reached their capacity limits and supply bottlenecks are increasing. Investment to extend existing capacities is now required more often than only a few years ago.
The construction of office buildings – after a clear recovery in 2006 – received a slight dampener this year. Nevertheless, continuing growth in the forecast period is expected. According to the Ifo Business Survey in the service sector, German service providers are doing very well. Large service enterprises, however, are more frequently examining and optimising the space they need. The average space that is available to an office worker in Germany is clearly larger than in other industrialised countries. As of 2009, staff reductions in the financial sector as a result of the international financial market turbulence should make themselves felt.
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In the aftermath of the opening of Eastern Europe, Germany’s importance as a major traffic hub with numerous distribution centres has increased. As a result, many storage buildings and logistic centres need to be newly built or extended. The trend to outsource distribution, storage activities and parts of the production process will lead to a smaller number of locations but also to more concentrated trans-shipment centres with higher capacities. The enormous rise in trade volume from year to year is leading to a growing demand for space. Rapidly changing requirements are also reducing the economic lifespan of buildings, thus stimulating further demand. In 2007 growth amounted to 11.5%. Also for the coming years, continuous albeit weakened growth is expected.
The current favourable state of the economy should also stimulate the construction of new commercial buildings in the forecast period. This is especially the case for agricultural buildings, which after three years of weak demand will record growth in 2007 and thereafter. Also the increasing demand for biofuels as well as rising prices for agricultural products should have a positive impact on construction activity in this segment. Because of rising demand, it is now worth while for many farmers to use fields which had been fallow up to now.
Investments in the health segment already grew significantly in 2006. This was caused by the increasing number of private investors, who now operate one in four hospitals in Germany. In contrast to public institutions, they make urgently needed investments without delay. Experts estimate overall delayed investment to be ca. €30 billion, nearly half of which relates to building investment. The upward trend in investment is thus likely to continue for several years, despite the decline in investments in 2007.
Also in the education segment, construction investment should rise in the forecast period up to 2010. This sector should profit from the slowly growing number of public private partnership (PPP) projects in building construction. The first progress report of the German government listed 46 PPP projects completed up to 2006 will a total investment volume of €1.4 billion, and 120 additional PPP projects with an investment volume of ca. €6 billion are in the pipeline. A clear improvement came from the ÖPP-Beschleunigungsgesetz in 2005, a law aimed at speeding up the PPP process. In the coming years, demand should further increase from new construction or upgrading of existing full-day schools. From 2008 on, first construction measures in the planned extension of day nursery coverage should follow.
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5 Civil Engineering Market
The main focus of civil engineering investment is infrastructure – and here road construction dominates. The German road network is already excellent. The connections to the German “Autobahn” system are very good in nearly every region of the country. Still, new links are added every year, albeit to a small extent. The investment in roads, which declined in 2004 and 2005, rose by nearly 5% in 2006 and is assumed to further increase in the forecast period till 2010. There are two main reasons for this positive development in the following years: • massive revenues of the truck toll system as well as • increasing tax receipts since 2005.
Expert estimations assume an increase in tax revenues of merely 3% in 2008 – after an increase of 22% in the last 3 years. In 2009 and 2010 the total tax revenues will rise by 3½% p.a. on average.
In the railway sector the situation is quite similar with less new construction but huge maintenance expenditures in the existing railway system. In recent years not even the federal subsidies for maintenance have been completely spent. Due to the federal framework plan for infrastructure (Investitionsrahmenplan für die Verkehrsinfrastruktur des Bundes – IRP) in the five years from 2006 to 2010 the amount of €12.5 billion is to be invested in the maintenance of the railway system. In the context of this project, in the years 2007 to 2009 alone, approx. 5,500 km of rails and more than 2,000 points are scheduled to be replaced.
The extension of other transport infrastructure is also being advanced. This year two major projects will be launched: • the new international Berlin airport and • the first German deep water harbour “JadeWeserPort”.
Investments in telecommunications are already at a high level. Nevertheless, according to a study of McKinsey & Company, German investments are still below the OECD average. The lag in the deployment of optical fibre – necessary for the bundled use of telephone, internet and television (“triple play”) – is still seen to be significant. Investment of Deutsche Telekom was delayed due to uncertainties regarding price regulation and access rights of competitors. This uncertainty was dissipated by changes in the German telecommunication law (TKG), but the European Commission has declared its intention to appeal.
In recent years, investments in energy and waterworks stayed significantly below 1990 levels. The energy industry is currently planning or building 23 new power plants, which should be added to the grid by 2011. Twenty of these plants will be black coal and gas plants. Resistance in the population to large power-plant projects has become very large throughout Germany, and some projects have been abandoned as a result. It must be kept in mind, however, that numerous wind turbines have been installed in recent years. Up to 2007, Germany was world leader in the amount of power produced by wind turbines.
Another focus of investment activity in the energy sector is also the construction of combined heat and power units (CHP), a type of power plant that has achieved a high degree of efficiency. For this reason the federal government supports these investments with large subsidies. Although 600 biogas plants are already running, experts assume 2,000 further installations will be added in the following years.
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APPENDIX – DEFINITIONS
1. All ex-post figures of values used in this report are based on the German System of National Accounts (= VGR – Volkswirtschaftliche Gesamtrechnungen) including all data and methodological revisions up to 2007 (esp. for figures in constant prices of the previous year). All calculations and estimations for the sub-sectors and sub-categories of construction volume in the Euroconstruct definition are based on revised total gross construction investment by sub-sectors in 2007 in current prices. Non-value increasing repair and maintenance carried out by firms is included through share estimates.
2. The absolute value figures for construction investment/output in all tables for Germany exclude VAT. The original market price figures for 2007 include VAT as follows (estimates of the Ifo Institute based on official figures of the German Statistical Office): − 13.4% for residential construction − 11.0% for non residential construction and − 7.8% for civil engineering.
3. Table 1: Population and household figures reflect values at the end of each year. The German concept for the average unemployment figures and rates has changed in 2005, leading to higher values.
4. Table 2: Total construction output contains construction investment according to the definitions of the German System of National Accounts (including new construction and value-increasing modernisation). Not investment related activities like repair and maintenance carried out by firms are included in all sub-sectors via expert estimates. Services, construction by other sectors, DIY, moonlighting are included in total construction investment/volume figures for Germany by estimates of the Statistical Office. An estimation of shares for sectors or sub-segments is not possible. Construction sector output contains the gross production volume (including intermediate inputs and services from other sectors).
5. Table 3: Building permits and housing starts refer to dwellings in new residential buildings. The housing stock end-of-year figures are re-evaluated recently due to obvious overestimation through the official forward projection. The figures for second homes and for the home ownership rate (= proportion of households living in their own home) are estimates of the Ifo Institute, based on available information and expert knowledge. Vacancy figures base on data of the GdW (“Bundesverband deutscher Wohnungs- und Immobilienunternehmen e.V.”).
6. Table 4a: The updated estimates for the segments of new, non-residential buildings by the Ifo Institute were made exclusively for Euroconstruct. They are based on official statistics on construction activity (permissions and completions) in Germany (“Bautätigkeitsstatistik”).
7. Table 4b: The updated estimates for the segments of civil engineering in Germany by the Ifo Institute were made exclusively for Euroconstruct. They are based on official statistics on turnover of construction firms (“Bauberichterstattung – Totalerhebung”).
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Country/Pays/Land: Germany Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 82 500 82 440 82 320 82 210 82 100 82 000 81 900 Bevölkerung
Households ('000s) Ménages 38 920 39 080 39 600 39 740 39 890 40 030 40 170 Haushalte
Unemployed ('000s) Chômeurs 4 381 4 861 4 487 3 776 3 200 3 000 3 100 Arbeitslose
Unemployment rate (%) Taux de chômage 10.1 11.2 10.3 8.7 7.4 6.9 7.0 Arbeitslosenquote
Change of GDP Variation du PIB 1.1 0.8 2.9 2.5 1.8 1.4 1.5 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 1.7 1.5 1.6 2.3 2.6 1.8 2.5 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 1.3 0.9 2.3 7.2 3.0 3.0 3.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 4.2 4.0 4.0 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.1 3.4 3.8 4.3 4.5 4.5 4.5 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Germany Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 52 655 -6.5 -6.6 6.0 -5.0 -3.5 0.5 2.5
Logement Renovation 85 910 -0.4 -1.9 3.2 4.3 1.0 0.5 1.7
Wohnungsbau Total 138 565 -3.0 -3.8 4.3 0.6 -0.7 0.5 2.0
Non-residential construction New 39 234 -7.4 -2.8 4.8 6.2 3.7 2.5 0.5
Bâtiments non résidentiels Renovation 30 827 -3.0 -1.3 4.2 5.0 3.5 2.7 1.6
übriger Hochbau Total 70 061 -5.5 -2.2 4.5 5.7 3.6 2.6 1.0
Building New 91 889 -6.9 -5.1 5.5 -0.5 -0.4 1.4 1.6
Bâtiment Renovation 116 737 -1.1 -1.7 3.5 4.5 1.7 1.1 1.7
Hochbau Total 208 627 -3.8 -3.3 4.4 2.2 0.7 1.2 1.6
Civil engineering New 28 990 -4.5 -2.5 4.0 3.0 3.5 2.5 0.5
Génie civil Renovation 19 326 -2.5 -1.3 3.6 2.5 2.9 2.5 1.0
Tiefbau Total 48 316 -3.7 -2.0 3.8 2.8 3.3 2.5 0.7
TOTAL CONSTRUCTION OUTPUT 256 942 -3.8 -3.0 4.3 2.3 1.2 1.5 1.5
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 29.92 -2.8 -7.1 6.9 3.4 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Germany Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 167.1 145.3 145.9 94.7 107.8 125.1 144.9 Baugenehmigungen Familienhäuser
Flats Collectif 69.3 66.4 70.7 62.4 69.6 81.9 92.6 Mehrfamilienhäuser
TOTAL 236.4 211.7 216.6 157.1 177.4 207.0 237.5
Housing starts 1+2 family dwellings Logements commencés Individuel Baubeginne Familienhäuser
Flats Collectif Mehrfamilienhäuser
TOTAL
Housing completions 1+2 family dwellings Logements terminés Individuel 177.2 151.5 150.1 127.0 106.3 113.9 129.3 Baufertigstellungen Familienhäuser
Flats Collectif 70.6 62.3 70.6 71.3 68.8 73.6 83.3 Mehrfamilienhäuser
TOTAL 247.8 213.8 220.6 198.3 175.1 187.5 212.6
Housing stock Logements existants 37 380 37 500 37 600 37 700 37 800 37 900 38 000 Wohnungsbestand
thereof second homes dont résid. secondaires 3 200 3 230 3 250 3 280 3 310 3 340 3 360 davon Zweitwohnungen
thereof vacancies dont inoccupé 2 140 2 030 1 920 1 800 1 750 1 700 1 650 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 44.6 44.7 44.8 44.8 44.8 44.9 44.9 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Germany Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 2 308 1 420 6.5 3.8 -4.8 3.0 5.0 3.0 2.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 2 160 1 270 -24.8 -11.4 12.4 -5.0 6.5 3.0 1.5 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 5 770 8 680 -5.6 -13.6 1.0 12.0 4.0 3.5 -0.5 Industriegebäude
Storage buildings Bâtiments de stockage 5 443 9 990 -2.4 5.2 3.5 11.5 2.5 1.5 1.5 Lagergebäude
Office buildings Bureaux 7 510 5 860 -22.5 -4.0 11.4 -4.5 5.0 2.0 2.0 Bürogebäude
Commercial buildings Commerces 7 305 11 590 -6.7 2.1 1.7 8.0 3.0 2.5 -0.5 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 2 212 7 760 -4.2 -5.5 -3.6 9.5 4.0 2.5 -1.0 Landwirtschaftsgebäude
Miscellaneous Autres 6 528 7 020 20.1 0.2 9.3 13.3 2.0 2.5 -0.5 Sonstiges
Total 39 234 53 590 -7.4 -2.8 4.8 6.2 3.7 2.5 0.5 Insgesamt
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Germany Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 18 863 -5.3 -1.7 6.8 3.6 4.4 3.1 1.2 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 4 266 -3.2 -3.0 2.9 3.7 4.2 3.2 1.0 Bahnanlagen
Other transport Autres réseaux 2 551 -0.4 -6.6 2.7 2.8 4.2 3.3 0.1 Übrige Verkehrsinfrastruktur
TOTAL 25 680 -4.4 -2.5 5.7 3.5 4.4 3.1 1.1
Telecommunications Télécommunications 7 827 1.9 1.6 4.5 2.6 2.4 1.4 0.7 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 6 933 3.6 -4.2 3.8 2.5 2.9 2.3 0.4 Energie- und Wasserversorgung
Other Autres 7 875 -11.3 -2.2 -2.2 0.9 0.8 1.7 -0.3 Sonstiges
Total 48 316 -3.7 -2.0 3.8 2.8 3.3 2.5 0.7
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Germany Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 1 374.4 0.2 -0.1 1.0 -0.4 0.8 1.2 1.5 Privater Verbrauch
Public consumption Consommation publique 436.1 -1.5 0.5 0.9 2.1 2.2 2.2 1.5 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 449.6 -0.2 1.0 6.1 5.0 2.6 2.1 2.0
of which construction 235.9 -3.8 -3.1 4.3 2.3 1.1 1.4 1.5
Stocks (contribution as % of GDP) Variations de stocks - 7.1 Vorratsveränderung
Exports Exportations 1 133.0 10.0 7.1 12.5 7.8 5.4 4.6 4.5 Exporte
Imports Importations 962.2 7.2 6.7 11.2 4.8 4.9 5.8 6.0 Importe
GDP PIB 2 423.8 1.1 0.8 2.9 2.5 1.8 1.4 1.5 BIP
Standard National Accounts, gross figures 1) At 2007 prices.
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HUNGARY BUILDECON www.buildecon.com
Anna Gáspár e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
HUNGARY
1 Summary
• The Hungarian economy will bottom out from the 2007 year’s “hole” by the end of 2008. This year real earnings will already grow – although slowly. If the global financial market stabilizes, the forint interest rates may decrease. A slow recovery of GDP is expected in 2009-2010. • The construction output change for 2007, –3,4 percent, instead of our October 2007 forecast change by -2,2 percent. The total construction output in our research is based on national economy investment, construction part. This differs from the construction industry performance figure given by the National Statistical Office as ”Production of construction”. • A significant decrease in civil engineering, especially in postponed motorway construction, is explained by the state obligations specified in the convergence programme. The difference (decrease) compared to the previous year is above preliminary figures (- 8,7 percent) in civil engineering, -17 percent. • In the residential subsector, the number of completed residential units is 36 159. Taking into consideration the decrease of the average floorspace in 2007, the change in new completed residential construction is +4,3 percent. The rythm of the renovation in residential subsector remains unchanged. • Finally, in non-residential subsector a slight increase was observed, especially in investments in manufacturing (industry) and commerce. • Looking ahead, in years 2008-2010, the pace of residential and infrastructural growth will be slightly lower, between 4 and 6 percent in residential, 2-8 percent in civil engineering yearly. The recovery, expected in infrastructural investments, will be postponed to 2009, the residential construction will remain more-or-less unchanged. The private non-residential construction will mostly depend on the global investment environment. More and more players of the Hungarian construction markets will find their way outside Hungary (in Romania, Serbia, Ukraine, Russia).
Construction output and GDP
% % 8,0 8,0 GDP 6,0 CONSTRUCTION 6,0 OUTPUT
4,0 4,0
2,0 2,0
0,0 0,0
-2,0 -2,0
-4,0 -4,0 2005 2006 2007 2008(F) 2009(F) 2010(F)
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2 Macro-economic Outlook
Getting out of the bottom
Although in the spring 2008 both the global economic and the domestic political conditions deteriorated, the performance of the domestic economy is not bad in the first months of the year. The industrial production and the exports accelerated, the drop in the construction industry and retail started to slow down compared to the last months of 2007. The balance of the foreign trade of goods became positive, the deficit of the general government decreased. In the last three months inflation is slowly but steadily abating. Wages in the competitive sector are growing faster than previously agreed, the forint is relatively strong. On the other hand, interest rates are increasing.
The industry continues to be export oriented, its main driving force is the production of electric machinery, electronics and motor vehicles. Domestic sales of the manufacturing industry decreased. It is expected that during the year the industrial exports will slow down. On the other hand, the decline in the domestic sales of industry will come to a halt – both in investment and consumer goods. The output of the construction industry continues to lag far behind the level of the same period of the previous year, but in February it increased by 6% compared to January. A significant change is expected from the expansion of EU supported investments in the infrastructure in the second half of the year. In the first two months of the year in the retail trade the sales of food products decreased by less than 1% compared with the corresponding period of the previous year, but the sales of other products declined by 4%. The number of guest-nights in commercial accommodations increased by 3%, but within this the guest-nights of domestic tourists declined.
Since December 2007 inflation has been slowing down by a monthly average of 0.2%. In 2008 the annual average inflation is expected to be around 6-6.5%, declining to approximately 5% by the end of the year. At the same time the price of food and household energy may increase by far more than 10% (given the global price hike, the price of the natural gas for household heating may go up 30%, the electricity tariff approx. 10%; the tariff of district heating may increase by 10-15% in the second half of the year).
The increase of the gross wages in the business sector is for the time being by far higher than the upper limit of the 5-7.5% band recommended by the National Interest Reconciliation Council. In the year as a whole – at an approx. 6.2% inflation – real wages will increase by 0.5-1%, but in the public sector they will stagnate. The real value of pensions will increase by 1%. The number of people employed will moderately increase in the business sector, decrease in the public sector. Unemployment that between summer 2007 and now increased from 7% to 8.1% started to decrease a bit recently.
In 2008 the growth rate of the economy will be lower than in any other new EU member state. The economy as a whole after the last year’s 1.3% will grow by 2.5-3%, but the combined performance of the sectors other than the agriculture and public services will expand by 3-3.5%. While in the first quarter the growth rate was close to the last year’s 1.3%, the growth rate in the fourth quarter will be close to the 3.5% expected for 2009. A slow recovery of GDP is expected in 2009-2010.
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Table 1 Economic indicators
2005 2006 2007 2008(F)
GDP growth (%) 4.2 3.9 1.3 2.7 Industrial production (const.pr.,%) 7.3 10.1 8.1 6.0 Investment (const.pr., %) 6.4 -2.0 0.3 4.0 Construction industry (const.pr., %) 16.6 -1.6 -14.1 2.0 Retail trade (%) 5.8 4.4 -3.0 1.0 Exports (curr pr EUR, %) 11.4 16.6 15.7 10.0 Imports (curr pr EUR, %) 08.3 13.9 11.9 9.0 Trade balance (bln EUR) -2.9 -2.0 -0.3 0 Exchange rate HUF/EUR (yearly avg.) 248.0 264.3 251.3 252 Average gross earnings 8.8 8.1 8.2 7.7 Consumer price index (YoY) 3.6 3.9 8.0 6.0 Rate of unemployment (EoP) 7.2 7.5 7.4 7,5
Sources: GKI Economic Research, Central Statistical Office, National Bank of Hungary, Ministry of Finance
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3 Housing Market
Half of the residential stock is older than forty years
The residential stock consisted of 4 million 268 thousand dwellings on 1 January 2008, with an average 75,5 square meter floor space, 90% with bathroom and 58% with drainage system. 92-93% of the dwellings are private property. 12.4% of the dwellings are one-room, 40.6% are two-room and 47% are three-room or larger. 65-66% of the residential stock is one-family house built of brick, a further 20% of reinforced concrete prefabricated large panel built between 1965-1980.
The distribution of the residential stock is mainly proportional to the population: 20% is in Budapest, 11% in the central region (Pest county), 40% in East Hungary and 29% in West Hungary. 50% of the stock is older than forty years or more, 38% is 20-40 years old and 12% was built after 1990. More than 300 thousand dwellings are unused. The insulation of circa 50% of the stock built before 1970 needs modernisation. Approximately 3-5 thousand dwellings are demolished annually – 4100 dwellings in 2007 – and an annual 35-42 thousand of new dwelling units are built since 2003. The construction of resorts (second dwellings) is insignificant, an annual 1000-1500 units. The number of renovated dwellings increases by an annual 100-140 thousand, but the number of partial renovations is much higher.
Stable new residential construction, large unfinished stock
33.9 thousand completed residential units received occupation permits. Almost 45 thousand building permits were issued for new buildings of circa 4 million m2 in 2006. The number of dwellings put to use was 18% lower and the number of building permits 13% lower than in 2005. The fallback was greater than the average in the capital, where the number of dwellings put to use was a third less and the number of building permits applications, a fourth less than the previous year. At the same time, a much larger number of dwellings offered appeared on the residential market, supported by the significantly increasing supply.
More than 36 thousand dwelling units were completed in 2007. More than 44.3 thousand building permits were issued for the construction of new dwellings. The number of dwellings put to use was 7% higher than in 2006 while the number of building permits for new dwellings was 1% less than in the previous year. The increasing number of dwellings put to use is a result of the growing volume of growing real estate business. Entrepreneurial dwelling construction came to the forefront in the last 5- 6 years.
Natural persons gradually disappear from the group of constructors, being replaced by construction companies. Residential construction was built by the population (23%) and by the construction industry (72%). One-family house construction and residential park construction stagnated, while 41% more dwellings were constructed in new group houses and 18% more in new, multi-storey, multi- dwelling buildings. The number of dwellings with less than 60 m2 floor space increased by 14%, while the number of dwellings larger than that remained under the average. The average floor space decreased, in 2007 it was 87 m2, 2 m2 smaller than in 2006. The growth of residential construction in 2007 encompassed the capital and the big cities, mainly. On account of the rich supply, the construction cost of new buildings in 2007 as compared to that of 2006 remained under the inflation.
Above the completed, circa 150-160 thousand dwellings are under construction, approximately five times the number of finished buildings. This is due to several factors:
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the number of building permits is always higher than that of completed constructions unfinished but used family houses, built mainly of own capital unsold dwellings built by enterprises for sale.
This phenomenon going on for decades is a result of an inconsistent residential policy, the radical change in living standards, the transformation of family lifestyle, unemployment and many social and financial reasons. The unfinished dwellings constitute a great value, even if their annual progress is difficult to calculate.
New residential construction 2007
'000 UNITS '000 UNIT 20 20 TOTAL NEW DWELLINGS: 36 159
15 15
10 10
5 5
0 0 ONE FAMILY MULTI-ST. RES. PARK OTHERS
Table 2 Distribution of new residential units
Denomination 2000 2004 2005 2006 2007
TOTAL NEW DWELLING (UNIT) 21 583 43 913 41 084 33 864 36 159 Regional distribution (unit) Budapest 3 113 10 152 12 303 8 239 9 654 Towns 9 760 21 713 19 145 17 088 17 977 Villages 8 710 12 048 9 636 8 537 8 528 Dwellings built by (unit) Local governments 193 577 724 295 278 Central government 6 248 11 6 . Business organization 3 132 16 534 18 353 14 674 16 666 Natural persons 17 989 25 161 20 694 18 591 18 723 Other 263 1 393 1 302 298 492
Average basic floor space (m2) 98,4 93,1 86,7 89,3 87,4 Wall structure (%) Brick 83,4 78,3 74,3 74,9 82 Concrete blocks 4,1 2,1 1,7 2,1 1,5 Panel 0,9 0,2 0,2 0,0 0,0 Cast 2,6 1,7 1,8 1,7 1,5 Other (light-weight, wooden, etc.) 9,0 17,7 22,0 21,3 15,0 Dwelling construction by type of building (units) One-family new house 15 027 20 683 17 416 15 794 15 760 Multi-storey new residential building 3 358 14 778 15 468 11 757 13 923 Residential park 541 3 046 3 451 2 272 2 280 Other (in existing buildings, etc.) 2 657 5 406 4 749 4 041 4 196
Source: National Statistical Office publications 2000-2007, February 2008
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Home renovation: accelerated tendering in early 2008
As 92% of the residential stock (almost 4 million dwellings) are of private ownership. A large proportion of the value of home renovation and modernisation, minimum 50%, appears regularly in the household expenditures of the population. Financial subsidy is available for the energy-efficient modernisation of prefabricated concrete panel estates since 2001. The government (The Ministry of Local Councils and Regional Developments, www.otm.gov.hu) put into operation the New Hungary Home Renovation Programme on 1 February 2008. Besides his self-raised financial part, the builder receives at least a third of the costs from the budget and a further support from the local council. The programme consists of the following parts: • energy-efficient renovation of dwellings built of industrialised technology (panel and prefabricated dwellings) – fund is available since 2001 • ecoprogramme – modernisation of the district heating system • the thermophore modernisation of collector-chimneys • energy-effective renovation of traditional family houses and multi-unit dwellings • modernisation of dwellings by renewable energy sources
The expected increase of energy price and public utility charge and the change of tax laws greatly affect the real estate market. It is expected that home renovation becomes a lasting branch in the construction business.
The urgent need for an efficient energy consumption is also shown by the comparative energy balance compiled for the East-European context. The energy consumption of households can be considered high in Hungary and this is an impulse for solvent owners (an annual circa 100 thousand dwellings) towards modernisation.
Table 3 Energy Consumption In East Europe, 2006 - %
Energy consumption Hungary Romania Slovenia Croatia Serbia
Population 36,0 14,2 24,7 41,9 55,7 Public 19,0 9,3 19,1 5,4 17,7 Economic sectors 45,0 76,5 56,2 52,7 26,6 Total 100,0 100,0 100,0 100,0 100,0
Source: Buildecon: Construction Market Reports
Besides the development and use of modern products and technologies, sustainability comes to the forefront. Some of the modernisations are already energy-conscious, taking into consideration ecological principles. Residential buildings are not yet among them, but some of the educational institutions (II. National Development Plan, KMOP-4.6.1. tenders). This accelerates the environmentally conscious education of new generations. The new vision has an impact on the development and modernisation of the residential environment in the long run, energy-consciousness and the responsiveness towards more developed products and technologies.
Housing policy, double sided financial behaviour, residential market trends
The Hungarian housing policy supports the purchasers of their first new or used homes with discounted interest rates and a social subsidy depending on the number of children. Due to the serious competition between banks, there are increasingly favourable conditions for purchasing homes. Loans combined with insurance, the small self-raised part and the use of mortgage loans are
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Banks, especially foreign owned ones, grant loans for increasingly bigger proportions of the real estate with a gradually smaller self-raised part from the buyer. We prognosticate the growth of the loan stock for the next years. Mortgage is around 50% of the annual GDP, while the quickest Czech, Hungarian and Croatian mortgage amounts to 15-20% of the annual GDP. The Hungarian mortgage stock of the population was 17.1% of the GDP in 2007.
The average residential loans increased from the average 2 million per dwelling in 2001 to 4.2 million HUF in 2006: the loan for the construction of new dwellings was 3.2 million in 2006, an average 6.3 million for the purchase of new dwellings, an average 5.3 million for the purchase of used dwellings, while the loan for modernisation, development and renovation was around 2 million HUF.
On the other hand, the investors and developers of the dwellings get loans with increasingly disadvantageous conditions. Banks in Hungary have become more cautious in real estate financing after the secondary mortgage crisis: there are stricter demands for the self-raised part, the decision- making period increased, the financing costs for developers and investors increased, the relationship between banks and developers have changed.
Table 4 Mortgage stock of households - BLN HUF [BN EUR]
Usage 2005 2006 2007
Residential use 2 283 [9,2] 2 699 [10,2] 3 137 [12,5] Optional use 388 [1,6] 746 [2,8] 1 226 [4.9] TOTAL 2 671 [10.8] 3 445 [13,1] 4 363 [17,4]
Source: HNB
Taking into account the macroeconomic indicators declining together with the global financial crisis, the decrease of net wages and the increase of the level of unemployment, we must state that the outsourced loans became riskier in 2008. Real estate covers are increasingly important.
Despite the fluctuating annual turnover and the growing cautiousness of customers and investors, there were signs that the residential market would become somewhat livelier in 2007. The year 2008 began smoothly. The demand on the new residential market was fluctuating, mostly similar to the previous year. An annual 5-10% moderation of demand can be expected on the used residential market in 2008. However, this is realised selectively. While the real price of centrally positioned dwellings with a good structure, attractive as investments may increase, that of non-modernised, big floor space panels built in the 1970s may decrease by 7-8%.
In the segment of new dwellings the average price increase at the beginning of the year was around 3- 5%, under the inflation rate. The sale period has somewhat increased. There is a greater demand for dwellings close to the stage of handing over. Approximately 90% of the dwellings are sold by the handing over of the project. The situation of the site is still the most important aspect in purchasing real estates. Well-positioned dwellings between 35-65 square meter floor space with a high level design are the most favoured ones. There is a growing demand for new, 2-3 years old, used new homes. Another novelty is the demand for dwellings in mixed type buildings (offices, shops and residential constructions together). The demand for flats in residential parks is decreasing.
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Vulnerable residential construction, solid increase in renovation
A further 4 million m2 area is planned to be built in during the next years on the basis of new building permits issued in 2007. In the first three months of 2008, the number of dwellings put to use was 5% bigger, while the number of new building permits 14% smaller than a year ago.
After the slight increase in 2007, the changes in quality, equipment, the size of the floor space and the price may cause an increase in the value of residential construction expenditures starting with 2008. It is expected that the supply remains rich in the field of new residential constructions, since the domestic and foreign real estate development is significant. The time for sale is prolonged, therefore bargains become important, there are great reductions. The growth of the purchasing potential will be insignificant due to the macroeconomic stagnation.
The number of completed dwellings is circa 33-35 thousand, this can stabilise at a higher level at best in the next three years. A 5-6% development can be expected in the best case on the joint market of residential construction and renovation, starting from 2009. An upswing in completion of the already mentioned, ongoing, circa 150 thousand residential constructions is a potential for development. A special loan construction depending on the occupancy permit would lead to a speed-up similar to the Turkish scenario.
New residential units
'000 UNIT '000 UNIT 50 50 NEW IS 0,9% OF THE STOCK (2007) 40 40
30 30
20 20
10 10
0 0 2003 2004 2005 2006 2007 2008(F)
The growth of an upgraded residential stock with a more efficient energy consumption may gain speed on account of the New Hungary Home Modernisation Programme in 2008.
Taking into account the present trends, a significant increase in number of new, completed flats cannot be expected in 2009-2010; however, the increase of their value and floor space is probable. Home modernisations will speed up.
Table 5 Building permits and completion -‘000 unit
2003 2004 2005 2006 2007 2008(F) 2009(F) 2010(F)
Valid permits 180,0 175,0 180,0 175,0 175,0 ...... Ongoing dwelling constr. 137,7 146,6 149,8 156,9 160,0 155,0 150,0 150,0 Permits issued 59,2 57,5 51,5 44,8 44,3 42,0 42,0 44,0 Completed homes 35,5 43,9 41,1 33,9 36,2 35,0 35,0 38,0 Housing stock 4 110 4 135 4 170 4 209 4 238 4 268 4 300 4 330 Source: KSH, Buildecon
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Table 6 Main residential real estate developers
Project No of homes Developer Web
Városrét (Győr) 5 680 Engel Group www.engel.hu Corvin Sétány (Budapest) 2 800 Cordia Magyarország Zrt. www.cordia.hu Danubio Park (Budapest) 2 500 Martinsa-Fadesa www.fadesa.hu Habitat Park (Budapest) 2 000 Habitat Group www.habitat.hu Újbuda Tóváros (Budapest) 1 500 MAC Kft. www.euroingatlan.hu Origo City (Budapest) 1 400 Magnum Hungária Csop. www.real4you.at Paskál Park (Budapest) 1 300 Vegyépszer Zrt. www.vegyepszer.hu Metropolitan Park (Bpest) 1 300 Al Holding Zrt. www.alholding.hu
Mediterrán (Budapest) 1168 Eco-Line Kft., Tatros Kft. www.ecolinekft.hu Marina Part (Budapest) 1 148 Autóker Holding Zrt. www.autoker.hu Barázda Residential Park (Bpest) 1 100 Euro Ingatlan www.euroingatlan.com Lakihegy Residential Park (Lakihegy) 1 100 Dujmó-J.Kft. www.dujmoj.hu Sasad Liget (Budapest) 1 000 Biggeorge’s-NV Zrt. www.biggeorges.hu Nádorliget (Budapest) 900 Sajó Befektetési Zrt. www.nadorliget.hu Somfa (Budapest) 900 OTP Ingatlan Zrt. www.otpirt.hu
Source: Real estate yearbook 2007, Világgazdaság (World economy) 2008
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4 Non-residential Market
Private investments: Stable construction market segment
The main part of non-residential building construction is commercial property development. The capital inflow and the maintenance, development and increase of the turnover were significant in 2007. The value of the FDI inflow was an annual average 3.7 billion euro in 1997-2006 in Hungary. The cumulated FDI stock was 66.4 billion euro at the end of 2007. The per capita FDI in the four Visegrád countries was as follows: Czech Republic 6612 euro, Hungary 6606 euro, Slovakia 5629 euro, Poland 2481 euro. Capital outflow is also increasingly important. The Hungarian FDI outflow reached 13 billion euro at the end of 2007.
Further successful projects entered the developed Hungarian real estate market in 2007. Private capital is active in public investments (PPP). 15% of the R+D workplaces moved to Europe, were in Hungary in 2007. There are continuous developments in the field of industry and logistics. Hungary provides the service sector of large multinationals with an important amount of trained workforce, especially in East and South Hungary.
On the market of the Hungarian commercial properties there was only a little impact from the subprime crisis in 2007 in terms of development projects, and even less in terms of investments. The amount of the year’s investment transactions was close to 1.9 billion euros according to the estimates, that is, it was more than doubled in a comparison with the activity experienced in past years, partially, because of certain deals with large amounts. The main attraction of the emerging markets of Eastern Europe, and within that, Hungary was a higher yield achievable, in a comparison with the primary markets of Western Europe. The capital cities of the emerging nations of Eastern Europe offered an excellent opportunity for convergence play. While yields in London, Dublin dropped below 4% in the first half of the year, the most popular products exchanged hands at levels of about 5.5% in Prague and Warsaw, and just below 6 in Budapest (with 5.8-6% on the office market, 6-6.5% in the market segment of retail properties, 7-7.5% on the market of logistic properties). This also meant that the aggressive reduction in yields experienced in previous years came to a slowdown, even though it did not come to a standstill.
The construction performance of the non-residential building construction sector can be approached in different ways. The investment output throws light on the value of construction, the building permits issued show the next year’s development, while the data on different building groups and the real estate market shows the specific annual orders. On account of these we can conclude that non- residential building construction in 2007 was based on a growth similar to the previous year. The pace of growth increased in the first quarter of 2008.
Table 7 Commercial properties, under construction and completed - ‘000 M2
2005 2006 2007 Type Completed Ongoing Completed Ongoing Completed Ongoing
Office (gross) 188 528 390 725 339 957 for rent 93 278 195 399 184 538 Retail trade (gross) 409 498 398 870 667 1143 for rent 147 216 120 356 326 534 Industry, logistics (gross) 752 498 514 625 756 584 for rent 230 84 146 158 217 265
Hotel (no of rooms) 1836 832 431 1689 1484 3244
Source: E-Build
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There is an unequivocal growth in the square meter (area) data shown by the table. As to the geographical location, most of the office constructions (95-98%) take place in Budapest. The total A-category office stock reached 2.2 million m2 by the end of 2007. The increased demand and construction of hotels and the continuous construction of commercial buildings is divided between the capital, the agglomeration and the countryside. The industrial and logistics investments are most developed in the agglomeration and the countryside.
Five real estate development centres are expected to appear in the near future in Budapest and the agglomeration: Outer Ferencváros – South Pest, near the river, with good transport connections. The two major projects are Mester Park and Dunacity (350-400 thousand m2 office development, important residential construction plans). It is the greatest reserve for the growth of Budapest. rd Budakalász – North Pest, an area between the 3 district and village Szentendre, near the river, with good transport connections. The new M0 Danube bridge to be handed over in the second part of 2008 and its environs as well as the further development of the MO is the investment potential. Ferihegy Airport and its environs – South-East Pest. The ongoing commercial and logistics developments, the construction of the M0 ringroad, the development of the connection between the city centre and the airport as well as the office developments will be an important workforce market in the agglomeration. Budaörs-Törökbálint – South Buda agglomeration towns which developed earliest, quickest and spectacularly. Besides several commercial and logistics developments, there will also be an office and a residential park (Tópark-projekt, with circa 100 thousand m2 office, recreation centre, residential block). Rustbelts of Budapest – mainly near the main railway stations and along the railways leading out of the city. Besides the completed developments at the Nyugati Railway Station, there are new ones (Eiffel Square office block, Westend 2, the Government District (the latter is suspended on account of the Convergence Programme, but the winner Hungarian-Japanese project supports the model of sustainable construction and operation). The surroundings of Rákosrendező, Ferencváros and Kelenföld Railway Stations offer possibilities for the local councils to develop district city centres, modern traffic intersections and commercial centres.
Public investments: a promising delay
The unfavourable macroeconomic developments cause a stop in public building constructions and renovations. Infrastructure suffers the greatest losses, but the continuing developments in education, health care and culture are also problematic. Therefore the number of public procurements decreases by 17-20% in the first half of 2007 as compared to the previous year, which means a decrease in value by circa a third and the delay of the completion of several investments. The further development of the Museum of Fine Arts, the liquidation of the remaining ruins of Buda Castle, the ’Pécs - Cultural Capital of Europe 2010’ project and the Zsolnay China Factory cultural complex project were the main planned community investments.
The delays in public investments are somewhat counterbalanced by private investments in certain fields (culture, religion, sports). We mention here the complex ETO Park in Győr (stadium, fitness centre, club house, sports hostel, entertainment, commercial and hotel centre), the VAM Design Center in Budapest, the Ramada Plaza Aquaworld in South Pest (hotel, bath, swimming pool), the Graphisoft University in Óbuda, the circa 200-250, privately owned, protected, restored castles in the country and several therapeutic investments.
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The public projects of the 2nd National Development Plan supported by the EU are not completed yet, but in the stage of applying for tenders or the preparation of the application. The most interesting among them is probably the development of ’knowledge economies’ in seven selected city areas. The aim is the attraction of international companies to start common developments in cities of the outstanding and special local givens. These special fields are the life sciences in Debrecen, biotechnology in Szeged, vehicle industry in Győr, nanotechnology in Miskolc, cultural industry in Pécs, mechatronics in Székesfehérvár and IT in Veszprém.
Development of construction costs
Construction costs 2007
'000 HUF '000 HUF 300 300 1 EUR (2007 AVG.) = 251,31 HUF 240 240
180 180
120 120
60 60
0 0 OFFICE INDUST COMM WAREH HOME
The net construction costs per square meter underwent the following changes. Although the price of energy and building materials has increased, the total of special construction costs has not reached the inflation but decreased in HUF, calculated at current price, in the case of some buildings. The decrease in the case of one-family houses, some health care buildings and certain agricultural objects was around 5-8%, stagnated in the case of most building types, while the cost of schools and industry buildings increased by 10-14%. However, due to the big differences in the exchange rates from 2006 to 2007, we get another result if we calculate in euro.
Table 8 Net construction costs of buildings in 2006/2007 - ‘000 HUF/m2 [Eur/m2]; current price
200 6 200 7
Multi-unit residential building 168[636] 168 [669] One-family house 216 [817] 200 [797] School 164 [620] 186 [741] Office building 274 [1036] 265 [1055] Industrial building 224 [847] 252 [1004] Warehouse 140 [529] 138 [550] Hospital 238 [900] 215 [856] Hotel 278 [1052] 284 [1131] Commerce 194 [734] 181 [721] Agriculture (warehouse) 54 [204] 45 [179] EUR/HUF (yearla avg.) 264.27 251,31 Source: Archigram - Buildecon
The moderate net construction price movements are reflected in the change and expectations of the property prices. The Economic Research Institute (GKI) shows the expected change (increase) of new and over the year 2007 the existing property prices, based on responses:
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Table 9 Changes in new property price in the next 12 months (latest poll) - %, current price [previous poll, oct. 2007]
Type Budapest Pest County West-Hungary East-Hungary Country Avg
Residential building 7 [5,3] 6 [5] 4,5 [5] 3 [4] 5,5 [5] Office 7 [5] 5 [5,5] 5,8 [5] 4 [5] 6 [5,1] Shop 4 [5] 4 [4,5] 5 [5] 5 [4,5] 4,6 [4,8] Warehouse 2,5 [5] 3 [5] 4 [4,5] 6 [4,5] 4 [4,8]
Source: GKI
Table 10 Changes in existing property price over 2007 - %, current price, yoy
Type Budapest Pest County West-Hungary East-Hungary Country Avg
Residential building 4,3 2,5 -0,1 3,1 3 Office 4 2 2,5 1,6 2,7 Shop 1 4 0 0 1 Warehouse 0 0 0 4 1 Site 7 7 4,5 3 5
Source: GKI
Outlook: ongoing success in 2008, slowdown in 2009-2010
The building permits issued in 2007 and at the beginning of 2008 point towards further growth in non- residential building construction.
Table 11 Floor space of non-residenti al buildings with a building permit - Thousand m2
TYPE 2005 2006 2007 2008 Q1
Industrial 1 314 1 548 1 246 269 Agricultural 927 659 562 308 Commercial 687 662 567 206 Others* 895 955 845 221 TOTAL 3 823 3 824 3 220 1 004
*financial, real estate, education, health care, cultural, religious, etc. investments Source: KSH 2006-2008
As a result of government negotiations, in 2008 further service centres, car industry supply factories, medicine industry developments and some R+D centres are expected to be built mainly by European, Japanese and Korean investors. Moreover, the 3200 projects examined in April 2008 show that the number and value of business investments, offices, commercial and logistics developments may further increase. At the same time the analyses show that two thirds of the commercial building projects are in the stage of preparation, planning or before completion. This means delay or waiting. Real estate developers advise cautiousness in 2009-2010.
The upswing in construction of EU funded public buildings is expected in the second half of 2008 the earliest. These investments will gain strength around 2009-2010.
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Table 12 Main commercial real estate developers - ‘000 m2
Project Size Developer Access
Álomsziget (Budapest) 200 Plaza Centers (Israeli) www.plazacenters.hu
Tópark Offices (Budaörs) 95 Walker and Williams Inv. (British) www.wwig.hu
Airport City (Vecsés) 65 Ablon Kft. (international) www.bc30.hu
Spar Centre (Üllő) 60 Spar Magyarország (Austrian www.interspar.hu
Aldi Centre (Biatorbágy) 60 Hofer Magyarország Ltd (German) www.aldifoods.com
High Tech Park (Budapest) 60 Ablon Ltd (international) www.bc30.hu
Spirál Center (Budapest) 54 GTC (Polish, Israeli) www.gtc.hu
Budai Skála (Budapest) 46 ING real estate Ltd. (Dutch) www.ing.com
ProLogis Park (Szigetszentmiklós) 44 ProLogis (USA) www.prologis.com
Prologis Park (Hegyeshalom) 40 ProLogis (USA) www.prologis.com
Origo City (Budapest) 38 Magnum Hungária (German) www.rm.hu/hu/origo.php
Shopping City M3 37 BSR, Sybill Holding (Israeli) www.bsr.center.hu
Capital Square (Bp) 33 Hochtief development (German) www.hochtief.com
Arena Corner (Budapest) 30 Raiffeisen real estate plc (Austrian) www.raiffeiseningatlan.hu
Népliget Center (Budapest) 28 Skanska (Swedish) www.nepligetcenter.hu
Haller Garden (Budapest) 32 AIG/Lincoln (USA) www.aiglinclon.com
Korzó (Nyíregyháza) 10 UniCredit Leasing plc (Italian) www.unicreditleasing.hu
Source: Real estate yearbook 2007, Világgazdaság (World economy) 2008
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5 Civil Engineering Market
2007 was the year of moderation in civil engineering
The value of construction industry performance started to increase in 2004 in civil engineering, due to the speed-up of motorway construction, on the one hand, and the environmental protection EU obligations, on the other hand. The proportion of civil engineering exceeded 30% of the whole construction output in 2005-2006 and approached half of the construction industry output. The budget deficit and the Convergence Programme slowed down the pace of increase of the previous period at the end of 2006 and moderated it by 2007.
The speed-up of civil engineering and its two digit pace of increase (our earlier prognosis) fell victim to cut-downs in the budget. As a consequence of the Convergence Programme, public procurement tenders had to be decreased in 2007 by 31% (3446 processes) and by 10% in their value (1521.3 billion HUF at current price), as compared to 2006, including several infrastructural developments.
Construction industry ouput current price
BLN HUF BLN HUF 3 000 3 000 CIVIL ENG.
2 400 2 400 BUILDING CONSTR.
1 800 1 800
1 200 1 200
600 600
0 0 2002 2003 2004 2005 2006 2007
The picture is not so dark if we survey the value of civil engineering investments under preparation and in the stage of planning, or those delayed at the beginning of 2008. Their analysis in terms of projects, in comparison with the previous period shows that there were circa 250 large projects (more than eighty above 300 million Euro) in the stage of planning or preparation at the end of 2007 and the beginning of 2008. In the same period of the previous year only half of this value was in a similar position.
Present investments: pieces of a puzzle come together in the long run
The motorway network reached a central European level in the last five years. While its length was 534 km at the end of 2002, it increased to 1012 km by the end of 2007. The cost of motorway constructions has significantly decreased, due to the stricter rules of tendering and the more modern technological requirements: it is 6-9 million Euro/km at the 2007 price.
This speed of road construction does not mean the elimination of the negative consequences of increased car and lorry traffic transferred from the railway to public roads. Even though the city leadership tried to alleviate the problem by traffic regulation, e.g. lorry stop. The increasing problems, arising at the planning stage slow down completions just like route planning, compensation costs and
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other social tensions. Ongoing developments therefore often resemble puzzles – the efforts, the engineering work and linking the different motorway sections do not easily yield results.
We must mention among completed sections – pieces of the “puzzle” – of expressways the Danube bridge in Dunaújváros (1683 m), completed in 2007, and the 1872 m long viaduct at Köröshegy at a height of 87m, handed over in the second half of the same year as part of the M7 motorway. The North-Danube bridge of the M0 is under construction and will be handed over in the second half of 2008 (it consists of three reinforced concrete and two steel passages, its total length being 3.9 km, with 100m high legs). At the foot of the latter bridge, at the Northern edge of Budapest an already existing, huge industrial park will immediately profit of the advantages of the new bridge that is going to keep out a large part of the lorry traffic passing through the city. The study plans for the Western (Transdanubian) continuation of the North M0 bridge, the completion of which may take 5-10 years. The traffic will still pass through the existing, obsolete, narrow roads leading in and out of Budapest for many years yet.
A 79 km motorway was built in 2007. A 77.5 km motorway section is going to be built of circa 0,8-1 billion Euro value in 2008, together with the already mentioned Northern Danube bridge. The new pieces of the motorway network of Hungary in 2008, the Eastern section of M0 (27 km), M6-M Érd plateau (10.6 km), M7 Balatonkeresztúr - Nagykanizsa (36.2 km), M7 Mura bridge, M70 Tornyiszentmiklós - Slovenian border. Most important among the motorway constructions started in 2008 – another 100km in total – are the following: the two success projects in PPP construction, the M6 Szekszárd - Bóly (49 km) and the M60 Bóly – Pécs (30 km), the M43 Szeged – Makó section and the enlargement and modernisation of the South sector of M0. This latter would free city Szeged of the suddenly increased transit lorry traffic coming from and heading towards Romania.
Besides the privatisation of the goods transport in 2007 there was little change in railway development. The similar transformation of the passenger transport has not yet been done, this is unprofitable at present. There are modernisations on the Hungarian sections of the IVth and Vth European corridor (Boba-Ukk Zalaegerszeg, Szajol-Mezőtúr-Gyoma, Budapest Ferencváros-Vecsés- Cegléd, Komárom-Győr), along 422 km.
The railway gradually loses ground as compared to public road transport. This can be changed by the suddenly increasing Europe-Asia railway goods transport that already passes through several countries (Finland, Germany, Slovakia, Hungary, Romania). One of the possible routes for this East- West goods transport (Russia, China, other Asian countries) leads through Záhony at the Hungarian- Ukrainian border. There was a government decree in 2007 on industrial and logistics developments in the Záhony region (130 million Euro). The advantages of Záhony are: the EU border, goods stopped and transloaded because of the change from normal to wide railway. Záhony can be made suitable for the processing of primary materials and energy sources from the East in the EU (creation of workplaces in the region, added value increasing industrialisation, regional development possibility) and the further transportation of these products. The so-called VO railway line relieving Budapest (Cegléd-Dömsöd-Adony-Pusztaszabolcs, 484 km, 2 billion Euro) could be built for heavy goods transport coming from East to Záhony.
The largest Hungarian city transport project, the Metro 4 in Budapest has been going on for a year now, its value is 2,1 billion Euro. Circa 5 km of the 14 km tunnel was completed by spring 2008, the construction of all eleven stations has been started, the drill reached two of them. The whole construction is in circa 30% of readiness. The government and the local council of the capital signed an agreement about financing – there are promising preliminary agreements about a mainly EU
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Air transport implies the continuous capacity development of Ferihegy Budapest Airport. 14 new gates, 48 thousand m2 new terminals and a new parking place for 2400 cars are built by 2010. The present 9 million passenger traffic is increased to an annual 20 million. There will be an important logistics and commercial juncture near Ferihegy. Cities outside the capital also prepare for cargo reloading and offering logistics, hotel, conference and other services: Veszprém (12 million Euro) and Sármellék (8 million Euro) by 2009, Szeged (12 million Euro) by 2010 and Siófok-Kiliti (4 million Euro) by 2012.
River goods transport is increasingly important, 8 of our 13 large intermodal logistics centres connect to the Danube. Although the state of the riverbed causes problems, these could be avoided by greater maintenance expenditures and damming. The development of the two major ports and logistics centres (Győr-Gönyű and Budapest Csepel Szabadkikötő) is continuous.
Regarding the actual tasks of water economy and environmental protection we must say that environmental protection programmes start from 2006 facts and aim at 2015 target values. Thus the number of dwellings that can be connected to the common sewer grows from the present 67% to 80%, the proportion of biologically cleaned waste water from 69% to 100%, the proportion of dwellers provided with good quality drinking water from the present 75% to 96%, and the proportion of the population adequately protected against floods grows from 41% of the affected population to 71%.
The South-Pest sewage farm on Csepel Island is the biggest environmental project in Hungary. The 429 million euro investment to be completed by 2010 will handle 350 thousand of the 600 thousand cubic metre daily waste water of Budapest. The construction of the main collecting sewage in Buda- side of the Danube started at the beginning of 2008 as part of the construction works.
The water resources of the country are of good quality; global warming and the great droughts necessitate its long-term economic use. This is how the so-called Vásárhelyi plan, a new model of managing of floods came into being. Due to the more frequent floods on the Tisza and Danube rivers, eight flood protection reservoirs were planned to be built in East Hungary as part of the Vásárhelyi plan, for the protection of water resources. Besides the reduction of the water level of Tisza, these reservoirs point towards a new environment economy in the affected regions. Works started in 2005, a reservoir was built in Cigánd, but the completion of the programme was delayed in 2007. The maintenance of the 1500 km flood protection dam system is insufficient, on account of limited resources.
The supply, processing and effective use of energy sources imply important construction tasks. The present debates on the routes of Trans-European energy transport lines have not yet settled, the world market price of energy sources is also unknown. The reduction of our energy demands is difficult to attain. Hungary imports almost 70% of the energy production sources. The energy production system requires a large amount of gas import. The nuclear power plant in Paks provides almost 40% of the electricity produced, while the further electricity demand is provided by natural gas power plants.
However, Hungary must prepare for the more efficient use of energy sources in the long run. The low efficiency fossile power plants must be modernised or replaced. The production capacity of the nuclear power plant in Paks can be ensured by the closing down of old blocs and the introduction of new ones.
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Besides the greater, ongoing energetics investments and modernisations (e.g. electricity producing, 2400 megawatt capacity, 1.5 billion euro gas investment on the North Plain, the modernisation of the Power plant in Mátra; Dunaferr group, Dunaújváros: 150 megawatt, 150 million euro power plant investment; 300 million euro MOL development at the Duna Refinery; E.On: enlargement of the gas reservoir in Zsana), the investors plan a further 3 thousand megawatt gas power plant capacity in Gyulaháza, Almásfüzítő, Gönyű, Mohács and Vásárosnamény. These will function with full capacity between 2009 and 2015.
It is a responsibility arising from the EU membership to develop the present 4.1% renewable energy resources by five times until 2020. Pannergy company signed agreements with 14 local councils for the production of geothermic energy as part of renewable energy resources. The resources necessary for the use of wind, solar and hydroenergy as well as geothermic energy and the production of biomass have all been included in the 2nd National Development Plan.
Years to come: hopes for a speed-up with EU sources
The budget designed for Hungary in the 2nd National Development Plan approved by the EU in June 2006, is a total of 33.6 billion euro for 2007-2013. The use of this source prescribes a compulsory 15% ’matching financing’ from the Hungarian budget. Almost 35-40% of the sum covering seven years – circa 15-16 billion Euro - is realised in the civil engineering sector, half of it in the transport operative programme (www.nfu.hu; www.gkm.gov.hu). The size of the sums is shown by the fact that an annual 3.5-4 billion euro is used for civil engineering (Buildecon Forecast table, Euroconstruct November 2007). The priorities of financing are:
Table 13 Priorities and funding of transport projects - Mln Eur
Priority Fund EU State Total
Enhancing the intl road access of national, regional centres Cohesion 1 183 209 1 392 Enhancing the intl railway and water access of the country Cohesion 1 721 304 2 025 Enhancing regional accessibility ERFA* 1 527 270 1 797 Connection of transport types, development of the intermodality ERFA 152 27 179 and transport infrastr. of economic centres Development of urban and agglomeration community transp. Cohesion 1 559 275 1 834 Providing technical help Cohesion 82 14 96
TOTAL 6 223 1 098 7 321 *European Regional Development Fund Source: European Committee
The environmental protection and energetics projects to be supported by the EU and the Hungarian government are as follows: settlement cleaning programme (1,3 billion Euro), water quality and flood protection (0,7 billion Euro), nature protection (440 million HUF), energy efficiency (430 million Euro), renewable energy production (730 million Euro), sustainable living (30 million Euro), preparation, institutions (1,34 million Euro).
The following prioritised large projects require the consent of the EU in 2008:
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Table 14 Financial demands of major civil engineering projects - Bln HUF [Mln Eur]
Project Value
First stage of Metro 4 262 [1 100] Development of the electric railway in Miskolc 30 [120] Development of the electric public transport in Szeged 23 [100] Development of the tram network in Debrecen (line 2) 17 [70] Development of the MÁV GSMR security system 56 [220] The Southern sector of the M ringroad 75 [230] Extension of tram line 1 and 3 in Budapest 23 [92] Enhancing drinking water quality on the North Plain 60 [240] Enhancing drinking water quality on the South Plain 8 [30] Mecsek-Dráva waste management project 19 [80] Sopron - Szombathely - Szentgotthárd railway line modernisation ... Kelenföld – Székesfehérvár railway line modernisation ... Szolnok-Debrecen railway line ...
Summary: the high budget deficit, the responsibilities of the Convergence Programme and the decrease of budget sources for investments slowed down the pace of infrastructural developments by the end of 2006. 52 new road development projects are launched in the second half of 2008 (strengthening the load). The commencement of large projects within the Transport Operative Programme of the 2nd National Development Plan (public procurement, tendering, apply for the support of EU funds) and of unique transport and environmental protection large investments is postponed to 2009. These can be jointly financed by EU and domestic budget sources. Infrastructural developments will gain power in the second half of 2008 the earliest, or rather 2009, in the case of a successful Convergence Programme.
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APPENDIX - DEFINITIONS
A suggestion of some of the items that might benefit from a definition
Table 1 ▪ Population, Households: number of people at the beginning of the year ▪ Unemployed and unemployment rate: Hungarian Central Statistical Office, at the end of the year
Table 2 ▪ Construction output includes construction industry, non-construction organizations, DIY activity. The total volume of construction output is equal to the construction part of the yearly investment, without VAT.Source: Hungarian Central Statistical Office
Table 3 ▪ Definition of 1+2 family dwellings vs flats: one-family houses and twin-houses vs. 3 or more residential unit-houses ▪ Housing stock: at the beginning of year ▪ Second homes – no data ▪ Vacancies – estimations: 300-500 000 residential units ▪ Home ownership rate: number of residential units owned by individuals
Table 4a ▪ Education buildings: schools, hostels, universities, high schools ▪ Health: local health centres, hospitals, clinics, social buildings for disabled, elderly homes ▪ Industrial: factories, workshops, R&D centres ▪ Storage: warehouses, logistical buildings ▪ Offices: public and private administrative buildings ▪ Commercial: shops, supermarkets, shopping malls, hypermarkets, DIY centres, etc. ▪ Agricultural: buildings for agricultural use, animals and store ▪ Miscellaneous: culture, church, sports etc.
Table 4b ▪ Other transport includes bridges, airport, harbour construction
Table 5 ▪ Stocks, Volume Private consumption, Public consumption, etc: at market prices, VAT excluded
Extra ▪ VAT: excluded at 20% rate Sources: Central Statistical Office (KSH), Hungarian National Bank (MNB), Archigram, GKI Economic research, ICEG, Kopint-datorg, E-Build, Eston Market Reports 2007, Home Cente, Buildecon data collection
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Country/Pays/Land: Hungary Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 10 096 10 075 10 064 10 049 10 035 10 020 10 000 Bevölkerung
Households ('000s) Ménages 3 870 3 880 3 890 3 900 3 900 3 910 3 910 Haushalte
Unemployed ('000s) Chômeurs 253 306 317 311 325 320 310 Arbeitslose
Unemployment rate (%) Taux de chômage 6.1 7.2 7.5 7.4 7.8 7.7 7.3 Arbeitslosenquote
Change of GDP Variation du PIB 4.9 4.2 3.9 1.3 2.7 3.2 3.8 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 6.8 3.6 3.9 8.0 6.0 4.3 3.7 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 4.8 4.2 7.1 6.3 6.0 5.0 5.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 11.1 6.7 7.0 7.5 7.7 6.8 5.6 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 8.2 6.6 7.2 6.7 7.4 6.5 5.4 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Hungary Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 2 050 18.5 -9.0 -17.0 4.0 2.0 2.0 3.0
Logement Renovation 1 200 14.0 10.0 10.0 8.0 8.0 10.0 10.0
Wohnungsbau Total 3 250 17.3 -4.1 -8.9 5.5 4.2 5.1 5.8
Non-residential construction New 3 100 -10.0 12.0 10.0 3.0 3.0 5.0 5.0
Bâtiments non résidentiels Renovation 1 000 -4.5 5.0 6.6 3.0 3.0 5.0 5.0
übriger Hochbau Total 4 100 -8.6 10.2 9.1 3.0 3.0 5.0 5.0
Building New 5 150 2.8 1.1 -2.6 3.4 2.6 3.8 4.2
Bâtiment Renovation 2 200 4.2 7.6 8.4 5.7 5.7 7.8 7.9
Hochbau Total 7 350 3.1 2.8 0.4 4.1 3.5 5.0 5.4
Civil engineering New 2 400 26.5 16.0 -8.0 -14.3 2.0 5.0 8.0
Génie civil Renovation 767 14.0 20.0 0.0 -25.0 2.0 5.0 8.0
Tiefbau Total 3 137 23.2 17.0 -6.0 -17.2 2.0 5.0 8.0
TOTAL CONSTRUCTION OUTPUT 10 517 9.1 7.6 -1.9 -3.4 3.1 5.0 6.2
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 3.50 4.3 2.4 11.8 -15.0 10.0 15.0 10.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 251,31 HUF
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Country/Pays/Land: Hungary Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 24.2 22.1 18.2 18.0 17.0 17.0 18.0 Baugenehmigungen Familienhäuser
Flats Collectif 33.3 24.9 26.6 26.3 25.0 25.0 26.0 Mehrfamilienhäuser
TOTAL 57.5 47.0 44.8 44.3 42.0 42.0 44.0
Housing starts 1+2 family dwellings Logements commencés Individuel Baubeginne Familienhäuser
Flats Collectif Mehrfamilienhäuser
TOTAL* 42.0 40.0 40.0 40.0 40.0 40.0 42.0
Housing completions 1+2 family dwellings Logements terminés Individuel 22.9 20.6 18.0 18.0 17.0 17.0 18.0 Baufertigstellungen Familienhäuser
Flats Collectif 21.0 20.5 15.9 18.2 18.0 18.0 20.0 Mehrfamilienhäuser
TOTAL 43.9 41.1 33.9 36.2 35.0 35.0 38.0
Housing stock Logements existants 4 135 4 170 4 209 4 238 4 268 4 300 4 330 Wohnungsbestand
thereof second homes dont résid. secondaires davon Zweitwohnungen
thereof vacancies dont inoccupé davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 92.0 92.0 92.0 92.0 92.0 92.0 93.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report * estimation
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Country/Pays/Land: Hungary Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2, 000 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 110 -11.0 9.0 10.0 4.0 4.0 5.0 5.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 110 -5.7 15.0 8.0 2.0 2.0 5.0 5.0 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 750 800 -10.0 5.0 11.0 3.0 3.0 3.0 3.0 Industriegebäude
Storage buildings Bâtiments de stockage 380 550 -7.3 15.0 15.0 3.0 5.0 7.0 10.0 Lagergebäude
Office buildings Bureaux 700 650 -10.0 12.5 10.0 6.0 5.0 4.0 2.0 Bürogebäude
Commercial buildings Commerces 600 830 -14.2 18.0 15.0 6.0 4.0 4.0 4.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 150 680 -11.0 10.5 -10.0 -8.0 2.0 4.0 5.0 Landwirtschaftsgebäude
Miscellaneous Autres 300 -6.3 15.6 7.0 -3.2 -5.7 12.5 12.5 Sonstiges
Total 3 100 -10.0 12.0 10.0 3.0 3.0 5.0 5.0 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 251,31 HUF
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Country/Pays/Land: Hungary Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 1 200 25.0 20.0 -5.0 -20.0 5.0 7.0 10.0 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 200 33.0 33.0 0.0 -10.0 1.0 3.0 3.0 Bahnanlagen
Other transport Autres réseaux 300 -5.0 17.9 4.0 4.0 2.0 2.0 2.0 Übrige Verkehrsinfrastruktur
TOTAL 1 700 20.5 21.0 -3.3 -15.5 4.0 5.7 7.9
Telecommunications Télécommunications 400 10.2 7.0 -8.5 -20.0 0.0 5.0 5.0 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 800 38.5 17.0 -12.5 -18.0 1.0 7.5 10.0 Energie- und Wasserversorgung
Other Autres 237 19.9 10.0 5.1 -20.2 -5.8 -10.0 6.0 Sonstiges
Total 3 137 23.2 17.0 -6.0 -17.2 2.0 5.0 8.0
1) At 2007 prices, excluding taxes. 1 euro = 251,31 HUF
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Country/Pays/Land: Hungary Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 54.8 3.1 3.4 1.6 -0.9 0.5 1.9 2.5 Privater Verbrauch
Public consumption Consommation publique 21.6 0.9 0.2 1.1 -1.9 -0.5 1.0 0.5 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 21.1 7.6 5.3 -2.1 1.0 3.0 4.3 5.5
of which construction
Stocks (contribution as % of GDP) Variations de stocks 0.2 Vorratsveränderung
Exports Exportations 82.0 16.4 10.4 17.9 14.0 11.5 9.9 10.0 Exporte
Imports Importations 78.4 13.2 8.3 12.6 11.5 9.6 9.2 9.3 Importe
GDP PIB 100.9 4.9 4.2 3.9 1.3 2.7 3.2 3.8 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 251,31
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Annette Hughes [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
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1 Summary
Real GNP growth expanded by 4.5% in 2007 (GDP 5.3%), the slowest rate of growth in three years. Yet Ireland’s economy continued to outperform its European neighbours: Eurozone GDP growth was 2.6% in 2007 compared to 2.7% in 2006.
The Irish economy has not been immune to developments in international financial markets and the sub-prime mortgage crisis. Increasing cost pressures amongst Irish financial institutions are giving rise to higher interest rates and tighter lending criteria, making it difficult for both developers and home buyers to raise the necessary finance.
A number of economic indicators portray a deterioration in economic conditions. As a result growth forecasts for the Irish economy have being revised downwards over recent months, reflecting the full impact of the contraction in residential construction which has been underway since mid 2007. GDP growth is thus forecast to be almost negligible this year. With exchange rate movements implying weak prospects for export growth, overall GDP growth is forecast at only 0.2% this year. The forecast for 2009 assumes that the continued contraction in new residential construction acts as a drag on growth next year, resulting in a second below trend growth rate year in 2009, with GDP of 2.1%. Thereafter, as housebuilding recovers, GDP growth accelerates to 4.8% in 2010.
Table A: Key Macroeconomic Indicators for Ireland to 2010 – annual % changes
2005 2006 2007E 2008E 2009F 2010F
Real GDP 5.9 5.7 5.3 0.2 2.1 4.8 Unemployment Rate (Q4) 4.4 4.2 4.5 5.4 6.4 6.6 Consumer Price Inflation 2.5 4.0 4.9 4.0 2.7 2.5
Source: CSO to 2007. DKM estimates 2008-2010.
The value of output in the construction sector was estimated at approximately €37 billion in 2007, equivalent to 23.5% of GNP. The corresponding volume growth in construction output was 1.7%. This much lower growth, compared with previous years, represents the start of a new phase of the construction cycle during which growth is likely to be more modest and/or negative in some years, as the industry and economy adjust to the prospects of lower housing supply over the medium term.
Private sector construction in 2008 is dominated by the sharp contraction in new private housebuilding. As the housing adjustment works its way through, the construction sector is fortunate in having support from two other sectors where activity continues to expand: non-residential building and civil engineering activity. As a result the negative impact of the adjustment underway in the housing sector will be less than it might otherwise be. However, record levels of non-residential building and the slowdown in economic growth in 2008 and 2009 are likely to weaken the demand for private non- residential building activity over the medium term. It will thus be essential that the public sector investment commitments to social and productive infrastructure are met, ensuring that projects are completed on time, as the public sector may end up being the key driver of construction activity over the medium term.
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Table B: Medium Term Prospects for Residential and Non-residential Construction
2006 2005 2006 2007E 2008F 2009F 2010F
bn. Euro annual % chang e in volume of construction output
Residential Construction 22.7 12.1% 4.5% -8.8% -34.1% -10.8% 18.7%
Non-Residential Construction 11.5 2.6% 8.6% 24.3% 8.0% 6.3% 2.4% Total Construction Output 37.1 9.0% 5.8% 1.7% -17.7% -2.1% 9.7%
Source, Annual Review of the Construction Industry 2006 and Outlook 2006-2009, Department of the Environment, Heritage and Local Government, September 2007, with some updates for 2007, available at www.environ.ie. DKM estimates 2007 to 2010.
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2 Macro-economic Outlook
The Irish economy has done well over recent years, with average real GNP growth of 4.6% over the period 2000-2007, albeit well below the average growth rate of 8.1% over five years 1995-2000. Real GNP growth accelerated for the third year in a row in 2006 to 6.5% (GDP 5.7%), the strongest GNP growth since 2000. Real GNP growth expanded by 4.5% in 2007 (GDP 5.3%), the slowest rate of growth in three years. The main drivers of growth in 2007 were the industrial sector, where output expanded by 6.9%, the highest growth rate in five years, and the internationally traded part of the economy, with net exports increasing by 18.5% in volume terms.
Thus Ireland’s economy continues to outperform its European neighbours: Eurozone GDP growth was 2.6% in 2007 compared to 2.7% in 20061.
However, the Irish economy has not been immune to developments in the international economy, including the turmoil in international financial markets and the sub-prime mortgage crisis. More importantly for the Irish construction sector, financial institutions have been faced with increasing cost pressures. The result has been higher interest rates and tighter lending criteria, making it difficult for both developers and home buyers to raise the necessary finance.
The strengthening Euro against the US$ and sterling combined with higher oil prices are all factors expected to dampen Irish economic growth this year. Recent currency movements are expected to slow export growth but have also had a strong negative effect on the competitiveness of the Irish economy.
The key drivers of Irish economic growth in the recent past, notably consumption expenditure and residential construction, will be less evident as drivers over the next two years. Instead the key influencing factor on GDP in 2008 will be the deterioration in housebuilding, with new residential construction volumes forecast to decline by around 45% in 2008 from the peak level in 2006. The negative trends in consumer confidence, as evident in the latest IIB/ESRI consumer sentiment index, combined with lower earnings and employment growth are likely to result in a significant moderation in consumer spending growth in 2008. The growth in employment this year is expected to less than 1% compared with an annual average of 3.3% over the period 2000-2007.
Recent trends in Ireland’s key economic indicators are summarised below.
The latest IIB/ESRI Consumer Sentiment Index was at an all time low in April, continuing its downward trend since January 2007. The Survey’s trends indicate that consumers are nervous about the Irish economy and are less inclined to make major purchases over recent months. Consumers are particularly concerned about job losses, rising food and energy prices and the prospects for the housing sector. The labour market continues to perform well, despite a moderation in total employment growth since the peak around mid-2005 (5% year-on-year). Annual employment growth slowed to 3.2% in the year to Q4 2007, compared with 4.4% one year earlier. The labour force reached 2.24 million in Q4, 2007 (Sep-Nov), up 3.6% on the corresponding quarter in 2006. At the same time the unemployment rate increased to 4.5% in Q4 2007, up slightly from 4.3% twelve months previously. A further deceleration is expected in employment growth during 2008, as the impact of the residential slowdown works its way through the economy.
1 Eurostat website http://epp.eurostat.ec.europa.eu/ Long Term Indicators, Economy & Finance. 7th April 2008.
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Further evidence that some of the buoyancy has left the economy is apparent from the trend in Exchequer returns in the first four months of 2008. The most recent figures show an Exchequer deficit of €3.7 billion in January-April 2008 compared with a deficit of €638 million in the same period of 2007. Total tax revenues were €735 million or 5.3% short of the official profile. Total receipts were down by 3.2% in the first four months (of which tax revenues were down by 6.5%). Tax revenues are likely to remain under pressure over the coming months. The annual rate of consumer price inflation (CPI) was 4.3% in April down from 5% in March, with the strongest annual rates recorded by housing, Water, Electricity, Gas and Other Fuels (+9.7%) and food and Alcoholic Beverages (+8.1%), notwithstanding a surprising zero contribution to the total CPI monthly percentage change in April (0.1%) from Food and Alcoholic Beverages. However, international commodity prices, particularly oil and food remain stubbornly high. The downturn in the residential construction sector has intensified compared with our last Euroconstruct report in November.
However, most analysts acknowledge that 2008 is a year of transition for the Irish economy as the impact of the adjustment to more normal levels of housebuilding activity works its way through the economy. While the difficulties in the international economy may prolong this adjustment, the Irish economy is fundamentally well placed to continue to expand over the medium term. To put this in context, Davy have recently estimated Ireland’s potential growth at between 3.5% and 4% per annum between now and 2011 versus 2% to 2.5% in the Euro area2.
The deterioration in economic conditions has led to growth forecasts for the Irish economy being revised downwards over recent months, as the full impact of the contraction in residential construction is taken into account. GDP growth is thus forecast to be almost negligible this year, with domestic demand expected to decline by 2.3%. With exchange rate movements implying weak prospects for export growth, overall GDP growth is forecast at only 0.2% this year. The forecast for 2009 assumes that the continued contraction in new residential contraction acts as a drag on growth next year, resulting in a second below trend growth rate year in 2009, with GDP of 2.1%. Thereafter, as the housing adjustment ceases and housebuilding recovers, GDP growth accelerates to 4.8% in 2010.
Table A: Key Macroeconomic Indicators for Ireland to 2010 – annual % changes
2005 2006 2007E 2008E 2009F 2010F
Real GDP 5.9 5.7 5.3 0.2 2.1 4.8 Real GNP 4.9 6.5 4.5 0.2 2.0 4.5 Private Consumption 7.3 5.7 5.4 3.0 2.5 4.0 Unemployment Rate (Q4) 4.4 4.2 4.5 5.4 6.4 6.6 Consumer Price Inflation 2.5 4.0 4.9 4.0 2.7 2.5
Source: CSO to 2007. DKM estimates 2008-2010
2 http://www.davy.ie/content/pubarticles/beyondhousing20080226.pdf
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3 Construction Sector
A Review
The Irish construction industry is fundamentally cyclical in nature. The performance of the Irish construction sector since 1994 is a classic example of a boom where almost all of the broad indicators for the sector increased substantially above their average trend growth rates. The average annual growth in construction output over the period 1994 to 2006 was 8.6% compared with annual average GNP growth over the period of 6.6%. This was an exceptionally long phase of expansion.
Ireland’s unprecedented expansion in construction output has been driven by particularly strong growth in new residential construction, support by a buoyant economy, strong population and employment growth. The same factors led to the strong growth in private non-residential construction, while a historical infrastructural deficit necessitated a rapid growth in public sector construction projects.
Recent developments in the construction sector have been heavily influenced by the downturn in new residential construction. This comes as no surprise, given that new residential construction output accounted for almost two-thirds of total new construction output in 2005 and 2006. The contraction in new housebuilding, which has been underway since the middle of 2007, led to the first decline in house completions in 2007 since 1993. The total number of new dwellings built peaked at 88,219 in 2006 but declined by almost 12% in 2007 to 78,027 units.
The value of output in the construction sector, based on the estimates prepared for this Euroconstruct report3, was estimated at approximately €37 billion in 2007, equivalent to 23.5% of GNP compared with less than 20% in 2000. The estimate for the volume growth in construction output last year was 1.7%. This much lower growth, compared with previous years, represents the start of a new phase of the construction cycle during which growth is likely to be more modest and/or negative in some years, as the industry and economy adjust to the prospects of lower housing supply over the medium term.
Looking at the National Accounts estimates for 20074, the volume of building and construction output declined by 1.4% last year5, the first decline in construction output volumes since 1993. Looking at the composition of output, the CSO figures reveal a sector in which total volume of new housebuilding declined by 11.7% (or by almost 9% when housing renovation is included) while non-residential building and construction (private and public) performed strongly, increasing by 17% in volume terms. Thus the slowdown in residential construction last year was almost offset by the performance of the non-residential sector.
The early projections for 2008 indicate a sharp acceleration in the rate of decline in overall construction output this year to around 18%, reflecting the unprecedented decline in new residential construction of around 45%. This will be the first decline in total construction output volumes since 1993.
3 These estimates are consistent with the methodology used for ascertaining construction output in the Annual Construction Industry Review and Outlook (CIRO) document produced by the Department of the Environment, Heritage and Local Government. 4 Source: Central Statistics Office. 5 This figure excludes transfer costs. When the latter are included the annual rate of decline was -3.3% in 2007. The CSO figure is an estimate and the official outturn for 2007 will be published in July 2008. The CSO measure of construction investment excludes expenditure on minor repairs and maintenance, which is included in the CIRO measure.
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Reflecting the modest decline in construction investment in 2007, the annual rate of growth in construction employment in 2007 dropped below the rate of total employment growth in the rest of the economy for the first time in five years. The numbers employed in construction increased by only 1.1% in the June-August quarter (Q3) of 2007 compared with growth in employment across the rest of the economy of 3.7%. Construction employment growth declined year-on-year in the September- November quarter (Q4) by 2.2% compared with growth of 4.1% across the rest of the economy. The corresponding numbers employed in the sector stood at 279,000. With house completions expected to fall to around 43,000 this year, our preliminary estimate for the numbers employed in construction by Q4, 2008 is 245,000, down from 279,000 in Q4 2007. Employment in construction is likely to be lower again by the end of 2009 as housebuilding weakens further next year.
Figure 1: Construction Employment Growth versus Total Employment Growth (Annual % growth year-on-year by quarter)
21% 137,100 18% Construction 284,600 employed Rest of economy employed 15%
12%
9%
6%
3%
0% 279,000 employed -3%
1998Q4 1999Q1 1999Q2 1999Q3 1999Q4 2000Q1 2000Q2 2000Q3 2000Q4 2001Q1 2001Q2 2001Q3 2001Q4 2002Q1 2002Q2 2002Q3 2002Q4 2003Q1 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4
The very competitive nature of the construction industry combined with the weakness in new housebuilding last year led to downward pressure on tender prices. Average tender price inflation was in the range of -1% to 0% for general contracting work6, leaving tender price inflation well below construction cost inflation. Construction costs continue to escalate: average earnings in the construction sector increased by 6% last year; and building materials inflation, on average, was 5.3% in 2007 and 4.2% year-on-year in February 2008. With the expected sharp contraction in new housebuilding this year, these trends are likely to continue, with tender price inflation for general contracting work forecast to decline by 2.5% to 3%.
6 According to figures published for 2007 by Bruce Shaw and Davis Langdon PKS.
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4 Housing Market
It was widely acknowledged for some time that the rate of housebuilding in the Irish economy was unsustainable over the medium term. At the peak in 2006, the Irish housebuilding sector was building at a rate of 21 units per 1,000 of the population, compared with an average of only 7 units in Western Europe.
Recent developments have seen housebuilding activity and transactions levels slow very sharply since the end of 2006. Looking at the various housing indicators that are available, mortgage lending, house prices, housing registrations (i.e. starts), and completions have all recorded volume declines since 2006 when the industry built a record level of 88,219 units and mortgage lending reached almost €40 billion. The total number of dwellings built (i.e. completions) in Q1 2008 was down by 30% on the same quarter in 2007.
The housing market is currently characterised by one in which there are high levels of unsold stocks, both of new and second-hand properties. As a result average house prices were down by 9.5% in March this year on their peak in January 2007. Despite the decision by the ECB to leave Eurozone interest rates unchanged on 9th April, mortgages rates have been rising due to the credit squeeze, which is also adversely impacting on potential buyer’s ability to raise funds. Moreover, while difficulties persist in the banking sector, there is no guarantee that any reductions in ECB rates over the coming months will be passed on to potential housebuyers. It is clear that confidence in the housing market is currently at a low level, with further house price reductions expected over the coming months. This is mirrored in the more general consumer sentiment measures for the economy, with the latest ESRI/IIB Consumer Sentiment Index at an all time low in April.
In contrast to the above trends, private housing rental growth reached 9.2% year-on-year in March, evidence that the demand for housing remains strong, despite the reduced level of purchases in the market.
The one encouraging indicator is planning permissions, where recent trends support a recovery in housing supply over the medium term. The total number of units granted planning permissions was up by 7.2% in 2007 to 84,400. Houses granted planning permission increased by 4.7%, while the number of apartments increased by 15%. The number of one-off housing units granted planning permission amounted to 18,555 units at the end of 2007.
The leading indicator of housing supply, housing registrations (i.e. starts) shows the total number of units registered declined by 64% in the first four months of 2008. This does not augur well for the level of new supply in 2008 and 2009. Figure 2 shows the annual running total for registrations each month up to April 2008. The figures are adjusted to include one-off housing, which is not included in the registrations. As of April 2008, the annual total for registrations, including an estimate for one-off housing, was estimated at around 35,000. Adjusting the registrations further for an estimate for public sector completions (6,000), which are not included in the registrations, and taking account of the lag between registrations and completions, the forecast for housing supply is 43,000 in 2008 and 35,000 in 2009.
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Figure 2: Trend in Dwelling Registrations (i.e. housebuilding starts)
90,000
80,000 Peak i n Sep t ' 06 70,000
60,000
50,000
40,000
30,000 Jun-06 Oct-06 Jun-07 Oct-07 Feb -07 Feb -08 Apr-06 Dec-06 Apr-07 Dec-07 Apr-08 Aug-06 Aug-07
Beyond 2009, we would expect a recovery to more sustainable levels of supply in 2010 with supply forecast at 45,000. However, a more rapid rebound in economic activity beyond 2009 could result in stronger employment growth and a higher housing supply.
Private sector construction is dominated by the contraction in new private housebuilding. As the housing adjustment works its way through, the construction sector is fortunate in having support from two other sectors where activity continues to expand: non-residential building and civil engineering activity. As a result the negative impact of the adjustment underway in the housing sector will be less than it might otherwise be.
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5 Non-residential Market
The private non-residential construction sector has done exceptionally well over the past three years 2005-2007. Activity levels increased strongly each year in response to the positive performance of the economy and the particularly strong growth in employment and consumer expenditure. Both factors are key drivers of the volume of non-residential buildings put in place, particularly in regard to retail and office buildings and buildings required to accommodate the growth in consumer, business and personal services.
Evidence for the strength of the non-residential construction sector can be seen from data on planning permissions, which show an acceleration in the annual growth in the total floor area granted permission for non-residential buildings (public and private) over the period 2004 to 2007.
Figure 3: Planning permissions granted for non-residential buildings Total floor area (000s square metres)
+50% 9,314
+26% 6,223 +16% -1% -1% +8% 4,959 4,261 4,016 3,966 3,935
2001 2002 2003 2004 2005 2006 2007E
Source: Central Statistics Office Percentages indicate annual growth rates.
The exceptional growth rate in 2007 (+50%) reflects strong growth in the total planned floor area for agricultural buildings (+133%), buildings for transport (+34%), offices (+20%) and industrial buildings (+11%). Farmers are currently investing substantial amounts in new farm buildings to conform to legislative requirements under the Nitrates Directive and cross compliance, as well as addressing environmental issues. Further strong growth is also expected this year.
Activity in the commercial market continues to grow strongly. A significant volume of retail space is due onstream this year. One agent has estimated that over 390,000 m2 of retail space is under construction across the country, one-third of which is due for completion this year, with the remainder due in 2009 and 20107. While this should ensure a good pipeline of construction work out to 2009/2010, the exceptional level of retail space already put in place nationwide over the past decade, combined with the prospects for lower consumer spending and a rise in unemployment over the next two years, are likely to give rise to concerns about the market’s ability to sustain much further growth in retail development.
7 Ireland Retail Report, January 2008, Jones Lang LaSalle
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The last two years has seen exceptional levels of new office development. One agent has calculated that 2007 represented the second highest year for new office space completed in Dublin since 2001. With more office space completed in Q1 2008 than in the whole of 2006, the same agent has predicted that building activity in 2008 will exceed the 2001 peak with around 346,000 m2 of office space expected to be built in Dublin this year8. As a result the growth forecast for the volume of office construction output is 20% in 2008, followed by a more modest 10% in 2009. However, the impact of the economic slowdown in 2008 and 2009 will mean lower employment growth, which is likely to lead to a lower demand for new office space from existing firms. Moreover, the exceptional level of office building put in place over the five years 2005 to 2009 combined with the prospects for lower demand may make it difficult to sustain the current rate of office building. Accordingly we expect the volume of office building to decline by 10% in 2010.
A similar prognosis is likely for the industrial market although the growth in construction activity levels has been more subdued compared with the commercial market.
There are a number of mixed-use developments planned, or in for planning, in Dublin and other major urban areas, a number of which intend to provide office, retail, hotel, cultural and residential buildings. Such schemes, provided they are in good locations, are likely to continue to support non-residential construction over the next eighteen months.
The prospects for public non-residential building output are covered in Section 6 below. Table 4a contains the forecasts for the main categories of non-residential building. It shows that non-residential building output is projected to decline by almost 5% in 2010 following a deceleration in the rate of growth in 2008 (+17%) and 2009 (+7%).
8 Dublin Office Market Update April 2008, Lisney Research.
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6 Public Sector Construction
Public sector construction consists of investment in social and productive infrastructure.
Social infrastructure includes investment in public housing, educational buildings, hospitals, Government buildings and public sporting facilities. Productive infrastructure captures investment in civil engineering projects, which are largely funded by the public sector. It includes spending on the national and non-national road network, water services, airports, seaports and harbours, as well as investment by the respective Semi- State organisations responsible for transport, energy and telecommunications.
The next Table shows the extent of public investment committed to social and productive infrastructure since 2004 with the estimated provision for 2008. While the total PCP figure also includes non-construction related capital investment such as, for example, investment in information technology, public transport vehicles, hospital equipment and the purchase of sites and buildings, the trends give a good sense of the scale of public capital investment committed to infrastructure over recent years. The estimated provision for 2008 is €12.2 billion, over one and a half times the corresponding allocation in 2004. Following an exceptional increase of almost 30% (nominal terms) in 2007, the 2008 provision is forecast to rise by a further 13%.
The importance of this public sector investment cannot be overstated. At a time when the construction industry is undergoing a sharp adjustment with respect to residential construction, the public sector provision has a key role to play in supporting activity levels in the construction sector. It is thus essential that the full public capital provision is spent this year and that all public sector projects are brought to the construction stage as quickly as possible. As the scale of private housebuilding weakens, investment in public sector construction will account for an increasing share of total construction output.
Table C: Public Capital Investment in Social and Productive Infrastructure (2004-2008E, million euros, current prices) % change Social Infrastructure 2004 2005 2006 2007P 2008E 2008/2007
Housing 1,524 1,546 1,612 2,181 2,476 +14% Education 488 558 675 828 842 +2% Health 504 516 502 659 715 +9% Government Construction 773 848 939 1,031 1,528 +48% Sub-total 3,289 3,468 3,728 4,699 5,561 +18% Productive Infrastructure Transport 2,334 2,448 2,647 3,992 4,153 +4% of which Roads 1,732 1,810 2,043 3,009 2,459 -18% Public Transport 392 497 447 684 1,089 +59% Airports 86 109 132 251 492 +96% Other Transport 123 31 25 48 113 +136% Environmental Services 530 548 655 713 732 +3% Energy 1,489 1,249 1,188 1,281 1,542 +20% Telecommunications/RTE 45 39 70 68 186 +174% Sub-total 4,398 4,284 4,560 6,054 6,613 +9% Total Public Infrastructure 7,687 7,752 8,288 10,753 12,174 +13% Annual % change (nominal) -1.1% 0.8% 6.9% 29.7% 13.2% Total PCP* 8,442 8,560 9,386 11,679 13,738 +18% P = provisional outturn E = estimate * Includes adjustment for carry-over from 2007 to 2008 Data includes capital provision for all capital investment, not just construction projects. Source: Public Capital Programme, February 2008.
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Looking in more detail at the major areas of public investment planned for 2008:
The level of investment in roads is now on a par with the level of investment in public housing – representing a combined investment which corresponds to 36% of the total PCP. If public transport (€1.1 billion) is included with the roads provision, an area where investment has scaled up substantially in recent years, the transport and housing share would increase to 44%. The two next largest categories are Government construction and Energy, which account for €3.1 billion between them or 22% of the total PCP provision. The next three categories - Education, Health and Environmental Services – account for €2.3 billion or almost 17% of the total provision.
The 2008 PCP contains the following major provisions for capital expenditure this year:
A record level of investment in public housing (c. €2.48 billion) including €1.86 billion investment in local authority and social housing provision. This investment will continue to facilitate the delivery of the Government’s key priorities for public housing: 1) the commencement or acquisition of 27,000 new social homes over three years 2007- 2009 plus 2) some 17,000 affordable units over the same period. Thus in total the public sector plans to deliver (by new build and/or acquisitions) an average of almost 14,700 social and affordable units per year. The estimated output under both priorities was 12,400 in 2007. There will also continue to be an emphasis on location, quality, renewal and management of the public housing stock.
Investment in educational buildings is set to increase by only 2% in nominal terms, with the largest allocation for national schools (€390m). Investment in second level school is forecast to decline (-21%) while investment in third-level is up strongly (+26.5%). The investment in third level tends to be supplemented by a substantial amount of non-grant aided investment by the private sector in educational buildings and facilities.
The PCP provision of €715 million for the health sector includes €567 million for hospitals and health facilities, a proportion of which will be spent on construction, the balance on equipment.
The provision for government construction captures a range of investment, including 1) investment by the Office of Public Works in new buildings and alterations to existing public buildings, 2) investment in recreational and cultural facilities by Arts, Sport and Tourism, 3) the construction of local authority offices, and 4) investment in ICT. There is an exceptional increase in the 2008 provision (+48%). Although not all of this is construction related and includes the purchase of sites and buildings, there are large increases in the allocations for Lansdowne Road Stadium (+151%) and OPW new building works (+32%). There is a substantial increase in the PPP allocation to €294m million, part of which (€178 million) is for major projects by Justice, including the new prison at Thornton Hall.
A total of €2.46 billion for national and non-national road investment or around €2.1 billion excluding an estimate for land acquisition costs. The main road projects to start this year will include the final four outstanding Major Inter-Urban routes (PPP schemes): - N7 Castletown to Nenagh (PPP) - N52 Tullamore Bypass - N7 Newlands Cross (PPP) - N18 Oranmore to Gort - N9 Carlow to Knocktopher Scheme (PPP) - N18 Gort to Crusheen - N9 Kilcullen to Carlow (PPP)
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A total of €1.1 million for public transport, comprising €693 million for CIE, €357 million for LUAS/RPA and €40 million for the DTO. CIE’s main projects this year will include the continuation of work on the Western Rail Corridor and the Kildare Route Upgrade Project, the commencement of work on the Cork-Midleton rail line, and Phase 1 of Navan to Dunboyne and the Interconnector Electrification Investment will continue to be made in railway safety, rail network resignalling, the Quality Bus Network and accessibility measures. The capital provision for LUAS covers the continuation of work on the Docklands extension and the Sandyford to Cherrywood extension; extension of the Tallaght Luas line; and the commencement of work on the Luas extension to Citywest.
The transport component also includes substantial investment in State airports of the order of €468 million (+89%), covering capital works primarily at Dublin Airport. This investment represents the second year of a €1.2 billion capital programme by Dublin Airport Authority, which includes the €600 million plus Terminal 2 project at Dublin Airport, due to open in April 2010.
Within the aggregate figure of €732 million for Environmental Services, investment under the Water and Sewerage Services Investment Programme is forecast to fall by 4% to €591 million while the provision for the other category included here, waste recycling and disposal facilities, is up by 47% this year.
The above figures suggest that public sector investment in infrastructure is expected to grow strongly in 2008 and will continue to support the construction sector while housing readjusts to a more sustainable level of activity.
The prospects for public sector construction in 2009 and 2010 will be determined by the provisions in the multi-annual capital programme which are assumed to be consistent with the planned investment in the National Development Plan 2007-2013 (NDP. Table D sets out the capital provisions for the main capital spending departments. Education (+38%) and transport (+32%) record the strongest growth in investment over the period 2008-2010. The latter reflects a continuation of the commitments to transport (roads, public transport and regional airports) outlined in the NDP and the Transport 9 Investment Framework, Transport 21 . Key elements of Transport 21 include the provision of a Metro North, a new metro line linking Dublin city Centre with Dublin Airport and the north of County Dublin; and Metro West, an orbital metro line connecting the west of the city with Metro north near Dublin Airport. Both projects have completions dates around 2013/2014, as well as seven LUAS projects for the Greater Dublin Area which are expected to be delivered over the lifetime of Transport 21 (i.e. by 2015).
The second largest allocation, in absolute terms, is for the Department of the Environment, Heritage and Local Government, with over €7 billion allocated for areas such as housing, water services, urban regeneration, libraries, and tourism related heritage projects. Less than one-third of this amount (€2.2 billion) has been allocated to the Department of Health and Children over the next three years for investment in hospital buildings and other related areas.
The total capital envelope is projected to increase by 21% in nominal terms over the period 2008-2010 which is equivalent to an average annual increase of 10.2% per annum. While this represents all capital investment, it suggests that the prospects for public sector construction related investment are
9 For further information on transport projects under construction and planned see http://www.transport21.ie
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reasonably healthy over the period to 2010, provided the Government continues to keep its commitment to spending on infrastructure.
The accompanying Tables 4a and 4b at the end of this report contain our projections for the main categories of public sector investment in construction projects. The figures also include private sector investment in the construction of education and health facilities, where such information is available, as well as capital investment by private sector companies involved in the energy and telecommunication sectors.
Table D: Projected Exchequer Capital Envelopes 2008-2010 for Main Spending Departments
2008-2010F 2008-2010F Shares Current prices, €m. 2008E 2009F 2010F Total % €m. % Change
Transport (Public Transport, Roads, 3,106 3,325 4,101 +32% 10,532 34% Seaports, Regional Airports)
Environment & Local Government (Housing, Water/Sewerage 2,263 2,445 2,520 +11% 7,228 23% Services, Non-national Roads, Tourism Heritage, Urban Regeneration)
Education & Science Primary, Secondary and 868 1,005 1,200 +38% 3,073 10% Tertiary Educational Infrastructure)
Health & Children (Hospital Buildings, 716 740 784 +10% 2,240 7% Furnishings & Equipment)
Finance/OPW (New Building Works, 422 467 392 -7% 1,281 4% Purchase of Sites & Buildings)
Arts, Sports and Tourism (Lansdowne Road Stadium, 331 246 315 -5% 892 3% Cultural Development, Grants for Sporting Bodies for Facilities)
Remaining Departments (#) 1,682 1,823 1,736 +3% 5,241 17%
Unallocated Reserve 0 310 350 660 2% Total Capital Envelope 9,388 10,361 11,398 +21% 31,147 100%
Of which Exchequer PCP (*) 9,088 9,409 9,542 +5% 28,039 90%
Non-Exchequer PCP (Investment by Semi-State 4,524 N/A N/A Companies and Agencies; Local Authorities’ own resources; State Airports (e.g. Terminal 2); Borrowings/EU Receipts)
Total PCP (incl. PPP) 13,612 N/A N/A
Exchequer PCP as % of GNP 5.5% 5.4% 5.1%
Value % change in Exchequer 13.1% 3.5% 1.4% PCP
Source: Multi-annual Capital Investment Framework, Public Capital Programme 2008. (*) The difference between the total capital envelope and the Exchequer PCP provision is accounted for by PPP/NDFA capital investment and the unallocated reserve. (#) Comprises eight Government Departments, the largest of which in capital investment terms, would be Enterprise, Trade and Employment, Agriculture and Food, and Justice. These three departments would account for over three-quarters of the total capital provision for the eight departments
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7 Overall Construction Output
Taking the overall prospects for each sector of the construction industry (Table 2), the total volume of construction output is forecast to decline sharply in 2008 (-18%) with only a modest reduction forecast for 2009 (-2%), after which output volumes in the sector are projected to increase by almost 10%, as housing supply recovers. Thus overall output in the construction sector is projected to decline by almost 12% over the period 2007-2010 or by 4% per annum on average. This is a more pessimistic forecast than the projection presented in November 2007 and reflects both the deterioration in economic conditions as well as the much greater adjustment now underway in residential construction.
Table E: Construction Output in Republic of Ireland Projected Cumulative Percentage Change in Volume 2007- 2010
2010 2007-2010 Average 2007 Output Volume Cumulative Annual% Share % Index % Change Change 2007=100
NEW Residential Construction 48% 58 -42.3% -16.6% R&M Residential Construction 13% 113 13.3% 4.2% Sub-total Residential 61% 70 -30.2% -11.2% NEW Non-Residential construction 17% 119 18.7% 5.8% R&M Non-Residential Construction 4% 109 8.5% 2.7% Sub-total Non-Residential 21% 117 16.7% 5.2% made up of Total Building NEW 65% 74 -26.2% -9.5% Total Building R&M 18% 112 12.2% 3.9% Total Building 83% 82 -18.1% -6.4% Civils NEW 14% 121 21.3% 6.6% Civils R&M 3% 109 8.5% 2.7% Total Civils 17% 119 18.9% 5.9% Total Construction Output 100% 88 -11.7% -4.0%
Total NEW Construction Output 79% 82 7.4% -6.2%
With confidence in the construction sector at an all time low in regard to both current activity and new order levels10, there are likely to be downside risk to this forecast which assumes that housing recovers in 2010:
The level of residential construction in 2008 may be less than projected if builders who have registered to build units decide to postpone those starts, resulting in completions being below 43,000 this year. The slowdown in economic and employment growth this year may weaken activity levels in the private non-residential sector over the next twelve to eighteen months more than envisaged in this projection. This would leave the public sector as the main driver of construction activity over the medium term. The tightening credit situation, currently confined to the residential property development sector, could spill over into the non-residential sector, resulting in the postponement or cancellation of non- residential schemes.
10 The latest Ulster Bank Purchasing Managers Index (PMI) for construction in April 2008 recorded the lowest reading for the index since the survey began in June 2000 (released 12th May 2008).
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However, if the rebound in economic activity in 2010 is more robust than anticipated, the pick up in residential construction in 2010 may be stronger than envisaged in this forecast. Public sector construction is not immune from the economic cycle, and the negative impact on Exchequer revenues during an economic slowdown is already apparent. Nonetheless, it is essential that the public sector investment commitments to social and productive infrastructure are met, ensuring that projects are completed on time, as the public sector may end up being the key driver of construction activity over the medium term.
Figure 4: Construction Output by Sector in Ireland to 2010
225 New Residential 205 New Non-Residential R& M Bu i l d i n g 185 All Civil Engineering 165 Tot al 145 125 105 85 65 45 2004 2005 2006 2007 2008 2009 2010
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APPENDIX – DEFINITIONS
Table 1 Population: figures represent the number of people in April each year in line with the published figures from the 2006 Census of Population with estimates for 2007 from the Central Statistics Office (CSO). 2008-2010 population figures are interpolated using the CSO’s most recent set of Population and Labour Force Projections 2011-2041 published in April 2008. Households: figures are the 2006 estimated household figure from the 2006 Population Census for April 2006 and are estimated by DKM for the later years based on forecasts for average household size for the period 2007-2010. Unemployed and unemployment rate: figures are taken from the Quarterly National Household Survey (QNHS) carried out by the Central Statistics Office which is based on the ILO labour force classification. Figures quoted relate to the Q4 Survey which covered the September-November period.
Table 2 Figures presented show the value of construction output in 2007 (€m.) and the annual percentage changes in volume over the period to 2010 (in constant 2007 prices). The figures up to 2007 are consistent with the official figures published by the Department of the Environment, Heritage and Local Government in September 2007 in the Annual Construction Industry Review 2006 and Outlook 2007- 2009 (CIRO), apart from minor adjustments for more up to date information. The report is available at www.environ.ie. The next Annual CIRO will contain the official outturn for construction output 2007 and will e published in July 2008. The value of new construction output is defined as the value of work put in place on the construction of buildings and structures and on civil engineering and land improvement projects. Output is valued inclusive of VAT at the building services rate where this is chargeable or, in the case of output of non- VAT registered bodies including direct labour units and individuals, output is valued inclusive of VAT on material inputs. Data which would allow the exclusion of deductible VAT is not readily available. Professional fees, expenses and site supervisory costs are included in the value of output. New construction output includes the value of all site development work, but excludes land costs and repair and maintenance expenditure. Except in the case of housing, expenditure on major alterations, improvements and additions to existing buildings and structures (e.g. the installation of new central heating or air conditioning systems, the addition of floor area, rooms etc) is considered as new construction output. In the case of housing, investment expenditure of this type is assigned to repair and maintenance output.
Table 3 Building permits refer to the number of dwelling units granted planning permission. Source is the quarterly series on planning permission produced by the Central Statistics Office. Housing Starts provide data on ‘registrations’ which are the number of registrations (units the builder intends to start building) by builders who are either affiliated to the National Housebuilding Guarantee Company Limited or Premier Guarantee, the two providers of new homes insurance. The data presented in Table 3 have been adjusted by DKM to include an estimate for one-off houses, which are not included in the published registrations figures. We adjust the registrations figures by adding on an estimate for the proportion of one-off houses granted permission from the planning permissions data. This gives a more comprehensive estimate of total housing starts and a better leading indicator of house completions in the pipeline. The figures also exclude approximately 5,000 to 6,000 public sector units which are completed each year.
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The Housing Stock figure is based on figures from the 2006 Census for the total inhabitable stock (1,769,613 at April 2006). That Census estimated the stock of second homes and the number of vacant dwellings. The housing stock figure is estimated for other years using the completions data and an estimate for the obsolescence rate of 0.5% of the housing stock, equivalent to approximately 9,000 units per annum. The Home Ownership figure is also taken from the 2006 Census which showed it had fallen to 75% by April 2006 from 80% in April 1996 and 76% in April 2002. We have assumed that the rate remains unchanged over the forecast period.
Table 4a There is no separate data available for investment in storage or warehouse buildings. This is included under industrial buildings. For the purposes of illustration we have assumed that the value of storage buildings in 2006 represented 33% of total industrial buildings. The annual growth rates for both categories are the same. ‘Miscellaneous’ includes expenditure on the construction, improvement and repair and maintenance of various heritage type centres, national monuments, inland waterways; work carried out by local authorities on local authority offices, public libraries, special amenity projects and urban renewal works; churches and investment made by the Department of Arts, Sports and Tourism on sports infrastructure and facilities in the public sector.
Table 4b Other transport includes investment in airports, ports and harbours.
Table 5 Figures on GDP and its composition for the years 2004-2007 are the official estimates (only preliminary estimates for 2007) for National Accounts published by the Central Statistics Office, available at www.cso.ie . Figures for 2008-2010 are DKM estimates.
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Country/Pays/Land: Ireland Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 4 045 4 134 4 240 4 339 4 429 4 519 4 609 Bevölkerung
Households ('000s) Ménages 1 406 1 454 1 503 1 550 1 587 1 617 1 657 Haushalte
Unemployed ('000s) Q4 (Sept-Nov) Chômeurs 86 92 90 101 124 147 154 Arbeitslose
Unemployment rate (%) Q4 (Sept-Nov) Taux de chômage 4.3 4.4 4.2 4.5 5.4 6.4 6.6 Arbeitslosenquote
Change of GDP Variation du PIB 4.3 5.9 5.7 5.3 0.2 2.1 4.8 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 2.2 2.5 4.0 4.9 4.0 2.7 2.5 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 8.0 5.6 6.5 3.0 -2.0 2.0 3.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 4.7 4.0 4.0 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.0 3.3 3.7 4.2 4.0 3.75 4.0 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Ireland Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 17 793 11.2 13.4 2.6 -12.1 -44.9 -18.6 28.6
Logement Renovation 4 934 9.6 6.3 13.8 5.4 4.9 3.9 4.0
Wohnungsbau Total 22 727 10.9 12.1 4.5 -8.8 -34.1 -10.8 18.7
Non-residential construction New 6 393 -0.9 13.2 11.2 33.7 16.6 6.8 -4.7
Bâtiments non résidentiels Renovation 1 580 5.7 0.9 10.2 14.5 2.0 2.1 4.2
übriger Hochbau Total 7 973 0.7 10.1 10.9 29.4 13.6 6.0 -3.1
Building New 24 186 8.8 13.4 4.1 -3.3 -28.6 -7.6 12.0
Bâtiment Renovation 6 514 8.7 5.0 13.0 7.5 4.2 3.5 4.0
Hochbau Total 30 700 8.8 11.8 5.7 -1.2 -21.7 -4.5 9.5
Civil engineering New 5 234 -3.9 -6.3 2.7 23.4 0.9 7.9 11.3
Génie civil Renovation 1 197 8.2 3.9 20.0 1.3 2.0 2.1 4.2
Tiefbau Total 6 431 -1.9 -4.5 6.0 18.6 1.1 6.8 10.0
TOTAL CONSTRUCTION OUTPUT 37 131 6.8 9.0 5.8 1.7 -17.7 -2.1 9.7
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 5.10 8.7 9.0 3.1 3.0 -10.0 -2.0 7.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Ireland Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 69.6 75.7 60.0 62.8 60.0 63.0 65.0 Baugenehmigungen Familienhäuser
Flats Collectif 32.1 23.7 18.7 21.6 20.0 22.0 20.0 Mehrfamilienhäuser
TOTAL 101.7 99.4 78.7 84.4 80.0 85.0 85.0
Housing starts 1+2 family dwellings Logements commencés Individuel 61.0 62.3 66.0 37.0 20.0 30.0 35.0 Baubeginne Familienhäuser
Flats Collectif 17.3 16.5 20.5 13.0 10.0 12.0 15.0 Mehrfamilienhäuser
TOTAL 78.3 78.8 86.5 50.0 30.0 42.0 50.0
Housing completions 1+2 family dwellings Logements terminés Individuel 60.8 67.0 69.4 59.0 31.5 25.0 35.0 Baufertigstellungen Familienhäuser
Flats Collectif 16.1 19.2 18.8 18.7 11.5 10.0 10.0 Mehrfamilienhäuser
TOTAL 76.9 86.2 88.2 77.7 43.0 35.0 45.0
Housing stock 2) Logements existants 1 606 1 686 1 770 1 831 1 859 1 890 1 930 Wohnungsbestand
thereof second homes dont résid. secondaires 50 davon Zweitwohnungen
thereof vacancies dont inoccupé 216 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 76.0 76.0 75.0 75.0 75.0 75.0 75.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report 2) Includes an estimate for one-offs not normally in the published figures for registrations/starts; excludes public sector units.
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Country/Pays/Land: Ireland Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 652 6.0 4.5 1.5 5.7 4.3 12.5 15.9 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 258 -12.3 6.3 -38.2 18.8 10.6 -0.1 2.7 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 575 3.2 8.9 1.2 18.2 3.5 2.6 4.5 Industriegebäude
Storage buildings Bâtiments de stockage 283 3.2 8.9 1.2 18.2 3.5 2.6 4.5 Lagergebäude
Office buildings Bureaux 1 092 -20.0 40.0 26.0 28.8 20.0 10.0 -10.0 Bürogebäude
Commercial buildings Commerces 951 15.0 25.0 20.5 8.2 10.0 5.0 -10.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 695 28.1 0.7 54.6 141.3 50.0 10.0 -10.0 Landwirtschaftsgebäude
Miscellaneous Autres 1 886 -3.8 5.7 16.4 56.5 16.8 5.2 -7.5 Sonstiges
Total 6 393 -0.9 13.2 11.2 33.7 16.6 6.8 -4.7 Insgesamt
1) At 2007 prices, excluding taxes. 2) Figure for Storage Buildings is estimated at 33% of Industrial Buildings. Industrial Buildings figure excludes Storage Buildings. 3) Tourism, Public Buildings, Public Sports facilities, Churches, Local Authority investment in Offices, Libraries, Urban Renewal projects. The Republic of Ireland does not collect data on m2
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Country/Pays/Land: Ireland Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 2 952 -3.2 4.4 7.5 37.6 -16.7 3.6 17.4 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 570 -35.3 -22.2 -12.0 65.6 33.0 3.6 17.4 Bahnanlagen
Other transport Autres réseaux 290 6.8 -4.5 10.5 54.7 65.1 30.3 0.5 Übrige Verkehrsinfrastruktur
TOTAL 3 813 -11.2 -1.3 4.7 42.4 -3.0 7.1 14.7
Telecommunications Télécommunications 269 1.1 -12.1 15.2 -15.0 2.4 2.1 4.2 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 2 349 9.7 -6.8 6.3 -3.3 7.7 7.0 3.9 Energie- und Wasserversorgung
Other Autres Sonstiges
Total 6 431 -1.9 -4.5 6.0 18.6 1.1 6.8 10.0
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Ireland Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 90.3 4.1 7.3 5.7 5.4 3.0 2.5 4.0 Privater Verbrauch
Public consumption Consommation publique 27.7 1.5 4.0 5.3 6.7 4.5 3.0 3.0 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 47.0 6.9 11.8 3.1 0.2 -16.7 -2.5 11.5
of which construction 36.5 7.7 10.1 5.6 -3.3 -22.9 -4.3 11.8
Stocks (contribution as % of GDP) 2) Variations de stocks 1.0 0.1 0.8 -0.1 -0.1 0.5 0.5 0.5 Vorratsveränderung
Exports Exportations 150.5 7.3 5.2 4.4 8.2 5.5 4.5 5.0 Exporte
Imports Importations 130.8 8.5 7.7 4.4 6.4 2.3 4.0 6.0 Importe
GDP PIB 185.8 4.3 5.9 5.7 5.3 0.2 2.1 4.8 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 2) Includes statistical discrepancy of €1.075m. Published figure for GNP is €185.8 billion.
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ITALY CRESME Ricerche Spa www.cresme.it
Antonella Stemperini e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
ITALY
1 Summary
The performance of the national economy in 2007 felt the effects of the changed general macroeconomic conditions that spread throughout the main industrial systems from the United States after the second half of the year. Growth in GDP was +1.5%, lower than previous estimates owing to a slowdown in the main economic indicators that was more marked than that recorded in most European countries. As happened in 2006, the growth in GDP in 2007 was driven by international trade and higher private domestic demand. From 2006 and until the first half of 2007 there was a phase of growth that was modest but characterised by public expenditure restraint and rises in household consumption, investments and foreign trade. From the second part of 2007, however, the favourable climate that had led to optimistic medium-term estimates began to be affected by some international factors. Two above all: the deterioration in the sector of international finance, connected with the property market and the strong tendency for raw materials prices to rise as a consequence of the price of oil. These are the main trends for 2007: consumption sparked up again, rising by 1.4%. Overall investments slowed down to a marked extent (only +1.2% after growth of 2.5% in 2006), feeling the effects of the worsening in the climate of business confidence from the second part of the year. Exports went on rising more than imports, thus making a contribution, however marginal it was, to the overall increase in GDP. There was a positive move in employment in 2007 and, as regards inflation, in spite of the acceleration in the second half of the year, the mean rate was lower than in 2006 at +1.8%. The expectations for 2008 have become decidedly worse, leading to an estimate of a GDP increase of only half a point. There are three main factors for this setback: financial market volatility, higher prices of raw materials and energy and a strong euro. The forecasts for 2009 and 2010 are a little more optimistic: owing to a relaxation of the tensions on world markets, GDP might rise by 0.9% in 2009 and go over 1% in 2010 (+1.5%).
For the construction sector, 2007 was seen to be a year of substantial stability (0.1%), while the zero growth estimated for the two subsequent years becomes a drop of about 2%. The recent macroeconomic developments, with a GDP that disappoints growth expectations, a consumer climate affected by reduced spending power and industrial investments under strain, are factors that have reshaped the trends for the sector between 2007 and 2010, which can be summarised as follows:
the recession phase of new housing construction is now under way, starting with -2.5% in 2007 and continuing at high rates of decrease: -6.3% in 2008, -8% in 2009 and -7% in 2010; in 2007 the economic scenario, which was still positive overall, sustained growth in the non- residential sector (+1%), but this was a short lull, destined to end during the current year if the present economic conditions persist. At this moment, the most plausible scenario points to a fall of -1% in 2008 and the same in 2009, while the sector is expected to recover in 2010, thanks above all to R&M works; 2007 was a year of growth for civil engineering (+0.6%), which, thanks to new worksites connected with work contracted between 2004 and 2006, will liven the very weak market throughout the three-year period from 2008 to 2010. New infrastructures above all will at least partially make up for the crisis in new housing and the fall in non-residential investment, at expansion rates that will gradually become brisker (+1.7% in 2008, +2.5% in 2009 and +3.2% in 2010).
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2 Macro-economic Outlook
The performance of the national economy in 2007 felt the effects of the changed general macroeconomic conditions that spread throughout the main industrial systems from the United States after the second half of the year. Growth in GDP was +1.5%, lower than previous estimates owing to a slowdown in the main economic indicators that was more marked than that recorded in most European countries. The downward revision of the growth rate does not alter any features of the economic cycle: the picture is confirmed of a national economy that saw higher growth rates in 2006 and 2007 than those recorded in the period of stagnation from 2002 to 2005, returning to 2001 levels, but still remaining at a lower level from the point of view of a competitive comparison with the other European countries. The recovery was weak and short-lived, as the forecasts for 2008 show. As happened in 2006, the growth in GDP in 2007 was driven by international trade and higher private domestic demand. From 2006 and until the first half of 2007 there was a phase of growth that was modest but characterised by public expenditure restraint and rises in household consumption, investments and foreign trade. From the second part of 2007, however, the favourable climate that had led to optimistic medium-term estimates began to be affected by some international factors: the unfavourable situation in the United States (one of the main outlet markets for the Italian production system), ECB’s increase in interest rates (with consequent effects on Italian household access to credit) and the beginning of the crisis that involved some property markets. Above all two important phenomena appeared at the end of the year: after the American sub-prime market crisis worsened, there was a deterioration in the sector of international finance that was connected with the property market, with repercussions on access to credit for all operators; and the tendency for raw materials prices to rise grew noticeably stronger as a consequence of the price of oil, which went above 100 dollars a barrel, with effects spreading from the energy chain to the food chain.
The details of the various production segments show that the trend in 2007, still positive overall, was due to a good performance by services (monetary and financial intermediation and property and business activities) and construction, while manufacturing was far less brilliant than in 2006 and there was stagnation in agricultural added value. As regards demand, as has already been mentioned, consumption sparked up again, rising by 1.4%. Overall investments slowed down to a marked extent (only +1.2% after growth of 2.5% in 2006), feeling the effects of the worsening in the climate of business confidence from the second part of the year. Exports went on rising more than imports, thus making a contribution, however marginal it was, to the overall increase in GDP. There was a positive move in employment in 2007, and the expectations are for a further rise in 2008. According to the Italian statistical institute (ISTAT) there were 23.3 million people in employment at the end of the year, a rise of +1.3% (+1.3% male and +1.4% female). The employment base, therefore, goes on enlarging, encouraged by limited increases in labour costs and the opportunities connected with flexible forms of contract, but also by the important phenomenon of illegal labour coming into the open, an issue that involves certain sectors (construction particularly). It was this increase that sustained the growth of added value against a very marginal part played by productivity, both the “apparent” productivity of labour and that of production factors. The unemployment rate went on falling, but Italy’s employment rate, 58.7%, is still the lowest in old Europe and a long way from the 70% set by the European Union at Lisbon. As regards inflation, from the end of 2006 and until May 2007 consumer prices slowed down thanks to the fall in energy tariffs and some government measures to protect consumers and to promote competition (cuts in the cost of closing current accounts, the abolition of the fee to replenish mobile phone accounts, the unrestricted sale of self-medication and off-the-counter products in supermarkets). Even if oil price quotations were tending to go up, the inflationary tendencies of the energy sector were not pronounced because the euro was gaining value and some administered tariffs, such as central heating gas, were falling. There was also some moderate growth in some basic
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ITALY components of inflation, such as non-food articles, and a low rate of increase in the prices of private services. Throughout the first half of 2007 falling inflation was accompanied by rising salaries, therefore encouraging a climate of confidence in the household. The scenario changed at the end of the summer as a result of two main factors: tensions in the food market with inflation returning to figures of above 5% (as a consequence of rises in the international quotations for some raw materials and tensions within the European market, such as those related to the milk market price) and rises in the price of fuels and in heating gas tariffs. In spite of this acceleration, the mean rate of inflation last year was lower than in 2006 at +1.8%. Finally, as a central factor in the interpretation of the performance of the economy in 2007, one must mention the result of action taken to reduce the budget deficit and public debt, with the deficit again under the European limit (1.9% after 3.9% in 2006), a primary surplus of over 3% and a fall in the public debt and GDP ratio from 106.5% in 2006 to 104%.
The expectations for 2008 have become decidedly worse, leading to an estimate of a GDP increase of only half a point. There are three main factors for this setback: financial market volatility, higher prices of raw materials and energy and a strong euro. These are all factors that penalise the Italian economy, both as regards imports of energy products and exports (which, however, should go on increasing in 2008 in spite of the appreciation of the euro, even if not as brilliantly as before: +2.8% against 5% in 2007). The increase in investments is also expected to be moderate, at +0.6% (+1,2% in 2007), as a result of a fall in the construction sector (-2.1%) and transport vehicles and less advantageous financial terms. Inflationary pressure and a worse climate of confidence help to blacken the scenario: these are two factors that hold back household consumption, which is only expected to rise by 0.7% in 2008. Food market tensions are destined to continue. Wheat prices remain at the 2007 maximum levels. Inflationary tensions are also spreading to a large number of commodity categories along their various supply chains. There is expected to be a rise in prices in the market for non-food products also in 2008. The same applies to the energy market: electricity and gas still have to incorporate the increase in oil prices, and will therefore do so during the course of the year. If oil remains at the same levels as those it touched in the first five months of the year, the price increase phase is expected to last until 2009. Furthermore, with inflation travelling at a higher speed than nominal salaries and a consequent loss in family spending power, expectations of future inflation might be conditioned and workers might feel that they have to try to incorporate both the recovery of the greater past rate of inflation and of greater expected future inflation in the next labour agreement negotiations. Higher pay demands now could, therefore, lead to higher prices tomorrow, stoking up a price/salary spiral.
The forecasts for 2009 and 2010 are a little more optimistic. Owing to a relaxation of the tensions on world markets, GDP might rise by 0.9% in 2009 and go over 1% in 2010 (+1.5%). If the prices of raw energy materials also fall back to their levels before the recent peaks, inflation might go down (+2.5% in 2009 and +2.3% in 2010) consequently encouraging household expenditure (+1.2% and +1.6% during these two years). Furthermore, the process of reorganisation that industry has been carrying forward for years should gradually lead Italian products to the attainment of higher quality standards, generating higher exports as a result of competitiveness factors other than price. If a more favourable rate of exchange is added to this, there may be an acceleration in exports (+3.2% in 2009 and +3.5% in 2010). More favourable export performance and an improved climate of confidence stimulates gross fixed investment (+1.2% in 2009 and +1.8% in 2010), especially in the machinery and equipment sector. From 2009 onwards quickening manufacturing activity should stimulate employment and an unemployment rate that should continue to fall in the last two years of this forecast scenario (5.8 and 5.7%).
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3 Construction Sector
As we have seen, the pessimistic revision of the macroeconomic scenario reduced the dimensions of the growth phase of the economy in 2007 that had started in 2006 after a period during which the Italian economy had been on the verge of recession. While the construction industry played an anti- cyclical role throughout this phase, countering the pronounced setback experienced by all the other industrial sectors, recent years have tended oftener and oftener to see this sector growing less than GDP, and that will become negative from 2008 onwards within an economy that will remain stagnant at least until 2009. 2007 was seen to be a year of substantial stability in the construction market (0.1%), but some internal dynamics are changing while the zero growth estimated for the two subsequent years becomes a drop of about 2%. The recent macroeconomic developments, with a GDP that disappoints growth expectations, a consumer climate affected by reduced spending power and industrial investments under strain, are factors that have reshaped the trends for the sector between 2007 and 2010, which can be summarised as follows: the recession phase of new housing construction is now under way, starting with -2.5% in 2007 and continuing at high rates of decrease: -6.3% in 2008, -8% in 2009 and -7% in 2010; in 2007 the economic scenario, which was still positive overall, sustained growth in the non- residential sector (+1%), but this was a short lull, destined to end during the current year if the present economic conditions persist. At this moment, the most plausible scenario points to a fall of -1% in 2008 and the same in 2009, while the sector is expected to recover in 2010, thanks above all to R&M works; 2007 was a year of growth for civil engineering (+0.6%), which, thanks to new worksites connected with work contracted between 2004 and 2006, will liven the very weak market throughout the three- year period from 2008 to 2010. New infrastructures above all will at least partially make up for the crisis in new housing and the fall in non-residential investment, at expansion rates that will gradually become brisker (+1.7% in 2008, +2.5% in 2009 and +3.2% in 2010).
These are the tendencies that can be made out at the moment, but they are subject to further review. In fact the interpretation of the Italian construction cycle has been based since last year on a combination of data that are not always concordant or linear, which has made the picture complex, even it depends on some key factors: the first is the extent of the slowdown in the residential property market and its relationship with the production of new dwellings, namely the relationship between demand and supply after several years of growth in this market. In this context, great importance will be assumed by migration flows and ECB decisions on interest rates, but, above all, by what happens to the dwellings that have not yet been sold; the second is the public works sector. In this field, there has never been a time of greater contradictions than 2007, when the information contained in public finance documents speaking of an actual boom in new investment came into conflict with the setback that was perceived in the production sector. The public finance documents published in 2008 put matters right to a certain extent, and are the basis for the growth trends in the years to come. The fundamental themes for public works will be the continuation of the efforts to provide funds for the works in progress and also action to overcome the inefficiency of the bureaucratic machine, which often holds back the process of the completion of a public work by delaying its funding (a typical example is the Brescia- Bergamo-Milan motorway link: the contract was signed in 2002 but work will only start in 2009). The new government, however, has made the resumption of activity on infrastructures one of its key political themes; the third is the capacity for recovery of the two weakest driving forces of the first years of the millennium: non-residential building and demand for R&M activity. The positive signs that were
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forecast for both these sectors in 2007 are meagre, and the recent worsening in economic fundamentals leads one to put the beginning of a new market phase still further back; and much will depend on the measures that the new government that has just been installed adopts in order to increase household spending power (there is talk of abolishing tax on overtime, abolishing council tax on first homes and paying bonuses for newborn babies, all measures that will not bear on the 2008 accounts but that might be offset by a higher tax burden on banks, oil companies and perhaps insurance companies and the elimination of waste in the public administration) and stimulate business investment; the fourth is the actors’ market strategy and, from this point of view, market trends in the last few years seem to speak clearly: the ability to take opportunities in foreign markets; to invent new products and technologies; to integrate services; to enter three new market-driving forces well prepared: public and private partnerships, management and the environment.
These are the factors that characterise the cycle in the construction sector that is opening with a new phase, that of the exhaustion of the “easy” new housing market.
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4 Housing Market
After 2006, which was another year of expansion sustained by the vitality of new building (+5.3%), 2007 opened a new phase in the housing sector. The overall result was a fall of under one point as a result of the first substantial decrease in new investment (-2.5%), which is destined to persist and become greater in the next three years.
By now, there is no mistaking the signs of a decline in the new production sector: even in the second half of 2006, after the boom phase in the first half-year, the number of sales went down by 2.3% in Italy as a whole and by 11% in the main cities in the metropolitan areas. At the end of 2007 the scenario was even worse than could be expected, the overall decrease in transactions being -4.6% (largely owing to the market crisis in provincial capitals, - 7% compared with -3.5% in other towns). The increase in the cost of money was enough to stop the property rush; all the other influencing factors, whether internal or external to the domestic economy, played a secondary role and, at most, either exacerbated or mitigated the effect of the credit squeeze. It is enough to see price trends: the eight years of sustained growth from 1999 to 2006 were not enough to slacken demand or put a brake on the absorption of greater and greater quantities of new dwellings. What slowed the market were the eight successive increases in the cost of money carried out by the ECB between December 2005 and March 2007, which caused the inter-bank refinancing rate to double from 2% to 4%, and, above all, an increase in interest rates on mortgages from below 4.5% between 2004 and 2005 to the present 5.9% at best and even to a rate of 6.5% practised by some banks.
Now the market is no longer kept up by interest rates that had not been so low in Italy since the 1960s, and the “normal factors” come into play, namely demographic trends such as migration as regards demand and new building and used homes as regards supply.
The main problem facing the property market now is the proportion of total sales of new homes: in 2000 they accounted for 28% of transactions, while in 2007, with 336,000 dwellings built (including those obtained from enlargements and those in non-residential buildings), the figure reached 40%. This means that the used homes market has already been at a standstill for at least two years at high asking prices. Furthermore, building licence data show that in 2008 another 285,000 dwellings will be completed (more than 330,000 if enlargements and dwellings in non-residential buildings are added), 5% fewer than in 2007, but still a high number. A look at the types of dwellings shows the increasing proportion of multi-family buildings containing small dwellings, an indicator of a market that is still driven by professional property agent promotion.
Table 1. – Number of house sales and new housing– 200 0-2007
House sales (OMI – Proportion of New residential Agenzia del territorio Used homes market sales of new construction* data) homes
2000 710,935 6.8% 198,458 2.9% 512,477 8.3% 27.90% 2006 867,348 1.3% 333,173 10.4% 534,175 -3.6% 38.40% 2007 827,775 -4.6% 336,316 0.9% 491,459 -8.0% 40.63%
Source: CRESME/SI calculations on OMI – Agenzia del Territorio data * includes homes obtained from enlargements and those in non-residential buildings
Finally, the strong driving force behind primary demand that was the basis for the boom of the preceding years has ceased. This was the demand expressed by a large number of small family units, the Italian baby boom and immigration, which reached its maximum level in 2002 with more than
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310,000 new households in one year, falling to 220,000 in 2006 and 210,000 in 2007. The effects of this demographic trend began to make their presence felt at the beginning of this year. In 2007, in fact, the number of completed homes will continue to grow; but growth was only a phenomenon of inertia, as is confirmed by investments and new buildings started, both lower in the same year, and by the forecast of a slowdown from 2008 onwards.
The decrease in new buildings has particularly involved 1+2 family dwellings, which have reacted a little earlier than higher density residential buildings; in fact there has already been a fall in the number of completed dwellings of this kind in 2007 (- 6%), compared with an increase of 3.6% in the number of multi-family buildings. On the other hand, the contraction forecast for 2008 (- 5%) is equal for both types.
If the new building scenario has not changed significantly from the forecast six months ago, there is a more substantial change in the residential R&M market, in which the growth estimated for 2007, 1.7%, has been revised downwards to 0.7%; more noteworthy still, a fall is expected in the two-year period 2008-2009 with recovery postponed until 2010. In fact it is thought that the altered economic scenario, with direct consequences on family income (less purchasing power) will be such as further to postpone the R&M activities that families put to one side during the expansion phase of the property cycle.
When economic conditions are more favourable, a substantial market will get into motion: Italy is a country that abounds in towns with a poor housing stock. The 2001 census counted 27 million homes, of which 21.6 million were occupied; it is estimated that about 10 million of these were built from immediately after the war until 1971. In the 14 largest cities and towns, the proportion of homes built during these 25 years rises to 50%, which means that more than half of the homes in our towns were built over a period of 25 years through poor town plans, of questionable architectural quality and with bad quality construction materials. This stock of buildings constitutes the field for the application for micro-refurbishment works, namely day-to-day household maintenance or renovation works. There is also scope for improvement works on large residential estates, often included in larger-scale urban regeneration plans, in which housing and non-residential stock meet and enter into contact with the key themes of integrated services, facility management and energy saving.
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5 Non-residential Market
The non-residential market, together with the R&M market, was described some months ago as being able to provide support for the construction market in the years to come. On the basis of the nature of this sector of activity, which is unlikely to be anti-cyclical (as is the case, on the other hand, for housing and public works), the growth expectations for the economy of this sector were that there would be a slight but fundamentally important expansion throughout the three following years.
The country’s economy, however, has taken a different course and investment in non-residential building in 2007 was limited (+1%), and in the next two years becomes negative again (-1.1% in 2008 and -1% in 2009). In 2010, when GDP growth should again go above 1%, the sector will start growing again too (1.3%), above all thanks to R&M activity. The slowdown in GDP at the end of 2007, with the consequent greater uncertainty perceived by economic operators, are the factors at the basis of new production that only grows by 0.8% and which, as the general scene darkens, will be affected by a far more substantial setback in the current year (-2.5%) which will continue in 2009. A modest recovery is expected in 2010.
The performance of the industrial sector, which represents more than one-third of new non- residential output with a volume of investment touching 9 billion euro, is the basic element in the stability of the market in 2007, and will be one of the fundamental elements behind the subsequent phase in which the entire market falls back. The last data from the property market confirm this scenario: in 2006, against an overall fall of 3.2% in non-residential property sales, transactions involving factories and industrial warehouses remained at the same level (+ 0.4%) as in 2005, which had been a year of brisk growth (+ 8%). In 2007, on the other hand, there was a significant fall in sales (-3.5%), which thus justify the expected decrease in new investments for the current year and throughout 2009.
The outlook for the commercial sector is much bleaker than six months ago: the expected recovery in 2008 will not be coming and we shall probably have to wait until 2010 to see the first favourable signs in a market in which there were more than 4% of transactions fewer in 2006 and 2007. But there will be a recovery in 2010, thanks for example to the logistics segment, where the market starts from an extremely inadequate position compared with other European countries, especially France and Germany, and which now shows promising signs of movement.
The substantial fall in investments in new agricultural buildings in 2006, -9%, follow other three years in which the sector retreated, showing that all construction sectors are affected by a weak economy.
The picture is the same in the offices sector, in which there will be three years of negative figures after a short period of expansion in 2007. This forecast is borne out by a fall of about 3% in office property transactions both in 2006 and 2007.
A trend of continuous growth, on the other hand, is recorded in the public buildings sector up to 2010 after the poor performance both in 2005 and in 2006. In fact it is thought that the players in these sectors of activity, mainly local authorities, are reacting against the present public expenditure cut situation, probably also thanks to the tendency to overcome the difficulty in finding alternative forms of finance. A procedure that is consolidating in the healthcare sector in particular.
In the light of the new figures, the non-residential R&M market remains the segment that is least permeable to the altered general conditions. This sector, which almost played the role of a “buffer” in
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ITALY the previous new construction slowdown phase, did not fall as much as the volume of new output, recording 0.4% growth, a performance that is confirmed for the whole period covered by forecasts, except for a short hiatus in 2009. The rate will tend to pick up from 2009 onwards, but the most important detail, to which commentators have now been drawing attention for some time, is the complexity of the R&M market (both residential and non-residential): this applies to everything from minor day-to-day maintenance jobs to urban regeneration plans and the facility management market. A segment that is destined to grow in the years to come is that of urban regeneration based on public/private partnerships and on new forms of negotiation between public and private entities. Or, on the model of the latest European models, suburb regeneration models based on the integration between construction, services and energy, the application of the life time value concept, the application of the concept of management and maintenance not of the building alone but of the district and the concept of balance between built-up area, environment and surroundings. These are new action models, founded on the integrated management of the district and of the urban transformation processes concerned: they are supply models that have the capacity to provide services to buildings, people and open spaces, public and social services that can be privatised, services to the quality of life and regeneration works.
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6 Civil Engineering Market
In 2007 the investments in the civil engineering sector amounted to more than 42 billion euro. The result for the year that has ended points to a slight recovery in this sector after the slowdown in the two-year period 2005 and 2006, with growth limited to +0.6%, and this only thanks to the injection of public funds for the State Highway Agency (Anas) and the State Railways (Ferrovie), but also to a rise in investments from local public transport network and state motorway operators and energy grid operators. The final figure for 2007, which takes into account the data in the General Report on the Country’s Economic Situation (May 2008) and the consolidated accounts of the main companies in the enlarged public sector (March/April 2008), is in line with the June 2007 estimate (+0.3%) and not with the pessimistic forecast in November (-1.1%) which was due to the climate of uncertainty regarding public funds that gives rise to no little difficulty in calculating investments in construction in the enlarged public sector. The elements that led to a revision of the forecast for 2007 also contributed to the updating of the medium-term trend. The new scenario outlined by Cresme shows 2006 as the year in which the downward cycle of the engineering works sector will close, followed by a new phase of gradual growth at least until 2010 (+ 1.9%). The basis for the expected growth is government action in the past few years, which has been trying to meet the strong demand for an improvement in the transport and logistics capacity of the Italian infrastructure system and to strengthen second level communications and urban and regional systems, acting on: • the important trans-European lines of communication on Italian soil, the network of motorways to the sea, the big airport hub systems and the routes that are of domestic importance, namely the Tyrrhenian and Adriatic corridors and communications from one side of the peninsula to the other; • shunt goods trains that support the main system and the decongestion of city communications junctions.
In support of government action is the Economic and Financial Planning Document for 2008-2012, with the Infrastructure Annex, approved in July 2007. This document sets out the order of priority for works during the period from 2008 to 2012, which are works selected from those included in the “Objectives Law Strategic Infrastructures Plan” and other planning instruments involving spending from ordinary resources or additional financing provided under Community and Italian regional policies (mainly among these, the works planned using European Structural Funds 2007-2013, the RFI (State Railways) and ANAS (State Highway Agency) “Plans Contracts” 2007-2011), on the basis of cost- benefit, environment and safety assessments. Works with a total value of 109 billion euro have been planned for the five-year period from 2008 to 2012, of which 104 billion for works included in the Objectives Law Plan, 34% of the total value of the entire Plan (310 billion euro in April 2008). The biggest share of the priority investments scheduled for the period from 2008 to 2012 goes to mobility infrastructures: 94 billion euro, 86% of the total value of the planned works, allocated to the enlargement of the road network (49 billion), railways (37 billion) and metro (8 billion).
Transport networks
In 2007 the whole of all infrastructures dedicated to transport absorbed over 25.6 billion euro, confirming the shares equal to 60% of the civil engineering market and to 13% of the entire construction market. The sector stopped growing in 2005 (-3.5%), and 2006 was a year of new fall, even if slight (-0.5%), as a result of a strong drop in railways (-4.3%), against a stability in the road sector. On the other hand, 2007 was a year of growth, above all as a result of the expansion phase in other transport modes (+9.5%), particularly for urban mobility infrastructures, higher investment in the national and local motorway and road system (+1%) and a recovery in railway transport infrastructures, even if the result in this segment remains unfavourable (-0.9%).
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In 2007 road works output was 13.5 billion euro, 1.4% more than in 2006. 59%, about 8 billion, was shared out among regional, municipal and provincial Authorities, while the remainder, 5.5 billion, went to road and motorway network operators. More substantial growth (+2.5%) is expected in 2008 owing to the postponement of some works that were originally expected to start in 2006, then in 2007 and are now due in 2008: they are some large-scale Objective Law projects for which funds are assured but that are held up by delays in contract negotiations. This applies to the Asti-Cuneo motorway link (1.9 billion euro), a work whose total cost has been covered for some time, but the agreement for which was finally approved in October 2007. Market growth in 2008 will be sustained by the continuation of the works on the Salerno-Reggio Calabria motorway, the Passante di Mestre (the Mestre motorway by-pass), the Variante di valico (the second A1 motorway carriageway between Bologna and Florence), the widening of the A4 from Turin to Milan and the addition of a third lane to the stretch of the A14 between Rimini Nord and Pedaso. Medium-term forecasts indicate growth in this sector that will be sustained above all by the expected starting of work on of various privately financed projects: Brescia-Bergamo-Milan direct link, Pedemontana Veneta and Lombarda, large- scale toll-road works, all situated in the North, and which will require an overall investment exceeding 8 billion. Private capital should sustain the road sector in the long term as well (at least until 2015), judging from the massive investment in public private partnership whose projects are now in the proposal selection or tender stage, among which are: • North and Centre - the south-west Biella motorway, the outer Milan eastern orbital road, the Broni- Pavia-Mortara Po valley road system, the Cremona-Mantua Po valley road, the motorway across the mid-Veneto section of the Po valley from Nogara in the province of Verona (VR) to the Adriatic sea (AMPV), the new Veneto system of orbital roads around Verona, Vicenza and Padua, the big Padua ring road (Circonvallazione orbitale di Padova), the regional motorway in the area south of the Po from Reggiolo-Rolo on the A22 to Ferrara Sud on the A13 motoway, the Orte-Venice freeway with the Mestre tunnel and the Perugia interchange system and the slip roads between the port of Ancona and the main long distance road system; • South - the San Vittore-Venafro-Isernia-Boiano-Campobasso motorway link, the road from Caianello on the A1 motorway to Benevento and the Ragusa-Catania road.
The trend for railway transport, which absorbed investments of over 8.5 billion euro in 2007, is less unfavourable than was expected in November. The final data, however, confirm that there was a slowdown (0.9%), recovery being expected from 2008 (+2.3%) continuing, at a lower rate of increase, until 2010. For this sector, medium-term growth is sustained by substantial investments in works in progress and the priority works specified in the 2007-2011 Programme Agreement signed in October 2007 and reviewed in March 2008. This is a colossal programme amounting to a total of 199 billion euro among works in progress (75 billion, 35 billion of which for the ordinary and 7 for the high- capacity network and 32 for the Turin-Milan-Naples high-speed/high capacity network), priority works to start (32 billion, 8 of which for the ordinary and 25 for the high-capacity network), other works to carry out (36 billion, 25 of which for the high capacity network), works planned to complete the programme (46 billion, 31 of which for the high-capacity network) and, finally, works finished at 31 December 2006 with a value of 11 billion. Among the main objectives of this programme agreement are to complete extraordinary maintenance works on the improvement and upgrading of the network and stations and to conform the system to new legal obligations; to improve network traffic safety and efficiency technology; to finish the high-speed and high-capacity Turin-Milan-Naples system; and to develop the ordinary network and the High-Capacity network with large-scale works to improve track within metropolitan areas and areas connected with European corridors.
A phase of expansion is forecast for the other means of transport at least until 2010 as an effect of the action taken to improve local public transport. In detail, in the medium term this sector will be
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helped by investment in the metropolitan transport systems of Turin, Milan, Brescia, Venice, Genoa, Bologna, Florence, Rome, Naples, Bari, Catania and Palermo. This sector is also stimulated by some large-scale port works, such as the strengthening of Civitavecchia, Taranto and Gioia Tauro hubs, all of them contemplating the completion of works by 2010.
Infrastructures for water, energy and telecommunications
In 2007 investments for an amount of about 13.5 billion, equal to 32% of the entire civil engineering sector and 7% of the output, are expected. In this case too, the final data for 2007, showing growth of 1.2% over 2006, is in line with the June 2007 forecast (+0.9%) and not with the pessimistic November estimate of 0.4%. The medium-term trend is confirmed: the growth rate for 2008 is 1% and for the two years 2009 and 2010 it is 2%. This investment growth scenario is sustained on one hand by the progress, even if slow and with marked differences from one area to another, of the investment plan to reorganise integrated water services, a plan that envisages investment amounting in all to more than 22 billion euro; and on the other hand by investments for growth in the energy sector made both by large national enterprises such as ENI, ENEL and Terna and also by local utilities such as the Lombardy A2A Group, created from the merger of ASM of Brescia, AEM and AMSA of Milan and the Rome ACEA Group. Negative performance in the telecommunications sector is also confirmed, at least until 2009, decreasing at rates of lower than -5% until 2008 and -2% in 2009. A turnaround is expected in 2010 (+1.9%).
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APPENDIX – DEFINITIONS
Table 1 • Population, Households: number of people or households at the end of the year – Source: National Institute of Statistics • Unemployment rate: It’s the average at the end of the year of the rates of the four quarters of the year- Source: survey of the National Institute of Statistics.
Table 2 and 4 • The absolute value figures for construction/output in all tables are without VAT, but include Do it Yourself, illegal production • Source: data are CRESME estimates and forecasts based on different sources
Table 3 • 1+2 family dwellings include both semi-detached and terraced houses, while flats are dwellings inside multi-stored buildings, with more than two flats • Housing stock: at the end of year • Second homes: include homes used for holidays, or for secondary uses, or which are used for short periods. Also vacancies are included • Vacancies: homes that are not used at all • Home ownership rate: % of the total housing stock • Data include illegal production (not for permits) • Source: data are CRESME estimates and forecasts based on different sources
Table 4a • Education buildings: public and private schools, universities • Health: hospitals, public and private clinics • Industrial: sheds, buildings for industrial or artisan activities, storage buildings • Storage: data are included partly in industrial and partly in commercial buildings • Offices: administrative and business buildings • Commercial: shops, shopping centres, stores, tourist buildings • Agricultural: agricultural buildings including those with residential functions • Miscellaneous: military, cemetery and other kinds of buildings
Table 4b • Other transport includes underground railways, tramways, other urban transport systems, harbours and airports
Table 5 • Stock: % change in real terms is meant as the % change of stock as percentage of GDP (Source National Institute of Statistics) • Volume Private consumption, public consumption, etc: at market prices, VAT included (Source: National Accounts). • VAT rates are variables (4% for primary goods, 20% for the others, except the case of temporary deduction as the one for the purchase of R&M materials)
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Country/Pays/Land: Italy Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Estimate Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 58 456 58 806 59 131 59 391 59 646 59 891 60 129 Bevölkerung
Households ('000s) Ménages 22 842 23 144 23 434 23 666 23 890 24 112 24 319 Haushalte
Unemployed ('000s) Chômeurs 1 960 1 882 1 669 1 496 1 422 1 365 1 363 Arbeitslose
Unemployment rate (%) Taux de chômage 8.1 7.7 6.8 6.1 5.9 5.8 5.7 Arbeitslosenquote
Change of GDP Variation du PIB 1.5 0.6 1.8 1.5 0.5 0.9 1.5 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 2.2 1.9 2.1 1.8 3.0 2.5 2.3 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 4.2 4.2 3.4 3.7 3.0 2.8 2.8 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 4.5 4.0 3.8 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.3 3.5 4.0 4.4 4.6 4.2 4.2 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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ITALY
Country/Pays/Land: Italy Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Estim. Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 41 077 7.1 7.8 5.3 -2.5 -6.3 -8.0 -7.0
Logement Renovation 56 466 0.1 0.1 2.2 0.7 -2.5 -1.0 1.3
Wohnungsbau Total 97 543 2.8 3.2 3.5 -0.7 -4.1 -3.9 -2.0
Non-residential construction New 27 301 -2.9 -2.3 -4.2 0.8 -2.5 -1.1 0.8
Bâtiments non résidentiels Renovation 31 892 -0.3 -2.4 0.4 1.2 0.1 -0.9 1.7
übriger Hochbau Total 59 193 -1.5 -2.3 -1.8 1.0 -1.1 -1.0 1.3
Building New 68 378 2.5 3.5 1.4 -1.2 -4.8 -5.2 -3.7
Bâtiment Renovation 88 358 -0.0 -0.8 1.6 0.9 -1.6 -0.9 1.4
Hochbau Total 156 736 1.1 1.1 1.5 -0.1 -3.0 -2.8 -0.7
Civil engineering New 19 211 7.2 -5.2 -1.5 0.6 1.7 2.5 3.2
Génie civil Renovation 23 087 4.1 -3.2 -0.6 0.6 0.9 0.0 0.8
Tiefbau Total 42 299 5.5 -4.1 -1.0 0.6 1.3 1.2 1.9
TOTAL CONSTRUCTION OUTPUT 199 035 2.0 -0.1 1.0 0.1 -2.1 -1.9 -0.1
2007 Estim. Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 46.40 3.0 -0.7 1.8 -1.2 -2.0 -1.8 0.4 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro =
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ITALY
Country/Pays/Land: Italy Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Estim. Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 35.0 33.7 32.4 30.3 28.5 27.6 27.3 Baugenehmigungen Familienhäuser
Flats Collectif 232.0 240.4 236.4 220.5 203.2 193.0 185.3 Mehrfamilienhäuser
TOTAL 267.0 274.1 268.7 250.8 231.7 220.7 212.7
Housing starts 1+2 family dwellings Logements commencés Individuel 51.0 49.1 47.2 44.2 41.5 40.3 39.9 Baubeginne Familienhäuser
Flats Collectif 240.0 248.7 244.5 228.1 210.2 199.7 191.7 Mehrfamilienhäuser
TOTAL 291.0 297.8 291.7 272.3 251.7 239.9 231.6
Housing completions 1+2 family dwellings Logements terminés Individuel 50.8 49.2 51.1 48.2 45.6 43.7 40.4 Baufertigstellungen Familienhäuser
Flats Collectif 186.9 210.9 242.3 251.1 239.0 221.0 204.4 Mehrfamilienhäuser
TOTAL 237.7 260.1 293.4 299.3 284.6 264.7 244.8
Housing stock Logements existants 28 028 28 278 28 554 28 835 29 103 29 351 29 582 Wohnungsbestand
thereof second homes dont résid. secondaires 5 790 5 843 5 900 5 970 6 010 6 020 6 045 davon Zweitwohnungen
thereof vacancies dont inoccupé 2 853 2 980 3 005 3 032 3 065 3 080 3 100 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 73.0 73.4 73.8 74.3 75.0 75.4 75.6 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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ITALY
Country/Pays/Land: Italy Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Estim. Forecast Outlook
2007 ('000) 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 622 655 2.0 -1.5 -2.0 4.2 4.5 1.0 1.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 839 325 2.2 0.8 0.7 1.0 1.5 0.5 0.6 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 8 934 12 485 -11.7 -3.8 -4.7 2.6 -4.0 -2.0 0.9 Industriegebäude
Storage buildings Bâtiments de stockage 509 712 14.7 3.0 1.5 0.2 0.4 -1.0 1.0 Lagergebäude
Office buildings Bureaux 1 977 1 645 -8.2 -3.0 -2.8 1.5 -2.0 -2.3 -0.5 Bürogebäude
Commercial buildings Commerces 4 385 5 475 5.7 -0.9 -1.9 -0.4 -5.1 -2.6 1.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 6 369 5 383 1.8 -2.5 -9.0 -1.8 -2.2 -0.5 0.9 Landwirtschaftsgebäude
Miscellaneous Autres 3 665 3 244 3.1 -1.2 1.1 1.4 0.9 1.5 0.8 Sonstiges
Total 27 301 29 923 -2.9 -2.3 -4.2 0.8 -2.5 -1.1 0.8 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro =
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Country/Pays/Land: Italy Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Estim. Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 13 522 11.4 -4.7 0.6 1.0 1.5 2.1 2.2 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 8 549 9.1 -0.7 -4.3 -0.9 2.3 0.2 0.9 Bahnanlagen
Other transport Autres réseaux 3 487 4.9 -5.8 6.0 9.5 6.6 1.7 3.1 Übrige Verkehrsinfrastruktur
TOTAL 25 559 9.8 -3.5 -0.5 1.4 2.5 1.4 1.9
Telecommunications Télécommunications 1 304 -4.8 -0.5 -5.2 -8.3 -5.3 -2.3 1.9 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 13 533 2.7 -4.1 0.9 1.2 1.0 2.0 2.1 Energie- und Wasserversorgung
Other Autres 1 903 -10.7 -12.4 -14.2 -7.6 -8.2 -7.0 0.5 Sonstiges
Total 42 299 5.5 -4.1 -1.0 0.6 1.3 1.2 1.9
1) At 2007 prices, excluding taxes. 1 euro =
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ITALY
Country/Pays/Land: Italy Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Estim. Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 900.3 0.7 0.9 1.1 1.4 0.7 1.2 1.6 Privater Verbrauch
Public consumption Consommation publique 310.0 2.3 1.9 0.9 1.3 0.5 0.2 0.7 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 323.3 2.3 0.7 2.5 1.2 0.6 1.2 1.8
of which construction 199.0 2.0 -0.1 1.0 0.1 -2.1 -1.9 -0.1
Stocks (contribution as % of GDP) Variations de stocks 6.7 -0.0 -0.2 0.4 -0.1 -0.4 0.4 -0.4 Vorratsveränderung
Exports Exportations 448.3 4.9 1.0 6.2 5.0 2.8 3.2 3.5 Exporte
Imports Importations 453.0 4.2 2.2 5.9 4.4 1.3 1.8 2.2 Importe
GDP PIB 1 535.5 1.5 0.6 1.8 1.5 0.5 0.9 1.5 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro =
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NETHERLANDS EIB - Economisch Instituut voor de Bouwnijverheid www.eib.nl
Hans Schellevis e-mail: [email protected]
Dick ter Steege e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
NETHERLANDS
1 Summary
In 2007 the Dutch gross domestic product grew 3.5 per cent in volume. Compared with 2006, when 3.0 per cent could be added, this meant a further acceleration of the economic upswing in the Netherlands. Especially in the second part of the year the economy flourished. The 2007 growth figure is the highest since 2000. Just like in 2006, Dutch economic growth exceeded the Euro zone average.
Exports traditionally account for a significant part of the Dutch economy. Since 2001, the export of goods and services contributed more than proportionally to the increase of GDP. In 2007 deliveries abroad increased by 6.3 per cent. A significant part of this growth stems from the success of the re- exportation of goods, which grew by no less than 10 per cent. The progression of the exportation of inland produced commodities, proceeded more modestly. This sector picked up by 4 per cent. For 2008 and 2009, a somewhat smaller but still significant overall increase of exports (5 to 5.5 per cent) is expected.
The acceleration of economic growth in 2007 was also supported by the development of private non residential investment. Activities related to this type of production increased by 6.2 per cent. This year, private non residential investment will pick up to 7 per cent. Public investment won’t stay very much behind with an expected growth rate of 5.25 per cent. 2009 promises to become a year of ambivalence. The first estimates for that year show a small decline of private non residential investment (- 0.5 per cent), while public investment still grows at a rate of 2.5 per cent.
The last few years, private consumption acts on the bottom of the growth range. In 2007, with an increase of 2.1 per cent, this important part of GDP again lagged behind the average growth rate. For this year, growth is expected to stabilize on a level of 2 per cent. 2009 is booked for a meagre 1 per cent.
In 2007, construction in the Netherlands was booming business once again. Construction output accelerated again: the total production volume lay 7,2 per cent above the preceding period. In 2008, the building production is expected to grow further by 3.1 per cent. Provisional calculations show that the period of rapid growth will come to an end but that in 2009 and 2010 the building production level will be maintained.
Development of GDP in The Netherlands and selected Construction Output and GDP 2003-2010 relative changes countries/ areas, 2004-2009 % 10 vol. % Construction Output GDP
12 5 10 8
6 0 4 2 0 -5 2003 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009
Netherlands Eurozone USA Japan China
The positive development of the construction sector in 2007 was in large measure determined by the strongly improving market for new residential construction. In 2007, the number of new completions in this sector increased to 80,200, 10 per cent more than the number of completions in 2006. In terms of production volume, in 2007, the market for new residential construction increased
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NETHERLANDS
by 10 per cent too. This result is expected to be followed by + 3.5 in 2008 and + 0.6 in 2009. This growth is mainly the result of higher costs per unit, since the number of completions is supposed to decrease gradually to a level of 70,000 in 2013. For 2010, provisional estimates indicate a small decrease of the production value in this sector (- 0.6 per cent).
Up till 2007, residential renovation (including repair and maintenance) developed in a more moderate way than new residential construction did. In 2007 an increase of somewhat over 5 per cent was realized. Growth is projected to slow down to 3.8 per cent in 2008 and to less than 2 per cent in 2009. For 2010 the construction industry has to reckon with a further diminishing increase of only 0.7 per cent. The latter figure is the result of decreasing expenses (in volume) on pure renovation activities and still growing efforts on the field of day-to-day repair and maintenance.
Construction Output by Sector 2007 Total Construction output 2003-2010 percentage bill. euro constant 2007 prices
Civil 100 Engineering 21% New 80 Residential 29% 60 40
20
0 2 200 2 2 2 2 200 2 003 0 006 0 008 0 Building 0 0 1 New Non- 4 5 7 9 0 Renovation Residential 36% 13% branch concept output construction industry
In 2007, the production of new buildings in the non-residential sector made a remarkable recovery after having led heavy losses in preceding years. The overall production volume increased by more than 10 per cent. In the period 2002 up to 2005, the sector lost a quarter of its production volume. However, with an expected growth of 3.6 per cent in 2008 and a meagre 1.3 in 2009, followed by a return into the red in 2010, it looks as if the recovery is only short-lived and far from complete.
Renovation (inclusive of repair and maintenance) of non-residential buildings is less sensitive for cyclical fluctuations in the economy than new construction in this sector. The recession on this market was less sharp and the recovery less exuberant. In 2007, the production volume in this sector increased by 6.2 per cent. In 2008, the growth rate will decelerate again to about 4 percent. In the years thereafter, growth figures are expected to slow down further to a level somewhat above 1 per cent.
In 2007, new construction in the sector of civil engineering grew by 5.8 per cent. Although this meant a historically high increase, the sector contributed less than proportionally to the overall growth of the construction output. Growth is expected to slow down to 2.4 in 2008 and less than 1 per cent in 2009 and 2010.
Civil engineering maintenance, traditionally shows a very moderate development. For this sector the growth rate of 1.7 per cent which was registered in 2007, lies well above the average over the past period. For the period 2008-2010, the expected increase of the production volume varies between -0,5 and +0,3 per cent per annum.
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2 Macro-economic Outlook
In 2007 the Dutch economy grew by 3.5 per cent. In the Vienna report half a year ago, we expressed the expectation that the prognosis for that year of the Netherlands Bureau for Economic Policy Analysis (CPB), + 2.75 per cent, would turn out to be achievable. However, in the last part of the year the economy performed much better than expected, culminating in an increase of 4.5 per cent in the last quarter. All major parts of the economy (private and public consumption, investment and exports) contributed to the expansion of GDP. For the second year in succession, Dutch economic growth exceeded the euro zone average.
The prognosis for the near future shows a more moderate picture. Overall economic growth is expected to slow down to 2.25 per cent in 2008 and further to 1.75 per cent in 2009. In this last year, the growth rate in the Netherlands will be back again on the average level that is forecast for the euro zone.
In the short term CPB model for the Netherlands, the actual financial crisis that started on the American market for sub prime mortgage loans, is taken into account via higher interest rates, a lower growth rate for international trade and lower share prices in the first quarter of this year. However, if the American economy turns out to be hit more seriously than is assumed just now, the negative influence on the Dutch economy could be stronger. Under certain additional assumptions, an extra set back on the expected growth of GDP can be calculated of – 0.4 point in 2008 and – 0.1 point in 2009.
As usual in recent years, the biggest contribution to economic growth originates from the export of goods and services. The graph shows that almost half of the increase of GDP can be ascribed to that sector.
Contribution (%) to economic growth in 2007
private consumption 20%
investment in exports 49% houses 6%
commercial investment 8%
public expenditure 17%
Total exports (including sources of energy, mainly natural gas) increased by 6.3 per cent in 2007. In 2008 and 2009 total growth is forecast to slow down to 4.25 and 4.75 percent. The relatively strong acceleration of the export sector is, for the greater part, the result of the rapidly expanding re- exportation of goods. The last type of exportation increased in 2007 by 10 per cent and is expected to do so by about 8 per cent this year and next. Re-exportation is the transit of imported commodities after minor processing or refining. However, with an increase in 2007 of 4 per cent, fully inland based exports also contributed more than proportionally to economic growth.
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The slackening of the expansion of exports is mainly caused by the expected restraint of the growth of international trade. After the peak of 10 per cent in 2006, 2007 showed a substantial lower increase of 7 per cent. This downward tendency of growth is forecast to continue in 2008 when a growth of less than 5 per cent is expected. This slackening of the year-to-year increase of international trade is mainly caused by the downward adjusted growth figure for the US, as a result of the sub prime mortgage crisis. A second reason for diminishing growth of the Dutch export sector is the deterioration in the terms of trade, caused by the lasting appreciation of the euro against both the American dollar and the British pound.
Private consumption increased by 2.1 per cent in 2007. For this year, growth is expected to stabilize on a level of 2 per cent. 2009 is booked for a meagre 1 per cent. This rather poor prospect is based on several developments. In the first place, the strong growth of the labour force the country faced in the last two years, will decelerate considerably. At the same time, the decrease of the number unemployed will virtually come to a standstill. Another reason is that the capital formation of households is negatively influenced by the decreasing share prices and the expected levelling out of the increase in house prices.
Since time immemorial house prices in the Netherlands have shown steady, and not seldom considerable, year to year increases. Meanwhile, the price level of houses has reached a comparatively high level. In 2007 the International Monetary Fund censured the country for being reluctant to take reform measures to reduce the pressure on the housing market. In the view of the IMF, the deductibility of mortgage interest contributes to the high prices. In the Funds vision this leads to a chronic shortage of housing, impeding labour mobility. The resulting high loan-to-value and loan-to-income ratios are thought to expose households to ‘significant’ interest rates and housing price risks In its semi-annual World Economic Outlook of April this year, the IMF mentions the Netherlands together with Ireland, the U.K. and France as the countries that are most vulnerable to a correction in house prices, because ‘in these economies, it is difficult to account for the magnitude of the run- up in house prices on the basis of those countries’ fundamentals.’ The Fund points towards the risks that a major correction in house prices will result in a direct drag on economic growth from reductions in residential investment. Besides, in countries with more developed mortgage markets, as in the Netherlands, the housing sector has a bigger economic impact, since the use of homes as collateral strengthens the feedback effect of rising house prices on consumption via increased household borrowing. A number of authorities on the housingmarket do not confirm the outcome of the IMF analysis. Their most important critique is that the IMF’s neglects the low price elasticity of the Dutch housing supply. In the Netherlands declining interest rates on mortgages and increasing incomes of households result in an growing demand for housing services. The supply of these services however slightly responds the increasing demand, which causes higher prices on the housing market. As long as the interest rates do not strongly increase, and the Dutch housingmarket will not be radical reformed, it is not expected that the houseprices will significantly decline. Furthermother, in the Netherlands there is no market for risky housing loans like those which have helped push the U.S. into a financial crisis. Also there is a better overview on the housing market. There are therefore no signs that point to a comparable crisis on the Dutch housing market.
In 2007 the increase in the volume of investments in goods and services was considerably lower than in 2006. Total investments (private and public together) picked up with 4.5 per cent. This average was
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NETHERLANDS negatively influenced by the narrow decrease (-0.2 per cent) of public investment (total private investment showed an increase of 5.5 per cent).
Irrespective of the construction and renovation of residential buildings, private enterprises raised their capital outlay by 6.2 per cent. The expansion of private non residential investment is to a great extend the result of an increasing capacity utilization in the industry. This leads to a growing demand for all kinds of investment goods to enlarge production capacity. Especially computers, machinery and buildings were in great demand in 2007. In 2008 another increase of 7 per cent is expected in this sector. The level of investment than reached, will mark the top of this type of investment, since for 2009 a slight reversion of – 0.5 per cent is to be reckoned with.
Inclusive of houses, private investment is expected to increase by 5.25 per cent in 2008 and to decrease by 0.5 percent in 2009. Public investment is forecast to grow by 5.25 per cent in 2008 and 2.5 per cent in 2009.
GDP and Private Investment 2003-2009 GDP and Private Consumption 2003-2009 % relative changes % relative changes 12 12 GDP Investment GDP Consumption
8 8
4 4
0 0
-4 -4 2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
In 2007 the inflation rate (consumer price index) in the Netherlands remained restricted to 1.6 per cent. This means that inflation was considerably lower than the euro zone average. For this year and next the projections point towards a reversion to somewhat higher levels. In 2008 and 2009 inflation is expected to climb to 2.5 and 2.75 per cent.
The expected increase of the inflation rate is mainly due to the expected rise of per capita labour costs. In the considered period, a rise in per capita wages in the private sector of 4 per cent per year is foreseen. In addition to this, higher rents and energy prices, together with an increase on excises on tobacco, diesel and lpg and the introduction of a green tax on air flights, all contribute to an increase of the price level.
Unemployment diminished strongly over the last few years. In 2007 on average 344,000 persons were out of work, which is 4.5 per cent of the labour force. This year a further reduction of unemployment is expected to 4 per cent (310,000 persons). In 2009, the number unemployed is expected to stabilise on a level of 320.000.
The decrease of unemployment was paralleled by a firm increase of the active labour force. Employment grew by 2.6 per cent in 2007. Growth is expected to continue at a rate of 1.25 and 0.5 per cent in 2008 and 2009. In those years, the growth of the Dutch labour force will mainly originate from the social services sector. In the market sector, growth is forecast to fall back to 1 and 0,25 per cent respectively.
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3 Housing Market
In 2007 total residential construction (new construction, renovation and maintenance together) grew little less than 8 per cent to almost € 39 bln. More than half of this production (€ 21.6 bln) concerned investment in new dwellings. In the period up to 2010, further growth is expected. Especially renovation and maintenance are responsible for this positive outlook. New residential construction is forecast to grow by 3.5 per cent in 2008 and 0.6 per cent in 2009. For 2010 a decrease in production volume of 0.6 per cent is expected.
In the last few years the number of new completions in the residential sector, showed a solid upward trend. Numbers went up from less than 60,000 in 2003 to 80,000 in 2008. The number of completions is forecast to remain at this level over the period to 2010. The future growth in production volume in this sector originates from quality improvement (i.e. changes in type, size, equipment etc.). Although the number of completions has been rapidly growing in recent years, looked at in a historical perspective by now the production remains at a modest level. Only ten years ago, yearly completions usually exceeded the number of 90,000.
Building Permits for New Housing 1997-2010 Completed Dwellings 1997-2010 dwellings by category of principal dwellings by category of principal
prognosis prognosis 100.000 100.000
80.000 80.000
60.000 60.000
40.000 40.000
20.000 20.000
0 0 1997 1999 2001 2003 2005 2007 2009 1997 1999 2001 2003 2005 2007 2009 housing corporations developers private persons housing corporations developers private persons
By now new residential construction in the Netherlands is largely determined by market conditions. Yet government policy still plays an important part. One of the tools that is used, is the direct support of demand through tax deduction of mortgage interest on loans for houses. Another tool is the system of individual rent rebate for the lower income groups. In addition, by exercising its power on the field of environmental planning, the central government plays a key role in relation to the availability of building lots for new houses. Disturbances in the provision of sufficient building lots immediately lead to disruptions on the construction market.
The environmental policy now focuses on building within existing urban areas and protecting the outskirts. 360,000 out of the 445,000 dwellings that have to be built in the period 2005-2009, should be realized in urban regions.
Traditionally commercial property developers dominate the Dutch market for new houses. In 2007, the share in completions of developing construction firms and specialized property developers, reached a level of 64 per cent. Few more than a quarter of all newly built houses was produced by order of a housing corporation. Only 10 per cent was commissioned by private persons.
Both the quantitative and the qualitative demand for residential buildings are highly determined by the development of the number of households. An important demographic phenomenon is the proportional rise in the ageing population. The share of households with one or more persons over 65 years, is expected to increase from 22 in 2007 to 37 in 2040. For demographic reasons, for the periods 2006-
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2009, 2010-2015 and 2015-2020 an extension of the housing stock is needed of respectively 207,000, 252,000 and 215,000. Besides there is a certain need for replacement of worn out houses. In recent years, the number of dwelling that was demolished or otherwise put out of use, very gradually increased to a level of 20,000 per year.
In 2008, the production volume related to the construction of new residential buildings, is forecast to grow by 3.6 per cent. This corresponds to the construction of about 80,000 units. On medium term, this tempo probably can’t be kept up. We assume that up till 2013 the numbers completed will gradually fall down to about 70,000, that is in line with the growth of the number of households. This means that the production value, that as yet will show an increase of 0.6 per cent in 2009, will end up in the red in the near future, to start in 2010.
An additional development that impedes the growth in this sector is the decreasing share of developers. Since the average building costs of houses built in commission of commercial developers are substantial higher than those of houses built for housing corporations, this alone moderates the rise of the production.
Residential renovation and maintenance are assumed to benefit from the expansion and the ageing of the housing stock. This provides a permanent stimulus to the production volume in this sector. Last year, the housing associations agreed with the Minister of Housing, Communities and Integration to start a large scale modernisation programme for underprivileged areas. Since the parties didn’t yet reach full agreement on the financing of the plans, up till now little additional production is generated on this area. For 59 designated districts € 1 billion is made available to subsidize renovation, replacement and improvement of the housing stock.
The sector consists of two different types of economic activity. As an investment activity, renovation is more volatile than maintenance, the latter being part of consumers expenditure. Therefore the sector at large, develops in a more moderate way than new construction. After a rise in production value of over 5 percent in 2007, for 2008 a somewhat lower increase is projected: + 3.8 per cent. For the years 2009 and 2010, a step by step decline in growth to no more than 0.7 per cent is foreseen.
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4 Non-residential Market
In 2007, the production of new buildings in the non-residential sector made a huge step forward. The overall production volume increased by 10.3 per cent. This meant a very welcome recovery for this volatile part of the construction market. In the period 2002 up to 2005, the sector lost a quarter of its production volume. However, with an expected growth of 3.6 per cent in 2008, 1.3 per cent in 2009 followed by a subsequent return into the red in 2010, it looks as if the recovery is only short-lived.
In the years behind, private and public non-residential construction showed strongly diverging developments. The upswing in 2007 especially favoured the private financed new non-residential construction. The slow down of economic growth in the years behind, pushed just that part of the sector in a long and deep recession. From 2002 up till 2005, new private non-residential construction lost more than one third of its production volume. This sharply contrasts with the public financed part of the new non-residential construction, that managed to keep up its production volume quite well. The economic recovery in 2006 and 2007 and the consequential increase in investment activities, finally led to a real production outburst in 2007 in a number of components of the private sector.
2008 is expected to show a further increase (though much more moderate) for the private non residential construction activities as a whole, whereas the public sector will show a small decrease for the first time since long. In 2009 on, the growth of the production volume in the private sector is forecast to fall down further, whereas the public financed sector is expected to resume growth. In 2010, in the private sector growth will turn to shrinkage. The increase in the public sector won’t be sufficient to prevent the sector as a whole from decline.
New Non-Residential Construction by Type, 2007 New non-residential construction index 2003=100 Buildings for Education Miscellaneous 200 10% 12% 180 Agricultural Buildings for 160 Buildings Health 140 11% 15% 120 100 Commercial Industrial 80 Buildings Buildings 60 12% 11% 40 Office Storage Buildings Buildings 2003 2004 2005 2006 2007 2008 2009 2010 22% 7% Private Non-Residential Public Non-Residential
Within the sector of private new non-residential construction, developments again differ quite a lot per type of building or branch of trade. The market for new industrial buildings showed to be the most volatile part of the market for new non residential construction. The recovery in this specific niche in 2007 was extremely powerful: + 27 per cent. For 2008 a less extreme but still strong growth is foreseen (+13 per cent). The prognoses for 2009 and 2010 show a decrease of the growth of the production volume to 2,1 and 0.6 per cent respectively.
The construction of new office buildings dropped dramatically over the period 2002 up to 2005. The sector includes construction activities for business and financial services (including leasing and letting of office accommodation) and the construction of office accommodation for public administration. Since 2001, the construction volume fell back from € 4,4 billion (prices 2007) to € 2 billion in 2005. The economic recovery to a certain extent enlightened the problems of the construction sector on this particular field. Not all idle capacity is situated on the locations where new demand appears. In other
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NETHERLANDS words, although in general the vacancy rate is rather high, in some cases there is need for new capacity on locations where demand is growing and capacity is fully utilized. On the other hand, new specific qualities asked for by the market, can’t always be met by the properties that are incorporated in the existing buildings. In this respect, it’s remarkable that the addition of new office space to a high degree is concentrated in the top of the market. In a prestigious project as Zuidas in Amsterdam, some tens of thousands of square metres of floor space are under construction in a market with almost the highest excess supply in the country. In 2007, the production value in the office sector increased by 16 per cent. In 2008, growth will continue, but in a decreasing rate. For that year, an increase of 8.6 per cent is calculated. Positive impulses come from investments in new office buildings around railway stations for the new high speed rail link to Belgium and France. Another major project that is to start this year, is the new housing for the Ministry for the Interior and Kingdom Relations and the Ministry of Justice in The Hague.
The forecast for the near future shows that the development of the production volume in this sector stands at a turning point: for 2009 a standstill is expected, while 2010 is expected to show a firm decrease of almost 7 per cent.
The course of events around the development of the new (combined) housing for the Ministry for the Interior and Kingdom Relations and the Ministry of Justice in The Hague, is a classical example of how such projects can be deadlocked. Initially, the project should have started in 2005, but the demolition of the building which occupied the site, led to long-lasting procedures. Simultaneously, the delivery of the building permit was delayed because of environmental obstacles. Finally, the tender procedure failed because the lowest bid exceeded the budget of the Government Building Department by far. Whether the project can start this year, depends on how quick a new procedure can produce an acceptable proposition.
Retail trade, wholesale trade, and the hotel and restaurant industry are the most important branches within the sector commercial buildings. This sector is the only one that didn’t manage to raise it’s production of new buildings in 2007. In that year, production dropped to a level of € 1.3 billion. The period 2008 - 2010 is not expected to bring any recovery. On the contrary, a further decline (between 3 and 5 per cent yearly) is expected.
The wholesale trade sector, which accounts for approximately 50 percent of the construction output for commercial buildings, is influenced by the decreasing growth of the volume of world trade. Besides, with manufacturers integrating forward and retailers integrating backward, the competitiveness of the sector is under pressure. The same is brought about by enhanced competition from foreign companies on the home market and from logistic service providers willing to take over parts of the wholesalers traditional functions. Together, the investment climate for the wholesale trade sector is not such that a stimulus for the construction of new buildings can be expected.
On the one side, the retail trade sector faces growing demand for new large-scale shop-property which is easy accessible for the consumer. The average floor space of shops is expanding steadily. The process of concentration of scattered retail outlet points into shopping malls is still continuing, as well as the renewal and upgrading of outdated shopping centres.
On the other side, there is a certain satiation in the market. With 1.6 square metre per head, the available floor area for retail trade in the Netherlands is relatively large for European standards. These
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opposite tendencies resulted in the years behind in a gradually declining production of new shops (in square metres). In the near future, this sector will see a continuation of this downward trend.
The share of the hotel and restaurant industry in the building activity of the commercial sector is approximately 10 percent. Last year, this sector took advantage from the improving business climate. This year prospects are only gradually improving. On medium term, the still existing overcapacity will prevent the sector from emitting a swelling flow of orders for new buildings. On the contrary, in this sector too, a decrease of the building volume is to be reckoned with.
Activity in the agricultural sector is highly influenced by both (international) market developments and government policy. This effects the construction activities for this sector to a great extent. Due to structural developments on the international markets for agricultural produce, production circumstances in the sector are subject to change. Lower labour costs and land prices in the new EU member states will enhance competition. In order to maintain its prominent position in many agricultural markets, the Dutch agricultural sector will have to concentrate on product and process specialisation. Innovation and expansion in capital-intensive production processes, with a strong emphasis on the application of know-how, will be the only way to survive for thousands of agricultural enterprises. In many cases this will require modernised production facilities.
Besides, the Reconstructiewet (reconstruction law), which became valid in 2002 to support necessary reorganizations in the sector after a series of outbursts of infectious animal diseases, stimulates the enterprises to invest in new buildings or in the relocation of establishments. Essential point of the Reconstructiewet is the split up of the agricultural area into three zones: development zones, interlacement zones and de-intensifying zones. About 80 percent of all establishments for intensive cattle breeding is situated within the range of this law. The total expenses in connection to the reconstruction of the sector are estimated at € 9 billion.
As a consequence, the agricultural sector saw its investment in buildings (under which sheds, stables etc.) increase in 2007 by no less than 18 per cent, to a level of € 1.2 billion. In 2008, further growth is forecast (+ 5 per cent). In 2009, production is expected to stabilize more or less on a relatively high level, but from 2010 on, a further increase of the building production for this sector is indicated.
The category ‚miscellaneous’ includes different sectors, like transport, communication, telecom and parts of the quaternary sector. The production of buildings for transport and distribution is to a great extent connected to international trade. This is because of the transit function of the Netherlands for a large part of the western European territory. The expected slowing down of the growth of international trade, will therefore, in the coming years, induce construction output for this sub-sector to stabilize.
Building activity in the quaternary sector (including recreation, culture, sport and religion) is characterized by the existence of many small-scale projects. All together, building production for this sub-sector developed rather stable in the years behind and – after a minor setback in 2008 - will continue to do so in the near future.
In the long run, construction output for the housing of institutions in the educational sector is mainly determined by demographic factors, i.e. the development of the numbers of pupils and students. In recent years however, the tendency towards concentration also influenced construction activities in this sector. In a deliberate process of scaling-up and mergers, the actual number of schools and other educational institutions, dropped dramatically. This process led to a strong growth in demand for new buildings, not seldom culminating in double digit growth figures. Now that this process has almost
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NETHERLANDS been completed, new construction output in this sector is likely to grow at a much more moderate rate after 2008.
A similar development as described above, applies more or less to the sector health and welfare. Less central steering and a more demand oriented construction policy, in recent years led to strong positive impulses for the construction activities on this field. Raised budgets to enlarge the capacity for treatment, shorter building permit procedures, the tendency towards more extramural care and the creation of service facilities around hospitals, as well, stimulated construction demand in this sector. In 2007 a production volume of € 1.5 billion was reached. For 2008 only 0.7 per cent growth is forecast, but growth will increase again to 7 and 5 per cent in 2009 and 2010 respectively.
In 2007, renovation and maintenance of non-residential buildings faced a firm growth rate of over 6 per cent. As was explained in the description of the residential sector, in the non-residential sector too, renovation and maintenance develop in a more moderate way than does new construction. When the prospects for the development of the economy are sound, private enterprises are willing to invest in renovation and renewal of their buildings. In addition, funds for necessary maintenance programmes become more easily available. In 2008 production in renovation and maintenance is forecast to increase by almost 4 per cent. For the years to come, annual growth is estimated to slow down to 2.2 per cent in 2009 and further to 1.3 per cent in 2010. Because of the gradually increasing stock, in the long run the trend in renovation and maintenance activity is positive.
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5 Civil Engineering Market
Construction in civil engineering contains various activities like the building of road, rail and waterway infrastructure (including bridges and tunnels), flood barriers, sea and river dikes, the laying of pipes and cables, water storage and purification facilities, sewerage systems and the preparation of building sites for new residential and non-residential buildings. Clients come from the private sector (for instance utility and transport companies) as well as from the public sector, like governments, government agencies, local authorities, provinces and polder boards.
In 2007, total output of civil engineering increased with 4 per cent to a level of € 15.5 billion. Investments in new or renewed infrastructure brought in 55 percent of that figure. Dutch statistics do not allow to distinguish between new work and renovation or upgrading of existing facilities; the figures in the category ‘new’ include both real new works and renovation. The category ‘renovation’ in fact contains only maintenance works.
Growth is likely to decelerate in 2008 to 1.2 per cent. In the years thereafter, total growth is expected to increase further with no more than 0.5 per cent per year.
In recent years, government expenditure on new investment in infrastructure showed ups and downs. In 2007, the volume of new construction in commission of the government, increased with 8 per cent. For 2008, an additional increase of 5 per cent is expected. Investment in transport infrastructure is given high priority in the national mobility plan. Emphasis is laid on measures to safeguard the accessibility of the Rotterdam harbour and Schiphol airport, and to enlarge the capacity of the main motorways. Up till now, the necessary funds are brought in entirely by the government. Traditionally, financing of the motorway network was seen a pure public function, but alternative ways of exploitation, such as road pricing and toll roads, are no longer excluded now as useful constructions to attract private capital. However, public decision-making on this point has several times been delayed.
In a recent report, a government commission recommends the Ministry of Transport and Public Works to take measures to cut down the average overall procedure and construction time of road infrastructure from 11 years to 5 . If the recommended approach is realized, this will pull forward construction activities and thus lead to extra production on medium term. For the time being, possible effects of a change in procedures are not yet incorporated in the prognoses.
The private sector plays an important role in initiating and financing new infrastructural works. Private investment in civil engineering is mainly commissioned by companies that are active in rail transport1, public utilities, telecommunication, seaports and airports. In 2007, almost € 2.7 billion. (40 per cent of all new production) originated from private companies and persons. In 2008 the production volume in this sector is forecast to grow by 1.5 per cent. In de years to come, growth in this sector will also fluctuate between 1.0 and 1.5 per cent per annum.
In 2007, new civil engineering investment on behalf of local authorities, like municipalities, provinces and polder boards, was almost equal to the production volume for the private sector. For 2008, the expected growth rate also equals the private sector: +1.5 per cent. One of the reasons for this development is the increasing activity in the opening up and the preparation of building sites. This
1 It should be noted that, in the Netherlands, although investment in rail infrastructure is registered as a private activity in the national accounts statistics, a large part is financed by capital transfers from public funds.
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NETHERLANDS because of the growing production of new residential and non-residential buildings. In de near future, growth in this sector is expected to slow down to only 0.5 per cent annually.
The development of the maintenance market for civil engineering works, didn’t vary very much over the last few years. In 2008 a decrease of 0.5 per cent was realized. In 2009 and 2010, an annual growth around 0.3 per cent is expected. A significant part of the production on this market originates from the Infrastructure Fund. In the long run, the expenses from this fund tend to diminish, since the temporally increased production level of this moment, is not to be sustained after 2010.
Civil Engineering Share in Total Construction 2003- Infrastructure Fund 2008, annual expenses repair and 2010 maintenance mln euro bill. euro %
20 26 3500 3000 15 24 2500
10 22 2000 1500 5 20 1000
0 18 500 20 2 20 200 2007 20 2009 2 00 01 0 0 0 0 3 4 5 6 8 0 2006 2007 2008 2009 2010 2011 2012 Civil Engineering Volume (bill. euro) Share in Total Construction (%) Motorways Waterways Watersystem Railways
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APPENDIX – DEFINITIONS
A. Statistical basis for the Dutch construction data The statistical basis is largely the volume of construction investment based on the National Accounts, adapted to the harmonised European System of National and Regional Accounts 1995 (ESA 1995). The construction output for each of the three sectors - residential, non-residential and civil engineering - contains new investment and value-increasing modernisation (fixed capital formation). This value for the construction output contains the overall registered investment work, including services, done by construction firms as well as by firms belonging to other sectors than the construction sector (i.e. metal assembly companies and metal or synthetic curtain walling companies). It also includes construction investments for own use, by non-construction companies. In addition to the value of the investments in buildings in each of the three sectors, repair and maintenance activities realised by construction firms (the SIC’93 groups of economic activities 451- 455 Construction) are included, as well as the production of the maintenance departments of housing corporations, owners of industrial premises etc. Furthermore, do-it-yourself activities (for example maintenance done by home-owners) and unregistered production (black economy) are included. Figures on DIY and black economy are based on EIB-estimations. This way of registration is known as the branch concept. This is opposed to the industry concept, in which construction activities are limited to the output of firms that belong to the construction industry. In the Netherlands, the construction industry roughly accounts for three quarters of the total expenses on building activities in accordance with the branch concept.
B. VAT All figures are exclusive of value-added tax.
C. Table 1 The numbers of population, households and unemployed reflect the situation at the end of the year. The development of GDP in 2010 is based on the average forecast for the period 2008-2011 in the report Economische verkenning 2008-2011 (CPB 2006).
D. Table 2 Modernisation investments and maintenance are registered under ‘renovation’, except in civil engineering. For this sector Dutch statistics do not allow to distinguish new work from renovation or upgrading of existing facilities; the figures in the category ‘new’ include both real new works and renovation. The category ‘renovation’ in civil engineering in fact only contains maintenance works.
E. New Non-residential construction (table 4a) The division of new non-residential construction investment in eight categories (table 4a) is based on the CBS statistics of building permits. This statistics only accounts for works worth € 45,378 or more. The category „Miscellaneous“ includes construction activities for the following industries: transport distribution telecom recreation culture sport religion The area corresponding to the production value, is based on the internal dimensions of the completed projects.
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Country/Pays/Land: Netherlands Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 16 306 16 334 16 358 16 404 16 457 16 507 16 555 Bevölkerung
Households ('000s) Ménages 7 091 7 146 7 191 7 247 7 296 7 346 7 398 Haushalte
Unemployed ('000s) Chômeurs 479 483 413 344 310 320 320 Arbeitslose
Unemployment rate (%) Taux de chômage 6.5 6.5 5.5 4.5 4.0 4.3 4.3 Arbeitslosenquote
Change of GDP Variation du PIB 2.2 1.5 3.0 3.5 2.3 1.8 1.8 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 1.2 1.7 1.1 1.6 2.5 2.8 2.8 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 2.2 2.0 3.4 3.0 3.0 3.0 3.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 3.8 4.0 4.0 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.1 3.4 3.9 4.3 4.0 4.4 4.4 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Netherlands Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 21 611 5.8 7.1 7.8 10.0 3.5 0.6 -0.6
Logement Renovation 17 313 0.9 3.3 2.1 5.3 3.8 1.7 0.7
Wohnungsbau Total 38 924 3.5 5.1 4.0 7.8 3.6 1.1 -0.0
Non-residential construction New 10 661 -7.8 -2.9 1.0 10.3 3.6 1.3 -1.0
Bâtiments non résidentiels Renovation 8 635 -5.1 -0.8 1.8 6.2 3.9 2.2 1.3
übriger Hochbau Total 19 296 -6.8 -1.7 1.6 8.4 3.7 1.7 0.0
Building New 32 272 0.4 3.4 4.2 10.1 3.5 0.8 -0.8
Bâtiment Renovation 25 948 -1.2 1.9 2.0 5.6 3.8 1.9 0.9
Hochbau Total 58 220 -0.4 2.7 3.2 8.0 3.7 1.3 -0.0
Civil engineering New 8 888 -10.6 1.6 8.1 5.8 2.4 0.7 0.7
Génie civil Renovation 6 674 0.1 -0.3 2.1 1.7 -0.5 0.3 0.3
Tiefbau Total 15 562 -5.3 0.9 4.0 4.0 1.2 0.5 0.5
TOTAL CONSTRUCTION OUTPUT 73 782 -1.5 2.3 3.5 7.2 3.1 1.1 0.1
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 6.00 -5.5 3.8 7.4 3.4 3.3 1.6 1.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Netherlands Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 57.1 62.5 72.3 57.1 55.6 54.3 54.3 Baugenehmigungen Familienhäuser
Flats Collectif 19.0 20.8 24.1 30.8 29.9 29.3 29.3 Mehrfamilienhäuser
TOTAL 76.2 83.3 96.4 87.9 85.5 83.6 83.6
Housing starts 1+2 family dwellings Logements commencés Individuel Baubeginne Familienhäuser
Flats Collectif Mehrfamilienhäuser
TOTAL 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Housing completions 1+2 family dwellings Logements terminés Individuel 49.0 47.2 47.0 49.5 52.3 51.5 49.7 Baufertigstellungen Familienhäuser
Flats Collectif 16.3 19.8 25.4 30.7 28.2 27.7 26.8 Mehrfamilienhäuser
TOTAL 65.3 67.0 72.4 80.2 80.5 79.2 76.5
Housing stock Logements existants 6 810 6 859 6 912 6 970 7 027 7 083 7 136 Wohnungsbestand
thereof second homes dont résid. secondaires davon Zweitwohnungen
thereof vacancies dont inoccupé davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 55.2 55.8 55.8 56.0 56.2 56.4 56.6 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Netherlands Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) 1000 m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 1 042 1 200 11.8 15.3 9.0 7.4 -1.6 4.5 1.9 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 1 553 1 150 18.6 16.1 5.4 9.8 0.7 7.3 5.1 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 1 241 1 450 -12.9 -0.2 -6.7 27.3 13.0 2.1 0.6 Industriegebäude
Storage buildings Bâtiments de stockage 633 1 400 -12.3 -10.4 -0.4 8.5 4.5 -0.2 -1.3 Lagergebäude
Office buildings Bureaux 2 423 2 700 -24.4 -18.1 0.9 16.1 8.6 -0.0 -6.8 Bürogebäude
Commercial buildings Commerces 1 271 2 000 -2.7 0.2 -2.8 -7.2 -2.8 -5.1 -4.6 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 1 213 17 050 6.9 2.6 4.1 17.9 5.0 0.9 1.5 Landwirtschaftsgebäude
Miscellaneous Autres 1 285 1 500 -6.7 -4.3 2.6 4.5 -3.7 0.4 -0.6 Sonstiges
Total 10 661 28 450 -7.8 -2.9 1.0 10.3 3.6 1.3 -1.0 Insgesamt
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Netherlands Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 10 585 -4.6 -2.7 6.4 6.0 1.9 -0.2 -0.2 Verkehrsinfrastruktur Straßen
Railways Voies ferrées Bahnanlagen
Other transport Autres réseaux Übrige Verkehrsinfrastruktur
TOTAL 10 585 -4.6 -2.7 6.4 6.0 1.9 -0.2 -0.2
Telecommunications Télécommunications 342 -37.3 10.4 3.7 4.0 1.2 0.5 0.5 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 1 510 -6.0 2.4 3.7 4.0 1.2 0.5 0.5 Energie- und Wasserversorgung
Other Autres 3 125 -6.0 7.8 -3.9 -2.3 -1.4 3.1 3.0 Sonstiges
Total 15 562 -5.3 0.9 4.0 4.0 1.2 0.5 0.5
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Netherlands Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 269.2 1.0 0.7 2.7 2.1 2.0 1.0 1.0 Privater Verbrauch
Public consumption Consommation publique 142.3 -0.1 0.0 2.2 2.4 0.8 1.0 1.0 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 111.3 -1.6 3.0 7.2 4.5 5.3 0.0 0.0
of which construction 65.2 -0.5 3.1 5.4 6.6 2.9 0.7 0.0
Stocks (contribution as % of GDP) Variations de stocks - 0.3 Vorratsveränderung
Exports Exportations 420.0 7.9 5.9 7.0 6.3 4.3 4.8 0.5 Exporte
Imports Importations 376.6 5.7 1.5 3.0 4.8 3.8 0.3 0.3 Importe
GDP PIB 565.9 2.2 1.5 3.0 3.5 2.3 1.8 1.8 BIP
Standard National Accounts, gross figures 1) At 2007 prices.
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NORWAY Prognosesenteret AS www.prognosesenteret.no
Kjell Senneset e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
NORWAY
1 Summary
Production in the construction sector continued to increase strongly also in 2007, with a growth rate that was comparable to the record-breaking growth in the three previous years. Preliminary figures for 2007 show an increase in construction production in 2007 of 7 %. Output increased by 35 % measured in constant prices, from 2003 to 2007. The growth in both 2006 and 2007, could have been even stronger, but have been limited by the production capacity in the construction sector, and to some degree also by lack of building materials.
In general, the boom in construction output is attributable to the favourable macroeconomic conditions. In 2007, GDP rose by 3.5 %, whereas GDP Mainland Norway (i.e. excluding production of oil and gas, which have limited influence on growth in construction output) rose by as much as 6 %. The latter is the highest growth since 1971. GDP grew by a hefty 20 % from 2003 to 2007.
In addition to the positive effect from economic growth, there has been a rapid increase in the population, adding to the increased demand for new houses. Until H1 2007, low interest rates were also contributing to growth in construction. However, now the interest rates have been lifted to a level where they no longer have a positive effect on demand for construction products.
Much of the extraordinarily strong growth in production over the last years has been made possible by massive import of labour from abroad, in particular Poland and other East-European countries. These labour reserves are still there, but as construction activity grows all over Europe, they are less easy to attract. However, a more significant obstacle to keep up the growth rates is an increasing lack of clerks for the work, engineers and other highly skilled personnel that cannot easily be recruited from abroad.
A side effect of the boom in the construction sector has been a strong increase in construction costs. The main reasons are higher wages and salaries, lower productivity and an increase in the extent of damage on buildings during the building process. Higher prices on building materials, partly due to price rises in the international markets, have added to the cost increase. Prices on new dwellings are currently very high – on average some 6 000 euro/m2 in Oslo. As a result, families with ordinary incomes can hardly afford them. Prices may be lower elsewhere in Norway, but higher interest rates have contributed to higher housing expenses. Higher housing expenses have in turn, reduced the production of new dwellings nationwide to a level that is neither compatible with the level of production of new dwellings over the previous years nor the underlying demand. Still, housing starts may drop by as much as 20 % from 2007 to 2008, primarily due to the fact that price thresholds are a binding restriction for households with an ordinary income.
Provided the cost increase stops, dwelling production will go up again in 2009 and 2010. A levelling off of building material prices, and even reduced prices of some materials, combined with a better development in productivity, should reduce price increases of new dwellings to almost zero during the forecasting period.
Non-residential building starts will also decline this year, but from an extraordinary high level. The figures for square meters started of non-residential buildings broke all records last year, and with a clear margin. Even though we expect a reduction in square meters started of almost 10 % this year, the level will still be very high – the second highest ever. Because of new restrictions imposed by the authorities on establishing new shopping centres, and lower investments in new buildings for the
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manufacturing industry, square meters started will continue to decline in 2009, although the level will still be among the highest ever recorded.
The civil engineering sector has also seen good growth for several years now, but generally not at the same speed as the building sector. The growth rate of 2007 was, however, comparable with growth in the building sector. Production of civil engineering works are expected to grow also in 2008 and 2009, but only by some 2 %. In 2010, the growth stops.
The renovation market (RMI) will grow through the forecasting period. This goes for the building sector as well as the civil engineering sector.
Construction Sector by Type in Norway to 2010 (index 2000 = 100)
200 New residential construction 190 New non-residential 180 construction 170 Building renovation and 160 modernisation Total civil engineering 150 140 130 120 110 100 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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2 Macro-economic Outlook
The seasonally adjusted unemployment rate fell to a record low level of 2.5 % during 2007. Running statistics for Q1 2008 showed the same figure. An unemployment rate of 2.5 % is probably as low as it can get, and further growth in employment must come from an increase in the labour force. The long- term growth in GDP will therefore be limited by productivity growth and growth in the labour force. How fast the labour force grows depends, in turn, on how labour import develops. This import which has been massive over the last years, has benefitted almost all industries, though the greatest share has gone to the construction sector. However, much of the labour import is on short-term contracts, and if this labour source should dry up it could have serious negative effect on economic growth.
GDP forecasts for 2008-2010
The different domestic analysts’ forecasts for the GDP growth in 2008 all land on about 3 % for Mainland Norway. Growth in total GDP may be a little less since oil and gas production is close to its peak. Lack of labour is slowing the growth in many industries, but in some sectors (the construction sector is one of them), it is now lack of demand more than shortage of labour that is putting a limit to growth. This development towards demand constraints will probably be more significant in 2009 and 2010, as slower growth in the world economy is reducing demand for Norwegian goods abroad. According to the latest forecasts, export of traditional goods (i.e. export excluding oil and gas) will show a growth rate of only 1 % in 2009. The growth will probably pick up somewhat in 2010, but still be a long way off the 5-9 % growth rate experienced in the period 2004-2007. Even in 2008, export of traditional goods may increase by 5 %.
The growth in the demand from households may also be considerably slower in the forecasting period than in the last few years. Thanks to cheap imports from East Asia and East Europe, prices on imported consumer goods have dropped for several years, thus leaving the households with an extraordinary high increase in real wages. This drop in import prices may now have come to an end. In addition, high oil prices add to the rise in consumer prices. Thus, growth in real wages, an in private consumption, will be slowing.
All this contributes to slowing the overall economic growth in 2009 and 2010. The forecasts are showing growth rates for both total and mainland GDP of about 2 % in 2009 and 2010.
Trade surplus
Norway’s huge trade surplus will remain huge also in the coming years. The surplus is generated by the oil and gas export, which make up some 50 % of Norway’s total export value. The last years this trade surplus has resulted in a current account surplus of some 15 % of GDP. Total production of oil and gas has been reduced since 2004, but the big leap in oil prices has kept the surplus up, and it even reached a peak of 17 % of GDP in 2006 and 2007. Since some new gas fields are now coming into production, total production of oil and gas will again show a small increase in the years to come, and if the oil price stays at its present level, the surplus may very well reach 20 % of GDP in 2008- 2010.
Prices and wages
Because of the low unemployment, wages are now ticking upwards at a rate of 6 % a year, which is some 2 percentage points more than a couple of years ago. High wages are now used much more
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actively by both the private and the public sector to attract new employees. Until now, consumer prices (CPI) have only to a small degree been following wages upwards. The core inflation rate (the CPI excluding energy and indirect taxes) was well below 2 %, whereas the growth in the overall CPI was below 1 % in 2007. However, in H1 2008 the situation has changed. Increased prices on oil and food are pushing inflation upwards, and high wage increases are also affecting prices on home-made consumer goods and services. This year, the overall inflation rate may be as high as 3.5 % and the core inflation rate may reach 2.5 %.
A little less strain on the labour market in 2009 and 2010 could reduce wage increases somewhat, to 4.5–5 %. This will help curbing the inflation, and if prices on oil and food levels off, both the overall and core inflation rate are expected to decrease to 2 % in 2009 and 2010.
Interest rates
Norges Bank, the Norwegian central bank, sets the sight deposit rate on the basis of a flexible inflation target, which means that it has its eye on both the inflation and the mainland activity. The core inflation is currently still below the defined core inflation target of 2.5 %, but it is closing in. To curb a core inflation rate that is threatening to reach and even surpass the target, Norges Bank is lifting interest rates at a rather hefty pace at the moment. Their forecasts for the economy imply that they believe unemployment rates must rise to above 3 % to avoid higher inflation than the 2.5 % target. Their present interest rate track is to increase the sight deposit rate to 5.75 % during H1 2008.
State finances
Thanks to huge tax revenues and other incomes from the oil and gas industry, Government finances in Norway are very healthy. The annual surplus in the state budget is generally in the 20 % range of GDP. Such a large surplus may tempt the political parties to throw money into the economy in order to finance better social services, educational services, more roads and railway investments and so on. However, so far such backsliding has been avoided for the most part. Taken into account the tightening of the labour market, it becomes increasingly important to hold back on public spending.
Macroeconomic Key Indicators in Norway to 2009 (GDP, private consumption and inflation: Annual percentage changes. Unemployment: Level)
2004 2005 2006 2007 2008 2009 2010
GDP 3,9 2,7 2,5 3,5 1,8 1,6 2,1 GDP excluding oil/gas 4,4 4,6 4,8 6,0 2,8 1,5 2,3 Private consumption 5,6 4,0 4,7 6,4 3,9 3,2 3,2 Unemployment 4,5 4,6 3,4 2,5 2,7 2,8 3,1 Inflation (CPI) 0,4 1,6 2,3 0,8 3,5 1,5 1,6
Source: Statistics Norway
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3 Housing Market
New residential buildings
The housing production has increased considerably since the beginning of this decade, but not enough to keep up with demand. Lower unemployment level, sharp increase in the household’s real income and thus their increasingly optimistic evaluation about the future, and last but not least a big leap in immigration, has lead to a major increase in demand for new dwellings the last years. However, this big surplus demand has also triggered a major price increase on new homes, an increase that has been intensified by a big leap in the price of building materials the last couple of years. The prices on new homes are now so high that demand is falling.
The production of new dwellings stayed relatively low until about 2003, but then in a few years it increased by 45 %. In the decade before 2003, lack of proper building sites in the bigger cities and bureaucratic obstacles like changes in laws and regulations kept production down. As prices on new dwellings soared because of the excess demand, the low production of new homes and the lack of building sites were growing into a serious political issue, especially in Oslo, but also in other major cities. Some years ago, the political authorities of Oslo started taking measures in order to increase the supply of sites, and these efforts are now paying off. The supply of sites is now a smaller problem than the price level of new homes. The exorbitant price level of new homes may result in a production level of new homes of only 2 500 this year, a far cry from the 6 000 new dwellings that are needed every year to keep up with the present population increase in Oslo.
The relatively good performance of the Norwegian economy in 2008-2010, and a population growth of about 1 % a year, indicates that the need for new dwellings will be very high also in the years to come, not only in Oslo and some other cities, but on the national level in general. Reduced production of dwellings, as we expect in 2008, will mean more crowded homes. Most of this increased crowding will be unintentionally – though immigrant families my have more members than the average Norwegian family, so that average family size my increase a little also intentionally.
This situation, with low housing production, will prevail as long as house prices and high interest rates make housing expenses in new homes too high for most households. The forecast for number of dwellings started this year is 26 000, down from 32 500 in 2007. We assume, however, that cost increase will slow considerably in 2009 and 2010, probably to below the wage increases when it is measured as yearly percentage change. As interest rates may ease a bit in 2009 and 2010, relative housing expenses will be reduced, and demand for new dwellings will go up. Our forecasts shows that number of dwelling started will increase to 29 000 in 2009 and 31 000 in 2010.
Measured in monetary units at constant prices, investments in new dwellings will be about 5.7 bill. € in 2008, down from 6.8 bill € in 2007.
More about house prices
Beside the favourable macroeconomic conditions that emerged in 1993 and have been present more or less ever since, the main reason behind the increase in house prices has been the mismatch between housing production and population growth. It was, however, a reduction in the interest rates through 2003 that initiated the present sharp price increase. Increased immigration in 2005 and 2006 kept the price increases going when interest rates started to rise in the second half of 2005. The average price of second hand homes rose by 12 % in 2004, 9 % in 2005, 15 % in 2006 and 11 % in
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2007. In 2008 however, price increase will be much smaller, probably less that the raise in consumer prices. In that case, real prices will fall.
Higher interest rates and a growing mismatch between the average wage level and price level of dwellings has provided for most of the reduced price increase on second hand dwellings. Investors that have speculated in ever rising prices and now are selling off their objects, have also contributed to the situation. In fact, as this is written in May 2008, prices on second hand dwellings are on the average about 1 % lower that at the same time last year, and if this trend continues 2008 may be the first time in more than 15 years that house prices are falling. However, we expect prices to pick up somewhat later in 2008, so that prices on average will be a little higher than in 2007. In 2009 and 2010, lower interest rates and wage increases may lead to price increases of about 5 %.
Housing renovation (RMI)
The market for housing renovation made some big leaps in 2004-2006 after a couple of years with only moderate growth. Measured at constant prices, outlays rose by 6 - 8 % a year in this period. Growth was good also in 2007, with 4 %. In 2007, the value of this market was about 6 bill. €.
According to our analysis, low interest rates, high increase in house prices and an increasingly optimistic population measured by the Consumer Confidence Index were the most important factors behind the growth. Now that the interest rates are going up and the growth in house prices are slowing, we will see somewhat lower growth rate in this sector. However, the reduction will hardly be noticeable this year. Growth rate in 2008 will probably be in about 4 %, the same as in 2007. In 2008- 2010 the forecast shows growth rates of 3 %.
It should also be mentioned that there have been a surge in the rebuilding of unattractive commercial buildings to dwellings, since some 10 per cent of the office space have been vacant in many of the major cities as late as in 2004. Since then, vacancy rates have been going down, and the incentives to rebuild offices are reduced. This could have a negative impact on the housing renovation market, but the effect is hard to quantify.
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4 Non-residential Market
Non-residential construction overall
In the years 1996-2004, non-residential floor space started were fairly stable, varying between 3 and 3.6 mill. m2, when buildings for agriculture, forestry and fishing are excluded. Building starts for these industries are generally about 0.5 mill m2, but for several reasons we have decided not to include them in our national forecast reports for the Norwegian construction market. They are included in the Euroconstruct reports, but the forecasts are less elaborated than the other non-residential sectors.
In the last three years, non-residential building starts (excluding agriculture, forestry and fishing), has broken out of the 3-3.6 mill. m2 interval. More than 4 mill m2 where started in 2005 and 4.5 mill m2 in 2006. In 2007, floor space started broke all records, and ended at almost 5.4 mill m2 (plus 0.6 mill m2 to agriculture, forestry and fishing). In 2008-2010, the non-residential starts will probably be in the 4.7- 5 mill m2 range, excluding agriculture etc.
Measured in € at 2007-prices, and including agriculture, forestry and fishing, the production value was 9 bill. in 2007. The forecast for 2008 is even higher, 9.9 bill. €, even though square meters started will go down. The reason is that an unusual big share of the start-ups in 2007 was in the second half of 2007, and thus square meters under production was much higher at the beginning of 2008 compared to the beginning of 2007. In 2009, the production value of new non-residential buildings is expected to drop by 10 %.
It is mainly the business sector that has contributed to the non-residential boom the last years, particularly office buildings, commercial buildings and buildings for the manufacturing industry. There is also a big increase in the building of holiday houses (which belong to the non-residential sector). Investments in buildings for the business sector will decrease in the forecasting period, but we expect that investments in public buildings will go up.
Buildings for education
Better buildings for education, mainly primary and secondary schools, have been on the political agenda for some years now. These schools are owned and run by the municipalities, and have long suffered from neglected maintenance. A few years ago, the Government introduced an arrangement were the municipalities got refunded interest payments on loans to finance investments in new schools and renovation of existing schools. The municipalities could also use tax money to finance the works, and estimated interest payment saved this way is refunded by the Government. The arrangement has proved to be very popular, and have increased investments of new schools and renovation activity on existing schools. Some 350-400 000 m2 of new educational buildings are now started each year, compared to 250-300 000 m2 before the loan arrangement was introduced. Even though the arrangement mentioned are coming to an end, project information indicates that the level in the forecasting period will continue to increase, and be between 400 000 and 450 000 m2 in 2008-2010.
Buildings for health
Floor space started dropped significantly in 2007, because the figures for 2006 were dominated by the second construction stage of the new hospital for the Trøndelag counties (North and South Trøndelag) in the city of Trondheim. The buildings on this site are now approaching their finishing stage, and investments in buildings for health will drop significantly also in 2008. Investments plans for 2008-2010
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shows, however, that many new projects will start up these years, and investments in buildings for health will start to increase again in 2009.
Industrial buildings
The erection of new buildings for the manufacturing industry was reduced by 40 per cent from 2000 to 2004. This was partly due to the slowdown in the world economy in most of this period, and partly because of an overvalued NOK in 2002 and much of 2003, which reduced the competitiveness of the manufacturing industry. The growth in the world economy picked up in 2005, and the reduced value of the NOK made our export products more competitive again – and so the erection of new factories picked up considerably. In 2007, floor space started was more than twice the figure of 2004.
In 2008, this trend towards increased erection of industrial buildings will probably be broken. Slower growth in the world economy and thus reduced export of manufactured goods, together with increasing interest rates, will reduce demand for new industrial buildings in the future. The effect will, however not be very significant in 2008, but in 2009 and 2010 investments in industrial buildings may go down with 10-15 % each year.
The change rates in these investments may also be affected by more efficient use of floor space in the production of manufacturing goods. This will slow the demand for new floor space, though this effect will be low on a year-to-year basis.
Storage buildings
Project information indicates that the erection of storage buildings will go down in 2008-2010, but the decrease comes from an extraordinary high level in 2007.
Office buildings
The vacancy rate of office buildings have fallen sharply the last couple of years, thanks to strong rise in employment. Vacancy rates will continue to fall also in 2008. New office space is necessary to fill the gap between total office space demanded and what is available on the market. This, coupled with project information, points to about 10 % increase in floor space started for new office buildings from 2007 to 2008, and also from 2008 to 2009.Slower growth in the economy and thus slower growth in the need for office space will reduce square meters started in 2010, but only back to the quit high 2008-level.
Commercial buildings
Strong growth in consumer spending has lead to a continuing high level of investments in new commercial buildings. An all time high was reached in 2007, and we expect a further increase this year – but only by one or two per cent. In 2009, the start up of new commercial buildings will decrease considerably, but not because of reduced demand. The central authorities have decided once again to put restrictions on establishing new shopping centres and malls (the last one lasted from 1999 to 2004). We expect these restrictions to be in effect by 2009, thus reducing floor space started of commercial buildings from 750 000 m2 in 2008 to 500 000 m2 in 2009 and 2010.
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Agricultural buildings
This sector also includes buildings for forestry and fishing, but buildings for agriculture make up most of the floor space and the value of the investments.
Floor space started increased steadily from 2000 to 2004, mainly due to restructuring of the farming business. This trend reversed in 2004, because the speed of this restructuring had reached a top and then slowed down. However, for some unaccountable reason, floor space started increased again in 2007, by no less than 30 %. We believe that this was rather at random, and that floor space started will go down to more “normal” levels in 2008-2010.
Miscellaneous
About 75 per cent of new buildings in this sector are non-residential buildings for households, i.e. holiday houses and private garages. The rest is mostly assembly buildings for the public sector.
The erection of garages is closely linked to the number of dwellings built each year. The construction of new garages will therefore be lower in 2008-2010 than in 2007, since dwellings started is expected to be lower than in 2007. The year 2008 will be the bottom year, and garage space started will increase in 2009 and 2010 in line with the increase in production of new dwellings.
Investments in new holiday houses have been rising sharply for many years – it seems to be a strong connection between floor space started for holiday houses and the price level on second hand dwellings! Since we expect almost no change in the prices on second hand dwellings this year, there will also be no increase in the production of holiday houses. In fact, we expect a decline, but this decline is confined to holiday flats. The production of holiday cottages will probably not go down. It seems that too many holiday flats have been built the last years, and demand is no longer matching supply. We do not see a new rise in the production of holiday houses until 2010.
We assume an increase in the erection of assembly buildings in 2008 compared to 2007, a decline in 2009 – and an increase again in 2010. Altogether, this means that the total level of new construction in the sector Miscellaneous will increase a little in 2008, go down in 2009 and increase in 2010.
Non-residential renovation (RMI)
About 2/3 of non-residential renovation on buildings are works for the private sector, and 1/3 for the public sector. Renovation works on holiday houses and garages for the households are, however, not included in these figures The value of this last market is probably around €1.5 bill. Most of this is building materials, and the works are carried out mostly by households. The renovation on these buildings is not included in this text or in the tables for Norway.
Model simulations of the demand for renovation services from the business sector imply that age adjusted indexes for the stock of buildings put together with operating results in the business sector and long-term (10 year) interest rates can explain much of the activity fluctuations in this sector.
With plausible assumptions for the development in operating results, and forecasts for interest rates, the model shows that the demand for renovation works on buildings for the private industry sector could be reduced. The main reason is higher interest rates. Another effect, that may be difficult to quantify but is probably of some importance, is the effect from seemingly increased propensity for
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business to change location. We take this into consideration for that part of the RMI-forecast that is related to the business sector, which then shows a smaller fall than the model mentioned above indicates.
To evaluate renovation works on public houses, which in this context are mainly buildings for health and education, we take into consideration the growth in the building stock as well as the Government arrangement giving interest free loans to the municipalities to renovate schools (see the paragraph on Buildings for education above) and churches. From 2008, however, this arrangement is coming to an end. We also take into consideration that the present Government (in office from autumn 2005) are set to improve the general economy of the municipalities. We believe that the increase in demand for RMI from the public sector will offset the decline from the private sector, so that the total demand will show a small increase in 2008-2010.
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5 Civil Engineering Market
Investment in civil engineering works have increased steadily since the year 2000, due to higher investments in roads and metros, in power supply and until recently, in land based oil and natural gas installations. The last year, growth rates were as high as 6 %, and another 3 % increase is expected in 2008. Investments in land based oil and natural gas installations have declined to very low levels, but this is compensated by increased investments in transport infrastructure.
Investments will continue to grow also in 2009, but the growth rate will fall to only 2 %. At the moment, 2010 looks to be the first year since 2001 with reduced investments in civil engineering works. The reduction – if it materializes - is mainly coming from lower investments in roads (including bridges and tunnels). However, the forecast is based mostly on projects plans for new roads known today. If the Government should decide to give budget appropriation to investments in highways a higher priority (or lower, which is less likely) in the 2010 budget than we anticipate, this could have major implication for the forecasts for investments in roads. Since investments in highways make up some 40 % of the civil engineering market, a major discrepancy between our anticipation and the real budget for 2010 will also have implications for the forecast for the total civil engineering market. Including local roads, the share of investments in roads, including bridges and tunnels, is almost 50 % of total investments in civil engineering works.
Noticeable implications for the forecasts of the civil engineering market, although not to the same degree as investments in roads, are the Government budget plans for investments in railways. The present administration has as one of their major political priorities to strengthen the quality and availability of public transport, mainly by reducing commuter traffic by car. To achieve this, the rebuilding and expansion of the railway network is an important measure. Grants to investments in railway tracks was increased by 50 % in the 2007-budget. The 2007-level was kept in the 2008 budget, measured in constant prices, and we anticipate that grants will be high also in 2009 and 2010, may be even drifting slowly upwards from the 2008-budget.
Total investments in railways also include metros and trams. Some major projects in the Oslo and Bergen area, partly paid for by the municipalities, will keep investments in metros and trams extraordinary high in 2008 and 2009. As the activity on some of these projects is going down towards the end of 2009, total investments in trams and metros will be lower. This will probably also mean lower total investments in railways, metros and trams in 2010.
Investments in the energy sector have increased steadily since 2001, and this development will continue in 2008-2010. High investments in the energy sector are needed to meet increasing domestic demand and to reduce the occasional shortage in years with low precipitation and thus low production from our main energy source, hydroelectric power.
While hydroelectric power plants and power lines traditionally make up almost all of the investments in the energy sector, wind power parks and natural gas plants are increasing their share – in spite of major protests from environmental groups. They see the wind parks as a threat to bird life, and the emission from gas plants enhance global warming, since they produce a lot of CO2. Efforts are made, however, to build systems that can “trap” the emission of CO2 and then prevent it from going into the atmosphere.
The construction of these plants also makes it harder to give good forecasts for civil engineering investments in the energy sector since it is not well known how much of the investments in natural gas
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power plants that actually are civil engineering works and what is investments in equipment and installations. Of the investments in wind parks, about 10 % of total investment outlays are calculated to be civil engineering works.
We also expect investments in water supply and sewerage system to increase in the forecasting period. Such an increase is needed because much of the water supply system is old and badly need upgrading. It is estimated that 40 bill € is needed to get water supply and sewerage systems in good condition. The municipalities are the main builders of such installations, and since their economic situation has improved the last years, it seems safe to expect these investments to increase.
Information on investment trends in the telecommunication sector is scarce, but the general need for such installation in modern society indicates an increase.
Investments in land based oil and gas installations are an important sector in the Norwegian civil engineering market, though it is not specified in the master table. These investments are now falling to a minimum as two major projects are just completed. This is the reason for the reduced activity in the “Other” sector in the master table in 2006-2008. The rest of the “Other” sector will grow also in these years, as in 2009 and 2010.
Maintenance of civil engineering works (including management of highways, such as snow clearance) will continue to grow throughout the forecasting period. Last year, the growth rate reached 8 %, due to a big leap in Government grants to maintenance of highways in the 2007-budget. Grants increased also in the 2008-budget, but this time focus shifted from ordinary maintenance to management. Maintenance of civil engineering works, including management of highways, is forecasted to grow by 2 % in 2008-2010.
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APPENDIX – DEFINITIONS
Table 1 • Population, Households: number of people at the beginning of the year • Unemployed and unemployment rate: Survey-based.
Table 2 • Historical figures are based on national accounts. No black economy figures is included, but the households own work on new dwellings is included. DIY is included in the renovation figures for dwellings.
Table 3 • Definition 1+2 family dwellings vs flats: 1+2 family dwellings include row-houses, chained houses and other small houses. • Housing stock: Figures based on the housing census from 2001. • Second homes: Based on figures from Statistics Norway. • Home ownership rate: Based on the housing census from 2001.
Table 4a • Education buildings: Public and private schools, universities and other schools for higher learning. • Health: Hospitals, including medical schools, clinics, nursing homes. • Industrial: Factories and repair shops, buildings for treatment plans and water supply, buildings in connection with energy production. • Storage buildings: Warehouses, wholesales deposits, silos, cold storages, car parking houses. • Offices: Office buildings for private and public services, town halls, banks, media building. • Commercial: Super markets, other buildings for retail shops, department stores, hotels and restaurants, exhibition buildings, buildings for seminars and congresses. • Agriculture: All buildings for farms, and also including buildings for forestry and fishing. • Miscellaneous: Holiday houses, private garages, cultural and entertainment buildings, sports halls, churches, police stations, prisons, emergency buildings.
Table 4b • Other transport includes airports and harbours.
Table 5 • Volume Private consumption, public consumption, etc: At market prices, VAT included.
Extra • Sources of data: Table 1, Statistics Norway. Table 2, Statistics Norway and Prognosesenteret. Table 3, Statistics Norway and Prognosesenteret (forecasts). Table 4 a, Prognosesenteret. Historical figures are calculated from the construction statistics of Statistics Norway. Table 4 b, Statistics Norway and Prognosesenteret (forecasts). Table 5, Statistics Norway.
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Country/Pays/Land: Norway Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 4 577 4 606 4 640 4 681 4 737 4 780 4 820 Bevölkerung
Households ('000s) Ménages 1 993 2 006 2 021 2 038 2 056 2 072 2 090 Haushalte
Unemployed ('000s) Chômeurs 107 112 86 68 70 75 84 Arbeitslose
Unemployment rate (%) Taux de chômage 4.5 4.6 3.4 2.5 2.6 2.8 3.1 Arbeitslosenquote
Change of GDP Variation du PIB 3.9 2.7 2.5 3.5 1.8 1.6 2.1 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 0.4 1.6 2.3 0.8 3.5 1.5 1.6 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 3.0 3.4 3.7 7.6 8.0 4.0 3.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.0 2.2 3.1 5.0 5.7 5.1 5.1 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.4 3.7 4.1 4.8 4.3 4.0 4.0 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Norway Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 6 758 24.0 12.8 7.8 6.1 -15.0 -1.0 7.3
Logement Renovation 6 130 5.9 8.0 7.2 6.0 4.1 3.9 3.0
Wohnungsbau Total 12 888 14.4 10.4 7.5 6.1 -5.9 1.6 5.0
Non-residential construction New 9 010 15.2 14.3 9.8 14.0 9.7 -10.2 0.1
Bâtiments non résidentiels Renovation 5 224 4.0 2.4 3.7 1.8 0.0 1.0 1.0
übriger Hochbau Total 14 234 10.1 9.2 7.3 9.2 6.1 -6.3 0.4
Building New 15 768 19.0 13.7 8.9 10.5 -0.9 -6.8 2.9
Bâtiment Renovation 11 353 5.0 5.2 5.5 4.0 2.2 2.6 2.1
Hochbau Total 27 122 12.1 9.8 7.4 7.7 0.4 -2.8 2.5
Civil engineering New 4 309 0.7 5.1 2.8 6.0 2.7 1.1 -1.1
Génie civil Renovation 2 363 -1.9 -0.5 -4.4 8.1 2.0 2.3 2.3
Tiefbau Total 6 671 -0.3 3.0 0.2 6.7 2.5 1.5 0.1
TOTAL CONSTRUCTION OUTPUT 33 793 9.1 8.3 5.9 7.5 0.8 -1.9 2.0
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 1.81 16.5 18.0 2.9 15.0 -7.0 4.0 3.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 8.0000 NOK
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Country/Pays/Land: Norway Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 16.5 16.0 18.5 16.5 14.5 16.0 16.0 Baugenehmigungen Familienhäuser
Flats Collectif 16.4 16.0 17.9 16.0 12.5 14.0 15.5 Mehrfamilienhäuser
TOTAL 32.9 32.0 36.5 32.5 27.0 30.0 31.5
Housing starts 1+2 family dwellings Logements commencés Individuel 14.3 16.6 16.2 16.3 14.0 15.5 15.7 Baubeginne Familienhäuser
Flats Collectif 15.7 15.0 17.1 16.2 12.0 13.5 15.3 Mehrfamilienhäuser
TOTAL 30.0 31.6 33.3 32.5 26.0 29.0 31.0
Housing completions 1+2 family dwellings Logements terminés Individuel 12.2 14.7 13.6 14.0 16.0 14.0 15.0 Baufertigstellungen Familienhäuser
Flats Collectif 10.9 13.7 14.5 15.7 16.0 12.0 13.0 Mehrfamilienhäuser
TOTAL 23.1 28.4 28.1 29.7 32.0 26.0 28.0
Housing stock Logements existants 2 370 2 390 2 405 2 420 2 440 2 455 2 480 Wohnungsbestand
thereof second homes dont résid. secondaires 370 375 380 385 390 395 400 davon Zweitwohnungen
thereof vacancies dont inoccupé davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 77.5 77.5 77.0 77.0 77.0 77.0 77.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Norway Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 1 024 419 43.1 -7.6 21.4 -2.6 23.6 -13.8 5.8 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 381 131 -19.1 34.6 -19.5 -28.3 -12.8 31.5 8.6 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 811 713 -3.9 9.7 22.7 30.2 -0.8 -15.4 -10.3 Industriegebäude
Storage buildings Bâtiments de stockage 1 247 484 20.2 14.7 6.8 66.0 -10.5 -13.2 -2.3 Lagergebäude
Office buildings Bureaux 729 537 -28.2 33.6 40.9 37.4 41.2 1.9 -9.8 Bürogebäude
Commercial buildings Commerces 1 236 1 352 36.4 37.8 18.1 -3.8 34.5 -33.0 -1.9 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 570 628 24.2 -0.5 -6.6 10.5 -4.1 -15.7 3.5 Landwirtschaftsgebäude
Miscellaneous Autres 3 011 1 756 20.6 12.9 7.1 15.3 3.8 -1.6 3.5 Sonstiges
Total 9 010 6 020 15.2 14.3 9.8 14.0 9.7 -10.2 0.1 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 8.0000 NOK
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Country/Pays/Land: Norway Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 3 752 1.9 9.2 3.2 8.6 2.8 -0.1 -1.0 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 363 9.8 -19.7 -16.9 98.6 8.6 4.7 0.0 Bahnanlagen
Other transport Autres réseaux 126 4.6 3.0 -5.8 -1.4 2.6 0.2 0.3 Übrige Verkehrsinfrastruktur
TOTAL 4 241 2.6 6.7 1.7 12.6 3.3 0.4 -0.9
Telecommunications Télécommunications 196 5.1 4.9 0.0 5.0 5.0 5.0 5.0 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 850 20.3 6.4 7.9 8.3 1.2 4.2 1.3 Energie- und Wasserversorgung
Other Autres 1 384 -11.8 -6.1 -6.8 -8.5 0.4 3.0 1.6 Sonstiges
Total 6 671 -0.3 3.0 0.2 6.7 2.5 1.5 0.1
1) At 2007 prices, excluding taxes. 1 euro = 8.0000 NOK
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Country/Pays/Land: Norway Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 118.3 5.6 4.0 4.7 6.4 3.9 3.2 3.2 Privater Verbrauch
Public consumption Consommation publique 55.9 1.5 0.7 3.0 3.1 3.0 2.8 3.0 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 59.3 10.2 13.3 7.3 9.6 1.1 1.4 2.7
of which construction 25.1 11.9 11.9 7.1 8.4 0.4 -3.5 2.3
Stocks (contribution as % of GDP) Variations de stocks 5.5 1.2 0.4 -0.1 -1.3 0.0 0.0 0.0 Vorratsveränderung
Exports Exportations 132.8 1.1 1.1 0.4 3.2 0.4 1.2 1.8 Exporte
Imports Importations 85.7 8.8 8.7 8.1 8.6 4.7 3.8 3.4 Importe
GDP PIB 286.1 3.9 2.7 2.5 3.5 1.8 1.6 2.1 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 8.0000 NOK
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POLAND PAB-PCR&F [email protected] www.euroconstruct.pl
Mariusz Sochacki e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
POLAND
1 Summary
The macroeconomic indicators noted in the four quarters of 2006 and first quarter of 2007 show that the Polish quick economic growth should be maintained in 2008.
The sources of economic growth are: recovery of investment demand, stable and high growth of consumption, low interest rates and low inflation rate.
According to the preliminary estimation, the Gross Domestic Product in 2007 was by 6.6 % higher than a year before, while in 2006 that increase was equal to 6.2 % and in 2005 it was 3.6 %. Positive trend maintained at the beginning of the year 2008 and in the 1st quarter estimated growth is ca. 5.8-6 %.
Changes of the GDP and gross domestic fixed capital formation in Poland in the consecutive quarters of 2004-2008 (y-o-y) 30 boom 25 GDP GDFCF 20
% 15 union effect 10
5
0
1 3 2 4 2 3 4 2 Q4 Q Q Q4 Q1 Q3 Q Q1 Q Q4 Q1 Q3 Q Q1 007Q2 2006Q 2 2008Q 2004 Q2 2005 Q Source: PAB – PCR&F
In 2007 the domestic demand has grown by 1 per cent point faster than in 2006 (8.3 %). This was the result of increase of the total consumption by 5.3 %, including the individual consumption by 5.2 %, with the growth of the accumulation rate higher than in 2006 (19.1 %). The gross outlays on the fixed assets, after the growth by 15.6 % in 2006, have increased by 19.3 % in 2007. The investment rate has increased to more than 22 % as compared to 19.7 % in 2006 and 18.2 % in 2005.
The positive trend maintained in the range of the gross outlays for the fixed assets at the beginning of the year 2008 and in the 1st quarter estimated growth is ca. 18 %.
After the big acceleration of the growth of investment and construction production in the first half of year 2007 (lasting since the second half of year 2005 and during the whole 2006), in the third quarter and particularly in the fourth quarter of 2007 the rate of the development of those favourable economic phenomena was weakened.
The rate of growth of the economy shall remain stable within the medium-term horizon, however, it will be lower than observed in the previous year. The continuation of the positive tendencies on the labour market is expected, including increase of the employment rate and downfall of the unemployment rate.
The main area of risk is connected to the development of the situation in the world economy, particularly in the Euro zone. The internal factor of some risk is the acceleration of the inflation dynamics in the beginning of 2008.
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In line with the present projection we were led to revise our November estimation for rate of growth for construction in 2007 from 13.1% to 12.4%. This downward revision is caused mainly by the lower than expected level of outlays for civil engineering construction.
At the beginning of 2008, the Polish construction has grown markedly slower than year ago. In the first quarter of 2008, the production in construction exceeded previous year’s level by 17.4% (while a year ago it was 51.1% - in entities with more than 9 employees).
The possibilities of the construction development will depend on the ability of the economy to invest in the new building objects and on the needs in the range of modernisation as well as on the size of carried out renovation works. Good economic results reached by the Polish economy in 2006 and 2007 point to the maintaining of the growing tendencies and to the possibility of maintaining the high rate of the economic development in 2008-2010.
The rate of the economical and investments growth and improvement of the situation in the construction will be in the next years positively affected by the following factors: • the rate of the economic development and ability to invest on the macreconomic level, • influence of the structural funds on the construction demand, • increase of the investment outlays in the framework of the development programmes involved with accession to EU, • size and dynamics of the infrastructural and sport investments involved with the preparation to the European football championship in 2012, • the rate of development of the particular sectors of the construction market on the branch level.
The following factors will negatively influenced the situation in the construction in the next years: • Increase of the unbalance on the construction market due to advantage of the demand over the supply, • lack of construction potential, • lack of the skilled staff, • strong increase of the direct costs of construction production, • rapid increase of the workers’ salaries, • further increase of the prices of the building materials.
According to the last forecast, the construction production in 2008 will increase by 14.6 %, in 2009 and 2010, it will increase by 10.7% and 9.4%, respectively. We predict that till 2010, the highest growth of the construction production will be observed in civil engineering sector, which will be higher by 92% than that noted in 2006.
Construction Sectors by Type in Poland till 2010 (2006 year = 100)
2006 =100 250
200 NewResidential NewNon-residential 150 R&MBuilding
100 Civil Engineering
50 2004 2005 2006 2007 2008 2009 2010 Source: PAB – PCR&F
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2 Macro-economic Outlook
The high rate of the economic growth was maintained in 2007 and first quater 2008. The growing tendencies – created by the strong domestic demand, both investment and consumption one – have covered all main sectors of the economy.
The positive changes on the labour market have been strenghtened: increase of the number of employees and labour places as well as decrease of the unemployment rate have been observed. The financial results of the enterprises were better than a year before, making possible the improvement of the salaries and financing of the investments.
According to the preliminary estimation, the Gross Domestic Product in 2007 was by 6.6 % higher than a year before, while in 2006 that increase was equal to 6.2 % and in 2005 it was 3.6 %.
Annual rate of the changes of GDP, the domestic demand and its elements in Poland in 1996- 2007, %
25
20
15
10
% 5
0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-5
-10
-15
GDP Total consumption Gross outlays on the fixed assets Domestic demand in total
Source: PAB – Polish Construction Research & Forecasting
The domestic demand has grown by 1 per cent point faster than in 2006 (8.3 %). This was the result of increase of the total consumption by 5.3 %, including the individual consumption by 5.2 %, with the growth of the accumulation rate higher than in 2006 (19.1 %). The gross outlays on the fixed assets, after the growth by 15.6 % in 2006, have increased by 19.3 % in 2007. The investment rate has increased to more than 22 % as compared to 19.7 % in 2006 and 18.2 % in 2005.
The high dynamics of investing was influenced, first of all, by the positive evaluation of the perspectives for the domestic and foreign demand, done by economic units, as well as the necessity of increasing the production abilities. The good economical and financial situation of the enterprises as well as the availability of the bank credits and gradual absorption of the EU means have fostered the investing activity.
According to the Ministry of Finances, the gradual increase of the external unbalance can be also expected, however, this shall not threat the stable economic development. The economic policy will be aimed mainly to the changes, which should guarantee the long-term effects, like increasing of economy innovation ability and strengthening of the economic growth.
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The possibilities of the construction development will depend on the ability of the economy to invest in the new building objects and on the needs in the range of modernisation as well as on the size of carried out renovation works. Good economic results reached by the Polish economy in 2006 and 2007 point to the maintaining of the growing tendencies and to the possibility of maintaining the high rate of the economic development in 2008-2010.
The rate of the economical and investments growth and improvement of the situation in the construction will be in the next years positively affected by the following factors: • increase of the GDP and investments in the economy, • increase of the employment rate and downfall of the unemployment rate, • increase of the domestic demand, both consumption and supply one, • increase of the investment outlays for the construction by the self-governments and budget units, what is involved with absorption of the EU cohesive funds, • increase of the profitability of the enterprises, and in consequence also increase of their ability to invest – particularly in the non-productive fixed assets, like building objects, • improvement of the financial flowability of the economical subjects, as well as their payment and credit ability, • increase of the investment outlays in the framework of the development programmes involved with accession to EU, • organisation by Poland and Ukraine the football European Championship in 2012.
In 2007, however, the significant dangers for the development of the Polish economy and construction have been revealed, which may result in the worse than assumed scenario: - external o worsening of the market conditions – the downfall of the rate of growth of the world GDP, mainly caused by decrease of the economical activity in the developed countries, particularly in US and in Euro zone, what results in the lower dynamics of the export of Polish goods and services, o turbulences on the world financial markets, particularly on the mortgage loans market, have more significant results for the economies of the main trade partners of Poland, for the domestic financial market and for evaluation of the future market conditions by the potential investors, o strong appreciation of the Polish zloty significantly diminishes the competitiveness of the Polish goods and services on the world market, as well as the area of allocation of the foreign investments, - internal o the supply barriers in the economy will lead to the higher inflation rate and more restrictive monetary policy; o increase of the inflation processes in the economy as the result of increase of the costs of energy, fuels and salaries, o limitation of the access to the credits as the result of more restrictive monetary policy and procedures of evaluation of the credit ability.
According to the medium-term prognosis for Poland, the average rate of growth of the GDP in 2008- 2010 will slow down as compared to 2006-2007.
The investment outlays in 2008-2010 will be affected by the favourable evaluation of the prospects for the Polish economy by the contractors, in the light of the maintained increase of the consumption demand in Poland and increasing investments financed by EU.
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The increased consumption and investment demand will accelerate the economic growth in 2008- 2010 and positively affect the size of the labour demand, including the rate of creation of the new labour places. The lowering of the tax wedge shall cause the growth of the labour demand and shall positively affect the labour supply. Taking into consideration the above assumptions one can estimate that the unemployment rate will decrease from 13.8 % in 2006 to about 4.5 % in 2010 (according to Eurostat definition).
According to the prognosis of the currency course for 2008 – 2010, the further gradual appreciation of the Zloty regarding to Euro is expected, as the result of the strong macroeconomic foundations of the Polish economy, increase of attractiveness of the actives denominated in Zlotys due to more restrictive monetary policy of the CMP, and inflow to Poland the direct foreign investments.
According to the prognosis, some weakening of the rate of growth of the GDP is expected in 2008 and 2009, to the level 5.8 % and 5.2 %, respectively; the acceleration to 5.7 per cent points is expected in 2010 and will be accompanied by the suitable diminishing of the rate of hrowth of the outlays on the fixed assets in the economy.
Prognosis concerning GDP and gross Macroeconomic Key Indicators in Poland till domestic fixed capital formation in Poland till 2010 (y-o-y) 2010 % 25 2005 2006 2007 2008 2009 2010
20 GDP 3.6 6.2 6.6 5.8 5.2 5.9
15 Private 6.5 15.6 19.3 14.5 10.5 12 consumption
10 Gross domestic fixed capital 2.0 4.8 5.2 5.8 5.4 4.7 formation 5 Unemployment 13.8 13.8 9.4 7.2 5.8 4.5 rate
0 2004 2005 2006 2007 2008 2009 2010 Inflation 2.1 1.0 2.5 3.7 3.3 2.8 Gross Domestic Product Investment outlays Source:PAB-PCR&F
Assuming no supply shock, in the second half of 2008 the gradual decreasing of the annual inflation rate can be expected; the average annual dynamics of the consumption prices is expected as 3.7 %.
The inflation rate in 2009-2010 will oscillate around the level of 3 %. The loss of financial balance, in spite of the expected maintaining of the inflation level in the prognosed period on the level of about 3 % annually, can cause the further increase of the bank credits rate for the economy and for the households, particularly negatively affecting the market of the mortgage loans.
Contrary to the previous assumptions, some lowering of the rate of growth of the investment construction works will take place, as the result of increase of unbalance in the economy and more restrictive conditions of financing of the construction investments, in spite of expected increase of the outlays for the sport, touristic and service objects for EURO 2012 organised in Poland and involved with this event objects of the communication infrastructure, co-financed by EU cohesive funds.
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Construction market
After the big acceleration of the growth of investment and construction production in the first half of year 2007 (lasting since the second half of year 2005 and during the whole 2006), in the third quarter and particularly in the fourth quarter of 2007 the rate of the development of those favourable economic phenomena was weakened.
On the basis of own studies and analyses of the tentative data by CSO, the PAB - Polish Construction Research & Forecasting evaluates that the total value of the Polish construction market – in the comparative prices – has increased by about 12.3 % in 2007 comparing to the level reached in 2006.
The annual changes of the construction production completed in Poland in 2000 – 2007, y-o-y 1 half of % 2000 2001 2002 2003 2004 2005 2006 2007 2007 35 30
25 Construction production 20 in to ta l 15
10 5 0 Construction enterprises -5
-10 -15 Source: Estimations by PAB - Polish Construction Research & Forecasting, CSO
According to the estimations of PAB - Polish Construction Research & Forecasting, the total value of the Polish construction market in the whole year 2007 was equal to 133 bln zloties (in the current prices).
The high growth of the construction production in 2007 was accompanied by the suitable growth of the production of the majority of building materials and products registered by CSO. The improvement of the market conditions in the construction, expresssed in the significant growth of the value of completed construction works, has caused the strong growth of the employment rate in the construction industry.
The average employment in the construction has increased in 2007 by more than 9 % comparing to 2006, including 9.1 % growth in the enterprises, and on 30th of December 2007 was equal to 365 thous. of employed persons.
The average monthly gross salaries in the construction enterprises in 2007 was equal to 2 975.8 zloties and was by 400.3 zloties, i.e. by 15.5 % higher than in 2006. In December 2007 it was equal to 3 350.7 zloties and was by 12.3 % higher than in December 2006.Therefore, re-calculated average gross pay-per-hour rate was in 2007 equal to 17.7 zloties.
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The growth of the sold production of the industry of the products from other non-metallic raw materials was equal to 12.4 % in 2007.
The annual rate of change of the production of the selected basic building materials in 2002 - 2007 (in % of the prev. year)
25 17,2 20 15,6 16,114,8 15 10,7 8,6 7,8 10 5,6 4,1 4,4 4 5 3,3 % 0 -5 -1,8 -6,3 -10 -8,1 -10,2 -15 -13,5 -20 -25 -20,3 2002 2003 2004 2005 2006 2007
cement brick woodwork
Source: PAB - Polish Construction Research & Forecasting, CSO
On the basis of our own research Polish Construction Research & Forecasting estimates that the total value of the Polish construction market three months of 2008 has increased by about 15% in comparison to the price level of three months of 2007. According to our estimations, the value of the Polish construction market in first quarter of 2008 in current prices amounted to about PLN 26.5 bln., ie. EURO 7.7 bln. The most rapid increase of sales value of construction production was noted in residential construction companies.
The research performed by PAB-PCR&F under the framework of Construction Monitoring shows that the following phenomena and trends were observed in the Polish construction in first quarter of 2008: 1. Significant growth of outlays on residential construction: the share of the buildings construction in the object structure of the construction production after 3 month of 2008 has increased by 4.2 pp. There was observed a decrease of the share of non-residential construction, including industrial buildings construction, by 3.7 pp. 2. The highest increase of the construction production was noted in Wielkopolskie and PomorskieVoivodships. The production has been concentrated in three voivodships: Mazovia Voivodship 34%, Silesia Voivodship 11.5% and Posnania Voivodship 11%. 3. The average monthly gross salary in the construction industry in March 2008 was PLN 3 156 and was by 16.67 higher than in the corresponding month of the previous year. 4. The sold production of the industry of the products from other non-metallic raw materials increase by 10.4. 5. Prices of construction production have increased by 7.6% in the nine months of 2007 (according to the Central Statistical Office‘s estimations). PAB-PCR&F estimates that the increase of prices in the Polish construction was by 2.5 per cent points higher.
Moreover, we were led to revise our November estimation for rate of growth for construction in 2008 from 13.1% to 12.3 %. According to the last forecast, the construction production in 2009 will increase by 10.7% We expect the deceleration of the growth rate to 9.4% in 2010.
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3 Housing Market
In 2007, the Central Statistical Office registered 133.9 thousand dwellings as completed, that means by 16% more (17,4 thousand dwellings) more than in the previous year. High increase in housing for sale and rent took place (20.5%), as well as in individual construction – 71.6 thousand dwellings were completed, i.e. by 24.4 % more than in the previous year.
The average usable floor space per 1 completed dwelling in 2007 was equal to 105.6 m2 and was by 3.9 m2 higher than in 2006.
According to the initial CSO estimations, 35.1 thousand dwellings were completed in the first quarter of 2008, which is more than the previous year’s level by 30.2%.
The highest increases (by 76.3%) were noted in housing for sale and rent, and their share in the dwellings construction has increased to 51.1% as a result of completion of large number of dwellings sale contracts, made in the previous years.
The intensified activity on the residential real estate market, observed in 2006 and 2007, has caused the very rapid growth of the dwellings prices, improving the market conditions for the developers companies and increasing the number of the bank customer interested in the mortgage loans.
The very high increase of the number of the issuing construction permits, started constructions of the new objects and completed zero-stated and as-built objects has been noted.
Changes of the number of issued permits and started constructions of dwellings in 2000-2008 (y-o-y) 60
% 40
20
0
9 0 1 3 4 5 6 001 03 00 199 200 2 200 2002 2002 20 2 2004 200 200 200 2007 2007 2008 -20 f f er hal alf at I half 2000 I I half I hal I h I half 2005 I half 2006 I half I qu construction permits -40 started constructions
-60
Source: PAB – Polish Construction Research & Forecasting
The boom lasted till the fourth quarter of 2007, in which the demand for purchasing of the new dwellings was starting to fall down as the result of lack of acceptation of the excessive prices by the market and more restrictive criteria of mortgage loans.
Despite a rise in household incomes, the possibilities of purchasing the dwellings started to shorten as the result of increase of the bank credit interest rates
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Even now we observe the rapid deceleration of the growth of demand for purchasing of the new dwellings, what is confirmed by decrease of the number of the mortgage loans granted in the fourth quarter of 2007 and first quarter of 2008.
We estimate that the number of 250 thousand dwellings construction permits, issued in 2007, does not reflect the actual demand, but express the speculation bubble, which will collapse – according to our expectations – at the end of the year.
The situation is complicated by the fact that more than 30 % of the dwellings (according to our estimations), offered for sale by the developers in big cities in 2005-2006, has been bought by the Polish and foreign investors for the further re-selling.
In PAB-PCR&F’s opinion, 2008 and 2009 will be the years of consumption of the benefits by the housing investors, which shall offer for sale the large number of dwellings, seeing no further prospects for increase of the prices, and fearing of the growing costs of dwelling maintaining and serving the credits taken for the purchasing.
More and more new dwellings with the prices lower than the developers’ offer are now available on the secondary market; this is the serious competition for the developers companies.
The expected decrease of the prices of the dwellings with simultaneous big increase of the prices of the building materials and building workers salaries, will significantly influence the very high profitability of the housing investments of the developers companies.
In consequence we expect the significant downfall of the number of the issued dwellings construction permits in the next quarters of 2008.
We expect that in 2008 and in the next years, the growing level of the construction costs will be serious problem for the further development of the housing construction in Poland.
As a consequence, we observe the effect of the investment overheating, which in 2009 and 2010 can be as recessive as in the beginning of the decade after very high growth at the end of nineties.
We prognose that in 2008 the outlays for the residential construction will keep the high, two-digits level caused by completion or necessity of securing the constructions started in 2007 and in the beginning of 2008.
According to the last forecast, the new residential construction will grow by 12.5% in 2008, by 5 % in 2009 and by 7.7% in 2010.
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4 Non-residential Market
The significant growth on the non-residential buildings market has been observed in 2007, which was fourth year after Poland's accession to the EU
The prosperity has been noted mainly in the private sector and only slight growth in the public one.
In the second consecutive year CSP has noted the growth of the floor space and number of buildings with issued construction permits.
Number and changes of non-residential construction permits issued in 2000-2007 (y-o-y)
buildings m2 27 500 promess sutrface
24419,0 25 000
80 000 21945,0 21837,0 22 500 21031,0
19488,8 20 000
20108,7 17743,7 55 000 17361,3 17 500
15 000
30 000 12 500
10 000
5 000 7 500 2000 2001 2002 2003 2004 2005 2006 2007
Source: PAB – Polish Construction Research & Forecasting
A key factor for this excellent result is a booming national economy, a trend that has continued since Poland's accession to the European Union in 2004.
We forecast further two-digit growth in the non-residential construction in 2008-2010, as the result of maintaining the favourable phenomena in the economy – downfall of the unemployment rate and increase of the incomes and the individual consumption, which strongly improved the construction and investment market conditions in 2006 and 2007.
The danger for that development can be some weakening of the foreign production investments, involved with the increase of the labour costs in Poland. However, the needs of construction of the sport and service objects for EURO 2012 shall allow to keep the high rate of growth, mainly in the service and public construction.
PAB-PCR&F forecasts that the total non-residential construction production in 2008 will increase by 6.3 %.
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Public non-residential construction
Together with accession of Poland to EU and inflow of the structural funds to the local self- governments, activation in the public construction took place after years of stagnation; this refers to the cultural, educational and sport objects as well as hospitals and social welfare objects.
Those positive tendencies observed in 2005 and 2006 have been stopped in 2007 as the result of the chaos on the construction market, expressed in the apparent shortage of some building materials and speculative increase of their prices, deepening lack of skilled construction staff and rapid growth of the salaries in the construction industry.
As a result the construction market, stable and predictable till the end of 2006, in 2007 became unpredictable, leading to total unbalance of the prices and return to the so called “contractor’s market”, forcing the prices conditions.
The weak growth of the number and dynamics of issued construction permits for public buildings in 2007 points to some weakening of the growth rate in public construction in 2008.
Number and changes (y-o-y) of public buildings permits issued in 2000-2007
b u ild in g s % 20 000 100 number % changes 90 80 17 500 70 56,3 60 15 000 50 40 30 12 500 20 10 0,0 0,6 10 000 -10,0 0 -2,5 -10 -4,0 -20 7 500 -22,3 -30 -40 5 000 -50 2000 2001 2002 2003 2004 2005 2006 2007 Source: PAB-PCR&F
Significant development of the public construction is expected in 2008-2009 in connection to start of a number of the projects accompanying the UEFA European Football Championship in 2012.
The projects accompanying the Championship EURO 2012 can be carrying out according to the simplified procedures, mainly administrative ones. They also can be supported by the state and self- governments budgets.
There are 71 new investments listed in the project of the Government Act, enlarging the list of enterprises connected to EURO 2012; they are mainly construction and re-construction of the streets, crossings, communication interchanges and parkings.
The Government has also added to the list of the EURO 2012 priorities the construction of the new railway stations and development of the airports in Gdansk, Poznan and Wroclaw as well as development of the Arena Hall in Poznan, construction of the recreative complex Malta Thermae in Poznan, integrated systems of the traffic control, new tram lines.
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This means the significant extension of the list of the infrastructural priorities. Until now that list has contained only eight items, including six stadiums, pedestrian-bike bridge over the Vistula river in Warsaw and trade centre for the merchants which had to leave the Decade Stadium.
The Annex to the Act shows that four stadiums will be built-up under the framework of the programme: in Warsaw, Gdansk, Poznan and Wroclaw. Their total cost (according to the newest estimations) is to be more than 2.924 bln zloties. Almost 1.6 bln zloties shall be given by the state budget.
The programme will be performed in 2008-2012. The Stadium in Warsaw will cost 1.220 bln zloties (in total from the state budget), in Wroclaw – more than 521 mln zloties (including 110 mln zloties from the state budget), in Gdansk – 672 mln zloties (144 mln from state budget) and in Poznan – more than 511 mln zloties (88.5 mln from the state budget).
The acceleration of the investments in the public construction is expected in 2009-2010.
Private non-residential construction
In 2007, a record rise in private commercial buildings was noted (by 26% -y-o-y).
In 2007, after the record-breaking rise in 2006 (by 38% - compared to the previous year) of the number and dynamics of issued construction permits for industrial and warehouse buildings, the significant downfall of the number of the issued construction permits has been noted.
Number and changes of permits issued for industrial and warehouse buildings in 2001-2007 (y-o-y)
buildings % 12500 50 number 40 change 37,8 30 10000 13,4 20
4,3 10 9,8 7500 0 -2,2 -10 -21,5 -13,1 -20 5000 -30
-40
2500 -50 2001 2002 2003 2004 2005 2006 2007
Source: PAB-PCR&F
During the last two years, construction of the industrial and warehouse objects is the most dynamically growing sector of the non-residential construction. We forecast that, in spite of the decrease of the number of the issued construction permits in 2007, the further increase of the investments due to the expected improvement of the market conditions will take place in the period of 2008-2009.
The important field of activity in the case of the private construction will be created thanks to organizing the UEFA European Football Championship in 2012.
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The construction of the hotel and tourist objects will be important and growing field of the non- residential construction.
Construction of 40 new hotels is planned. In Poland, there are only 45 hotel beds per 10 thousand of inhabitants; this classifies Poland on the one of the last positions in Europe. According to the estimations, next 30 thousand hotel beds should be prepared before EURO 2012. Now there is 600 thousand hotel beds in Poland.
According to the prognoses, the outlays for the hotel objects construction in 2010 will be by 130 % higher than in 2006 (in the prices of 2007).
Good economic prospects for Poland, confirmed by the foreign auditors, and still increasing inflow of the direct investments from many countries create big demand for development of the new office and service centres.
The acceleration of the rate of investing in 2006 and 2007 after the period of stagnation and waiting in 2000-2003 has caused the increase of activity in the office construction. We prognose that the turbulences on the world financial market will cause the diminishing of the previously expected high rate of investments in the office construction.
Increase of the wealth of the households, connected to the expected economic acceleration in the next years, will cause increase of the demand and profitability of the trade investments, leading to the increase of the number of investors in that sector.
Now the investors are seeking for new localisations for commercial and service buildings in the medium and small cities.
According to the one of the consulting companies, till 2010 the commercial centres will be built up in the small cities three times more often than in the big ones. The developers will be focused on the construction of the commercial objects with local range.
The development of the commercial objects with very large space floors is limited by the Act from the previous year, which gives restrictive requirements for construction permits.
The report shows that the most of such objects is located in the capital city – the total commercial floor space is here equal to 1.3 mln sq. m. In the next years, the most of such objects will be built up in Wroclaw and Poznan.
According to the last forecast, the non-residential construction in 2009 and in 2010 will increase by 8.2 %
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5 Civil Engineering Market
We assess that in 2007 and first half of 2008 the civil engineering construction has showed the limitations of announced by the Government high rate of the growth in the range of highway construction.
The main reason of delaying in starting new projects is complicated procedure of their preparation, including the additional environmental requirements like Nature 2000, introduced after accession to EU.
Therefore, PAB-PCR&F has revised the November estimation of the rate of the growth in transport engineering in 2007 from 17.4 % to 11.6%.
Adaptation of the previously prepared projects to the new requirements caused significant problems of their fast implementation, especially due to the necessity of the changes in the tenders conditions (prices) as a result of sudden changes of financial conditions for the projects being completed and prepared to realisation. According to the last announcement of the Ministry of Infrastructure, the projects involved with construction of 625 km of the highways will be started in 2008, and next 281 km of the highways will be started in 2009. In the range of the expressways 514 km will be started in 2008, the record 975 km in 2009, and 612 km in 2010.
According to GDDKiA the process of ordering of 40 projects is now delayed referring to the schedule of the new Govermental “Construction Programme for National Roads in 2008 – 2012”, accepted at the end of the previous year.
Therefore, the completion of the planned public road investments and outlays for them in 2008 is questionable.
We remind that the the Programme stipulates the following objectives in 2008-2012: • construction of motorway network with total length of 1,676 km (including those sections built under Public Private Partnership (PPP) – 473 km; • construction of expressway section with total length of 2,267 km; • reinforcement of road bearing capacity to 115 kN/axis; • construction of 58 road bypasses in round towns with intensive transit traffic so as to protect the bypasses from new buildings; • reconstruction of those sections of national roads so as to improve safety on roads, including „traffic calming” programme on those sections going through small towns, and on one-level crossroads with level crossings; • improvement of transit traffic and traffic servicing in agglomerations; • improvement of national roads condition so as to make 75% national roads good and 10% - satisfacory.
According the new “Construction Programme for National Roads in 2008 – 2012” the Government is going to spend PLN 121 bln for construction of roads and motorways in 2008 – 2012. On average, it is more than PLN 24 bln annually.
The basic sources of financing this programme will be the European means, coming mainly from the Cohesion Fund and also budgetary means.
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The delaying in the carrying out the above programme causes big financial losses due to increase of the construction costs and appreciation of PLN to Euro.
PAB-PCR&F estimate, that only in the last half a year the direct cost of road works could increase by 15-20%, and the value of the cohesion funds granted to Poland for the infrastructural investments, expressed in PLN, has decreased by more than 10.5%.
Contrary to the much lower than previously announced rate of the growth of the road works, the outlays and range of the railway construction begins to increase faster and faster.
According to PKP Polish Railways group, the volume of the investment outlays for the railroads, railway stations and rolling stock will be equal to 9.4 bln Euro till 2012. From that, the most of the means will be consumed by modernisation and construction of the railroads, estimated for 6.7 bln Euro.
The financial means shall be obtained from EU, PKP group, state budget and private sources.
In 2007 and 2008 the PKP group will modernise near 500 km from planned 1600 km of the railroads.
The modernisation progamme of PKP covers, among others, the following routes: Warsaw – Gdansk – modernisation of 350 km of the railroad (100% of the route), Warsaw – Poznan – modernisation of 123 km of the railroad (41% of the route), Poznan – Wroclaw – modernisation of 162 km of the railroad (100% of the route), Wroclaw – Krakow - modernisation of 203 km of the railroad (76% of the route), Rzeszow – state border - modernisation of 100 km of the railroad (100% of the route), and railway connections with the airports (Balice, Pyrzowice, Okecie).
In the framework of the modernisation involved with EURO 2012, 299.7 km of the railroads has been completed in 2007 according to PKP. The modernisation works on 180 km of the railroads are planned in 2008.
1.5 bln Euro will be destined to railway stations till 2012. The first investors for construction of the biggest new stations will be selected by PKP as soon as in 2008.
The investments which will be carried out using the PKP own means, with possibly co-financing from the public means, are among others Warsaw Central Station, Krakow Main Station, Wroclaw Main Station, Gdansk Main Station and Gdynia Main Station.
The investments planned to carry out together with the external partner (investor), among others in the framework of ppp, are Warsaw East Station, Warsaw West Station, Katowice, Sopot and Poznan Main Station.
The main driving force of development of engineering construction will be road engineering. An acceleration of tasks realisation will become reality as a result of organization of the European Championships in Poland and Ukraine in 2012.
Main roads constructions will be directed to large extent for creating transport corridors from the east to the west close to the Ukraine border.
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In the next years many capital constructions will be co-financed by European means to achieve the improvement of transport network in our country, including improvement of city transport in big agglomerations, which will host the football matches.
Delaying in preparation of the infrastructural investments, which can be even a threat for the organisation of the EURO Champs in Poland, is the consequence of the bad regulations, in spite of the many changes done in the past.
Therefore, the main activities for the acceleration of the rate of the roads and highways construction shall consist on the further changes of the public procurement law, amending the road act and environmental protection act.
The most important changes in the project of amendment of the public procurement law, which is already discussed in the Parliament, refer to the limitation of the controls, prolonging the investment process, and to the elimination of the legal absurdities from the hitherto existing regulations.
The result of that amendment shall be the shortening of the decision-making process. Two decisions, localisation and construction permit, separate for now, will be replaced by one „road investment permit”.
The project of the changes in the environmental protection act is to be accepted by the Government in July. This amendment shall make possible to built up the highways and roads according to the European standards. Simultaneously, the protracted procedures, endangering Poland to loss of the EU financial support, are to be removed.
The following factors can be threats for realisation of the above mentioned plans: • sudden changes of financial conditions for the projects being completed and prepared to realisation, • lack of skilled workers, • shortage civil enegeenring companies, • rising prices of building materials, • rising prices of on bids cen ofertowych, • weak competition between civil enegeenring companies.
In consequence of the observed delaying in the first half of 2008 we were led to revise our Nvember estimation of the total value of total civil engineering market for 29.7 increase in 2008. According to last forecast, this value in 2009 will increase by 17.5% and in 2009 it will increase by 12.4%.
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APPENDIX – DEFINITIONS
Statistical definitions for the construction of the Polish national report The statistics for different sectors refers to gross fixed capital formation in buildings and civil engineering, exclusive of VAT, within different sectors according to annual reports of the national accounts, issued by the CSO of Poland. The figures exclude the investor's costs of design, planning and administration of the construction projects.
Table 1. • Number of population at the end of the year • Number of and unemployment rate are based on the data of the Eurostat
Table 2 The sectors include the following kinds of economic activity: Residential construction Single-famiły houses and multi-famiły buildings for permanent living
Private non- residential construction Agriculture, forestry, fishing Mining, manufacturing, construction Wholesale and retail trade Restaurants and hotels Financing, insurance, business services Leisure houses, services
Public non- residential construction Schools, universitates and hospitals and healthbuildings and services by governmental authorities
Civil engineering All kinds of roads and brdiges, railways Telecomunication Electricity, gas, water suppły, sewage disposal transport Energy and water works
DIY included VAT excluded
Table 3 Home ownership rate Share of private housing in total housing resources in % Housing stock Noted at the end of the year
The monthly and quarterly statistical information about the construction production and employment rate, presented in the publication, are based on the current reports of the Central Statistical Office regarding the companies qualified as construction ones according to REGON and with employees number above 9. Those data should be treated as reported ones, however, they reflect only 45- 50% of the total construction production completed in Poland in the given period.
The similar share - about 40% - it is the production of the companies with more than 9 employees, estimated on the basis of their annual turnovers using representative testing method (the sample covering 10%) of registered companies.
The remained 10% it is the production realised as „own-production” by non-construction companies.
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Country/Pays/Land: Poland Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 38 174 38 157 38 125 38 116 38 100 38 090 38 075 Bevölkerung
Households ('000s) Ménages 13 525 13 615 13 700 13 805 13 920 14 000 14 100 Haushalte
Unemployed ('000s) Chômeurs 3 000 2 773 2 310 1 820 1 680 1 580 1 500 Arbeitslose
Unemployment rate (%) Taux de chômage 14.3 13.8 13.8 9.4 7.2 5.8 4.5 Arbeitslosenquote
Change of GDP Variation du PIB 5.3 3.6 6.2 6.6 5.8 5.2 5.9 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 3.5 2.1 1.1 2.0 3.7 3.3 2.8 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 2.5 2.3 3.6 11.1 7.5 5.0 5.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 7.0 6.5 6.0 6.3 6.5 6.4 6.0 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 12.0 10.0 9.0 8.0 8.6 8.0 7.5 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Poland Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 5 960 5.3 4.8 9.2 17.5 12.5 5.0 7.7
Logement Renovation 3 190 7.5 4.0 3.3 4.5 3.5 4.0 3.3
Wohnungsbau Total 9 150 6.2 4.5 6.9 12.6 9.4 4.7 6.3
Non-residential construction New 10 354 3.5 2.2 12.0 16.2 7.2 9.8 10.0
Bâtiments non résidentiels Renovation 4 221 4.0 7.0 9.1 3.5 4.0 4.2 3.5
übriger Hochbau Total 14 575 3.7 3.7 11.1 12.2 6.3 8.2 8.2
Building New 16 314 4.2 3.1 11.0 17.3 7.2 11.2 7.4
Bâtiment Renovation 7 411 5.5 5.6 6.5 3.7 8.5 3.4 3.3
Hochbau Total 23 725 4.6 4.0 9.4 12.4 7.5 6.8 7.5
Civil engineering New 7 950 3.7 13.5 13.6 13.8 38.8 22.8 14.3
Génie civil Renovation 3 339 5.0 4.5 21.2 8.0 8.2 1.3 5.5
Tiefbau Total 11 289 4.1 10.7 15.8 12.0 29.7 17.5 12.4
TOTAL CONSTRUCTION OUTPUT 35 014 4.5 6.0 11.4 12.3 14.6 10.7 9.4
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 16.70 2.0 2.0 15.8 14.4 9.0 12.0 8.5 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 3.7829 PLN
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Country/Pays/Land: Poland Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 59.0 58.9 73.7 110.5 80.0 80.0 85.0 Baugenehmigungen Familienhäuser
Flats Collectif 46.8 56.9 86.8 137.2 70.0 80.0 85.0 Mehrfamilienhäuser
TOTAL 105.8 115.8 160.5 247.7 150.0 160.0 170.0
Housing starts 1+2 family dwellings Logements commencés Individuel 61.0 58.8 69.4 91.6 87.0 80.0 82.0 Baubeginne Familienhäuser
Flats Collectif 36.2 46.9 68.6 93.5 93.0 80.0 83.0 Mehrfamilienhäuser
TOTAL 97.2 105.7 138.0 185.1 180.0 160.0 165.0
Housing completions 1+2 family dwellings Logements terminés Individuel 64.9 63.3 57.6 71.3 85.0 80.0 80.0 Baufertigstellungen Familienhäuser
Flats Collectif 43.2 50.8 57.6 62.5 90.0 80.0 85.0 Mehrfamilienhäuser
TOTAL 108.1 114.1 115.2 133.8 175.0 160.0 165.0
Housing stock Logements existants 12 830 12 905 13 010 13 130 13 285 13 405 13 550 Wohnungsbestand
thereof second homes dont résid. secondaires 160 170 180 190 205 225 255 davon Zweitwohnungen
thereof vacancies dont inoccupé 800 800 800 800 820 835 860 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 75.1 75.3 75.5 75.7 76.0 76.2 76.5 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Poland Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume 2006 % change in real terms 1) mill. euro Thous. m2 Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 869 506 3.2 0.5 9.6 2.5 7.7 11.5 8.5 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 315 168 -5.0 -2.6 8.2 4.4 5.4 9.0 11.0 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 2 438 2 407 20.0 6.5 12.4 19.1 7.1 6.5 8.0 Industriegebäude
Storage buildings Bâtiments de stockage 1 300 2 051 15.7 7.1 16.6 27.5 9.5 8.5 11.0 Lagergebäude
Office buildings Bureaux 1 741 665 -10.5 1.9 -3.0 11.5 6.6 7.0 5.0 Bürogebäude
Commercial buildings Commerces 2 225 2 509 -2.0 8.5 26.3 23.9 5.2 8.5 8.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 475 1 924 24.1 14.0 11.6 20.1 15.0 14.6 10.0 Landwirtschaftsgebäude
Miscellaneous Autres 991 902 4.9 5.0 14.5 5.5 6.5 23.4 25.5 Sonstiges
Total 10 354 11 132 3.5 2.2 12.0 16.2 7.2 9.8 10.0 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 3.7829 PLN
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Country/Pays/Land: Poland Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 4 575 20.0 15.0 34.8 7.5 54.3 24.0 12.9 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 490 12.5 -20.0 28.1 47.1 35.1 30.0 37.9 Bahnanlagen
Other transport Autres réseaux 999 6.5 8.5 14.6 17.9 14.1 10.0 10.0 Übrige Verkehrsinfrastruktur
TOTAL 6 064 16.6 10.8 30.8 11.6 46.1 22.6 14.5
Telecommunications Télécommunications 375 -16.8 6.2 2.5 6.0 8.0 8.5 6.5 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 2 825 6.5 11.8 4.0 13.5 10.0 12.5 10.0 Energie- und Wasserversorgung
Other Autres 2 025 -17.3 9.8 0.2 14.1 12.0 8.5 11.5 Sonstiges
Total 11 289 4.1 10.7 15.8 12.0 29.7 17.5 12.4
1) At 2007 prices, excluding taxes. 1 euro = 3.7829 PLN
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Country/Pays/Land: Poland Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 184.1 4.3 2.0 4.9 5.2 5.0 4.5 5.0 Privater Verbrauch
Public consumption Consommation publique 55.5 3.1 5.2 5.8 5.8 5.2 4.8 5.5 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 68.0 6.4 6.5 15.6 19.3 14.5 11.5 12.0
of which construction 4.0 7.2 13.8 14.0
Stocks (contribution as % of GDP) Variations de stocks 7.9 71.5 -22.5 14.7 12.8 12.5 8.0 9.5 Vorratsveränderung
Exports Exportations 126.2 14.0 8.0 14.6 8.4 6.5 10.0 7.5 Exporte
Imports Importations 133.3 15.2 4.7 17.4 12.4 10.0 12.0 9.5 Importe
GDP PIB 308.4 5.3 3.6 6.2 6.6 5.8 5.2 5.9 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 3.7829 PLN
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PORTUGAL ITIC www.itic.pt
Bárbara Martins e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
PORTUGAL
1 Summary
• In 2007 the Portuguese economy grew 1.9% supported by a favourable performance in exports and increased dynamism of domestic demand. Investment recorded a 3.2% increase and contributed decisively to GDP growth.
• The acceleration of the economy in 2007 was especially relevant given that it took place in a context of government budget consolidation. On the other hand, GDP growth in Portugal remained below previous economic cycles and convergence with EU partners is far from being achieved.
• In 2007 the unemployment rate stood at 8.0%, a historically high figure for the Portuguese economy. Prices rose 2.5% in 2007, about -0.6 p.p. than the observed in the previous period, for which the deceleration in energy prices gave a significant contribution.
• The economic outlook for the 2008/2010 period suffered a major downward revision in face of lower economic growth in main trading partners, financial market turbulence and increasing energy and food prices.
• All in all, GDP is expected to grow moderately in the next three years. Current forecasts point to a 1.7% increase in GDP in 2008 (1.9% in Vienna) with further deceleration taking place in 2009 (1.6% against the 2.4% increase forecasted last November). In 2010 economic activity is expected to gain momentum.
• The unemployment rate is not expected to recede significantly along the period. Prices are expected to increase in 2008 due to the hike in oil and food prices, with no major mitigation coming from the decrease in VAT normal rate from 21% to 20% as of July 2008.
• The construction output decreased 0.2% in 2007. The revision of the Vienna forecasts, which pointed to a 2.8% decrease in construction, is explained by the positive evolution in non residential buildings and a lesser decrease in civil engineering.
• Residential output fell in 2007 (-2.4%). Once again new construction recorded a negative growth rate whereas renovation works experienced positive, although moderate, growth.
• New residential construction is experiencing a severe adjustment period, which is not expected to be over before 2010. Current evolution in this segment reflects a weak macroeconomic framework and pessimism concerning the future, in a context of high unemployment and increasing interest rates.
• As for housing renovation, latest data support further growth in coming years, somewhat limited in 2008 and 2009 by weaker economic growth. Housing renovation growth will continue to be supported mainly by private means but there’s a gradual shift in public administration focus towards the existing housing stock (a new law regulating the rental market, tax benefits for renovation works, energy efficiency in buildings, Housing Strategic Plan 2008-2013).
• In 2007 total non residential output grew 6.8%. Both new construction and renovation works experienced positive growth rates in what constitutes a surprising change in face of previous estimates. In 2007 both the number and area of completed buildings increased, revealing strong optimism concerning future economic performance, at least during the first half of the year.
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• Despite the poor outcome in public works market in 2006, several indicators point to a positive evolution in both education and health buildings construction in the last year. This can be explained by the increasing importance of private investment in areas that until recently were provided by public administration.
• Data on public work’s market point to a gradual improvement in the construction of public buildings in a near future. The improvement in the public works market in comparison with previous years is most likely to be related to the softening in budget restrictions and to local and general elections taking place in 2009.
• As for “private” buildings, data concerning the area of building permits recorded steady growth in both 2006 and 2007 (+12%), amounting to 4,583,840 sqm in 2007. Office, commercial and industrial buildings are expected to be the most dynamic sectors along the forecast period.
• Renovation will play a decisive role in the future of non residential segment, mainly in offices and retail. An interesting gradual change in the retail segment is the growing attractiveness for high street retail. All in all, total non residential construction is expected to perform well in the next three years, with growth rates of 5.4% in 2008 and 3.6% in 2009 and 2010.
• Economic growth will play a decisive role in the evolution of all types of private non residential buildings. The upward revision made to the Vienna Conference forecasts concerning non residential sector growth in 2007 and 2008 is mainly justified by a higher than expected optimism from both developers and companies in 2007, supported at the time by increasing economic activity.
• As from mid 2007 and especially in the beginning of 2008 expectations concerning future economic growth came to a halt. This can lead to the postponing of some projects but the majority are already under way and will be completed by the end of 2008 and 2009.
• In 2007 new civil engineering output fell 3.0%, after a 5.0% decrease in the previous year. Renovation works performed better, with a 5.0% growth rate. Civil engineering performance was strongly influenced by the restrictions to public investment expansion arising from public finances consolidation efforts.
• Civil engineering is expected to experience steady recovery in 2008. Data concerning awarded contracts grew 58.4% in 2007 (in value), recovering from the low levels observed in the previous two years. The sudden shift in public works tenders evolution comes as no surprise. With local and general elections taking place in 2009, several infrastructures are expected to be completed along 2008 and 2009 for electoral purposes.
• The main risks to these forecasts are the weakening of the economy with the consequent impact over government budget and financing difficulties of private partners in face of tight credit conditions. There is also the possibility of investments sliding to the end of 2008 with main growth taking place in 2009 and not 2008 as now estimated.
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2 Macro-economic Outlook
In 2007 the Portuguese economy grew 1.9% supported by a favourable performance in exports and increased dynamism of domestic demand. The acceleration of the economy in 2007 was especially relevant given that it took place in a context of government budget consolidation.
On the other hand, GDP growth in Portugal remained below previous economic cycles and that convergence with EU partners is far from being achieved.
In 2007 the growth pattern of the economy differed significantly from the observed in previous years, with a significant increase in domestic demand contribution to GDP growth. Private consumption accelerated from 1.1% to 1.5%, and public consumption turned positive.
The upturn of investment became clear as of mid of the year, driven by strong growth in equipment investment and by signs of recovery in construction.
Imports accelerated in 2007 reflecting the higher dynamism of internal demand. On the contrary, exports decelerated in the last year mainly due to weaker demand for cars and machinery, in a scenario of weaker global economic activity. All in all, contribution to GDP growth from trading balance decreased in 2007, although remaining positive.
In 2007 general government deficit represented 2.6% of GDP, after 3.9% of GDP in the previous year. The reduction of general government deficit was accomplished through higher tax revenues, for which the improvement in tax administration was decisive, and also by the decrease in personnel expenses and cuts on unemployment benefits and health expenditures.
2004 2005 2006 (e) 2007 (e)
Government Deficit (Excessive Deficit Procedure, 03/2008) -3.4 -6.1 -3.9 -2.6 Net Lending (+) or borrowing (-) of the economy -6.1 -8.3 -9.3 -8.5
Source: Portuguese Central Bank e-estimate
In 2007 the unemployment rate stood at 8.0%, a historically high figure for the Portuguese economy. Despite enhanced economic performance, employment creation remained poor (+0.2%). The lack of dynamism of the labour market is explained by the ongoing reorganization of the productive structure as well as a still fairly moderate economic growth.
Prices rose 2.5% in 2007, about -0.6 p.p. than the observed in the previous period, for which the deceleration in energy prices gave a significant contribution. In fact, in 2005 and 2006 energy prices grew approximately 10% and 8%, whereas in 2007 that figure stood at 3.5%.
In the last months of 2007 prices followed an acceleration path responding to higher energy and food prices thus jeopardizing the downward pattern earlier projected for inflation in 2008.
The economic outlook for the 2008/2010 period suffered a major downward revision in face of lower economic growth in main trading partners, financial market turbulence and increasing energy and food prices.
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Altogether these factors have been dampening both households and companies confidence and at the same time are having a “very real” impact over their consumption and investment decisions.
Domestic demand is expected to decelerate in 2008 and 2009 in face of weaker growth in both private consumption and investment and negative evolution in public consumption.
Investment in construction is expected to perform well, recovering from 6 years of consecutive drops.
Exports are expected to perform well although at a lower pace than the observed in 2006 and 2007, due to lower economic growth in main trading partners and imports are forecast to show moderated growth rates in line with domestic demand performance.
All in all, GDP is expected to grow moderately in the next three years. Current forecasts point to a 1.7% increase in GDP in 2008 (1.9% in Vienna) with further deceleration taking place in 2009 (1.6% against 2.4% forecasted last November). In 2010 economic activity is expected to gain momentum.
2004 2005 2006 2007 (e) 2008 (f) 2009 (f) 2010 (o)
GDP (% change at real terms) 1.5 0.9 1.3 1.9 1.7 1.6 2.0 Unemployment rate (%) 6.7 7.6 7.7 8.0 8.0 7.9 7.6
Inflation rate (CPI) 2.4 2.3 3.1 2.5 2.7 2.3 2.0 Source: INE and ITIC e-estimate, f-forecast, o-outlook
The unemployment rate is not expected to recede significantly along the period. In 2008 the unemployment rate should remain at the same level as in 2007, with a slight decrease being put forward for 2009. A further decrease will take place in the following year (7.6%).
Prices are expected to increase in 2008 due to the hike in oil and food prices, with no major mitigation coming from the decrease in VAT normal rate from 21% to 20% as of July 2008. Assuming the stabilization in oil and food prices and the absence of significant demand side pressures, inflation is expected to fall to 2.3% and 2.0% in 2009 and 2010, respectively.
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3 Housing Market
Total residential construction is expected to have reached €12,671 million in 2007, approximately - 2.4% than the observed in the previous year.
The decrease in residential output in 2007 is explained by the unfavourable performance in new construction, which is expected to have decreased 4.0% last year. Renovation performed below initial expectations, but still managed to grow 0.8% in comparison with the previous year outcome.
New residential construction is experiencing a severe adjustment period, which is not expected to be over before 2010. More than the correction of the high production level reached during the 90’s, current evolution in this segment reflects a weak macroeconomic framework and pessimism concerning the future.
Interest Rates - Housing Loans 6,0 5,5 5,0 4,5 4,0 3,5
%, average, end of period 3,0 Jan-06 Jan-07 Jan-08 February
Source: Portuguese Central Bank
Despite the upswing in economic performance in 2007, the unemployment rate recorded the highest level since mid 80’s and increasing interest rates pushed service debt levels, absorbing a broader part of household’s disposable income.
The widening of the loan period it’s likely to have a played an important role in the limitation of the impact of rising interest rates in households balance, but it continues raising many families could face enormous difficulties.
% Housing Loans 35 30 25 20 15 10 5 0 199920002001200220032004200520062007
Source: Portuguese Central Bank
Along with the worsening of households balance, the tightening of financial conditions is keeping many households off the housing market, especially the young and those with lower income. In 2007 housing loans decelerated from 9.9% to 8.5% and banks are now more cautious in granting credit.
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In 2007 the number of completed dwellings decreased 4.4%, reaching 55,814 units. For the same year the number of permits for new housing construction fell 5.7%, which suggests that new residential construction will hardly recover in a near future.
The recovery in new housing construction is expected to take place in 2010 (+1.0%), under the assumption of stronger economic and employment growth. Still, completed dwellings are not forecast to go beyond 54,600 units on that year.
Building Permits and Completions - New Dwellings 80 75 70 65
Thousand 60 55 50 2004 2005 2006 2007 (e) 2008 (f) 2009 (f) 2010 (o)
Completion Permits
Source: INE (National Statistics Institute) e-estimate, f-forecast, o-outlook
As for housing renovation, production is expected to have slightly accelerated to 0.8% in 2007 after the slowdown of the previous year (0.5%). Latest data support further growth in coming years (1.5% in 2008, 2.0% in 2009 and 3.0% in 2010), somewhat limited in 2008 and 2009 by weaker economic growth. The Vienna conference forecasts were, therefore, revised downwards with a -1 p.p. cut in both years.
Housing renovation growth will continue to be supported mainly by private means but there’s a gradual shift in public administration focus towards the existing housing stock. Main developments concerning public politics in this domain are summed up below:
1. The new law regulating the rental market (NRAU, 2006) Aim: to increase “frozen” rents as counterpart to renovation works in the dwellings Results: quite limited, so far Dampening factors: the time horizon to update the rent can range from 2 to 10 years, making the investment unattractive to most landlords. Moreover the process is considered to be too bureaucratic and public support to investment inexistent or unknown.
2. State Budget 2008 (tax benefits concerning renovation works) Total or partial exemption of property taxes (IMI1), during a period of 5 years; Corporate income tax exemption concerning Real Estate Funds income, when at least 75% of the assets are buildings subject to renovation works; Taxation at a special rate of 10% both on corporate and personal income tax of: income from units in Real Estate Funds; net gains obtained by selling units in Real Estate Funds.
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3. Energy efficiency in buildings (transposition of Directive 2002/91/CE) Aim: to increase energy efficiency in both new and existing buildings by limiting energy consumption needs (heating, cooling and hot water) Rules: as from July 2008 new buildings, independently of type of use and size, will have to comply with technical specifications in order to have an energy efficiency certificate B- or better. Existing buildings will be allowed to have whatever energy efficiency class from G (the worse) to A+ (the better). Certificates for existing buildings will be mandatory if one is to sell or rent a dwelling as from January 2009 (the certificate is valid for 10 years). Results: too early to measure
4. National Plan for Energy Efficiency 2015 Aim: To increase energy efficiency in transports, buildings and industry How: changing mentalities and behaviours, stimulating the use of new technology, supporting good examples and adopting a “green tax policy” Results: the plan remains under public discussion
5. Housing Strategic Plan 2008-2013 (presented In May 2008) Aim: to analyse past housing strategies and check their effectiveness; to evaluate current housing needs and identify the main guidelines for a new housing policy in Portugal Main findings: the existence of significant housing needs; deficient functioning of the rental market, making it difficult for people to move geographically; the existence of a significant percentage of vacant dwellings, many of which are in need of major repair works or in ruins; Part of the solution: to increase dynamism in the rental market; to build dwellings at controlled costs or to buy and rent at affordable prices
Residential Output in Portugal - 2004 to 2010 8,0 4,0 0,0 -4,0
real, % change % real, -8,0 -12,0 2004 2005 2006 2007 (e) 2008 (f) 2009 (f) 2010 (o)
New Renovation
Source: ITIC e-estimate, f-forecast, o-outlook
It is clear that renovation will be in focus in the next years. However, the rhythm at which renovation will grow and the importance it will play in the construction sector is difficult to assess. R&M works will be boosted only if the investment is proven to have economic return.
This is especially the case of energy efficiency measures, namely those related with the existing housing stock. Given that energy “retrofit” works will not be mandatory, they will only take place if households find that the reduction in the energy bill pays off the initial investment. It’s not clear that it will.
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4 Non-residential Market
In 2007 total non residential output grew 6.8%, reaching € 6,129 million. Both new construction and renovation works experienced positive growth rates (7.0% and 6.0%, respectively) in what constitutes a surprising change in face of previous estimates.
In 2007 both the number and area of completed buildings increased, revealing strong optimism concerning future economic performance, at least during the first half of the year.
Despite the poor outcome in public works market in 2006, in both offers to bid and awarded contracts value, several indicators point to a positive evolution in both education and health buildings production in the last year. This can be explained by the increasing importance of private investment in areas that until recently were provided by public administration.
On the other hand, and according to Excessive Deficit Procedure, public investment is expected to have increased 8.5%1 in 2007, which indicates a sudden shift in recent downward path and a significant upward revision to previous estimates. € Million
2004 2005 2006 p) 2007 e)
Gross Fixed Capital Formation (Public Administration) 4,524.8 4,374.2 3,612.3 3,920.0
Source: Excessive Deficit Procedure, March 2008 (INE) p) provisional e) preliminary
Data on public work’s market seem to confirm a gradual improvement in the construction of public buildings in a near future. In 2007 the global value of awarded contracts grew 58.4%, whereas the launching of non residential buildings construction grew 25.9%.
Awarded Contracts € Million 1.200,0 1.000,0 800,0 600,0 400,0 200,0 0,0 2004 2005 2006 2007
Buildings (Total) Non Residential Buildings
Source: AECOPS (Area Associativa)
The improvement in the public works market in comparison with previous years is most likely to be related to the softening in budget restrictions and to local and general elections taking place in 2009.
1 nominal change
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In the begging of 2008 a slight downturn was recorded in awarded contracts but strong positive signs continued to arise from offers to bid. These “mixed” signs are dampening production expectations for 2008, even though a solid recovery is still expected in the second half of 2008.
The major risk to current forecast is that for electoral purposes or due to financial difficulties public investment slides to 2009 or is postponed.
As for the private sector, output evolution is expected to have turned positive in 2007, one year before what we had previously expected. Investors were very optimistic concerning future economic performance and speeded the execution of major projects.
Data concerning the area of building permits recorded steady growth in both 2006 and 2007 (+12%), amounting to 4,583,840 sqm in 2007. Office, commercial and industrial buildings are expected to be the most dynamic sectors along the forecast period.
In 2007 the commercial segment continued to perform well with numerous projects being completed in both retail park and shopping centres formats (6 retail parks and 8 shopping centres). The most important project completed in 2007 was Shopping Centre 8ª Avenida in S. João da Madeira, with 32,100 sqm being added to the existing GLA (gross lease area) stock.
There are several projects in the pipeline for the couple of years in the retail sector. Obviously a number of projects will be postponed or abandoned, but there are solid reasons to believe in a steady performance in this segment in the short run.
In fact, a number of developments are already expected to open along 2008, comprising an addition of 237,300 sqm to commercial spaces: InterIKEA, Fórum Barreiro, Fórum Santa Maria da Feira, Palácio do Gelo, Ria Shopping Centre, Vivaci Guarda and Vivaci Caldas da Rainha.
The main challenge to developers is to be able to compete in an increasingly mature market, with increasingly demanding consumers. Several refurbishing works are taking place in existent spaces in order to give them a more modern look and captivate customers.
Additionally, some spaces started to offer a number of shops which are not present in other shopping centres. In the medium run, growth prospects are not as bright as in past years with a gradual shift towards renovation.
Another change in the retail sector is the growing attractiveness for high street retail. The best example in Lisbon is the area of Chiado and Avenida da Liberdade which saw the opening of numerous leading brands shops as D&G, Hugo Boss and Kiehls and the extension of Lanidor and Fashion Clinic stores
As for office buildings, the demand for space has been growing in Lisbon. An increasing number of companies are looking for spaces to install their call centres and back offices services, with financial services being the most dynamic.
Areas with major growth are Parque das Nações (Expo 98) and Out-of-Town Corridor (West Corridor). The lack of quality and large size space in Central Business District are moving some companies outside the city centre.
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The need to modernize these spaces is more and more evident with several projects in the pipeline. After the total reconstruction of the former Expresso headquarters to install Barclays, a 7 storey building is now being refurbished in the same headquarters (“Duque de Palmela 23”) to host a lawyers firm.
The renovation of used spaces is expected to be the main trend not only in Central Business District but also in other areas with old buildings that need to be modernized in order to fulfil corporate requirements.
In 2007 the vacancy rate decreased in comparison with 2006 and is now standing at 8.2%. Average and prime rents increased in Lisbon after a couple years of stability.
Stock (sqm)
% change 2006 2007
Total (Lisbon Area) 4,126,784 4,203,731 1.9
Source: Cushman & Wakefield
As for storage buildings and industrial facilities, the coming years are expected to continue to be favourable to growth. Operators are looking for large spaces with expansion possibilities and close to transport infra-structures and developers will probably respond to increasing demand by completing some projects that were held back. The area surrounding Montijo-Alcochete axis is expected to gain from the announced decision of building the new Lisbon Airport in Alcochete. Rents are expected to rise in that location.
Economic growth will play a decisive role in the evolution of all types of private non residential buildings. The upward revision made to the Vienna Conference forecasts concerning non residential sector growth in 2007 and 2008 is mainly justified by a higher than expected optimism from both developers and companies in 2007, supported at the time by increasing economic activity.
As from mid 2007 and especially in the beginning of 2008 expectations concerning future economic growth came to a halt. This can lead to the postponing of some projects but the majority are already under way and will be completed by the end of 2008 and 2009.
All in all, non residential construction is expected to perform well in the next three years, with growth rates of 5.4% in 2008 and 3.6% in 2009 and 2010. New construction is expected to overcome renovation for now but that pattern is most likely to change in the future.
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5 Civil Engineering Market
In 2007 new civil engineering output fell 3.0%, after a 5.0% decrease in the previous year. Renovation works performed better, with a 5.0% growth rate. Civil engineering performance was strongly influenced by the restrictions to public investment expansion arising from public finances consolidation efforts.
Investment is expected to experience steady recovery in 2008. Data concerning awarded contracts grew 58.4% in 2007 (in value), recovering from the low levels observed in the previous two years (- 14.4% and -50.7% in 2005 and 2006, respectively). All segments, except for hydraulic works, experienced positive growth rates with major dynamism coming from transport infrastructure and electric installations.
Offers to bid fell 8.2% last year but recorded steady growth in the first three months of 2008. This could mean that part of the projects that were expected to start in the beginning of 2008 will be postponed until mid 2008.
Offers to Bid 2007 – Top 10
Date Value (Base) Owner Domain (Project, in portuguese)
January 100,000,000 EP – Estradas de Portugal Road (IC17-Cril)
November 95,000,000 Metro do Porto Light Rail (Linha de Gondomar)
Água de Trás os Montes e Water (Etar de Vinhais e Estação Elevatória de September 79,000,000 Alto Douro S. Lázaro Rail (Linha de Sintra (Quadriplicação da linha e March 57,000,000 Refer novas estações)
November 53,000,000 EP – Estradas de Portugal Road (IC6)
July 44,000,000 ANA Airport (building) (Aeroporto de Lisboa)
August 33,000,000 CM. Amadora Townplanning (Manutenção Áreas Verdes)
Empresa de Des. Infra- Dam (Infra-estruturas rega, viárias e de December 31,000,000 estruturas Alqueva drenagem-Ferreira, Figueirinha e Valbom)
Empresa de Des. Infra- Dam (Infra-estruturas rega, viárias e de December 29,182,000 estruturas Alqueva drenagem-Brinches)
August 29,000,000 Governo Regional Madeira Road (Ligação rodoviária Jardim da Serra)
Source: AECOPS (Area Associativa)
The sudden shift in public works tenders evolution comes as no surprise. With local and general elections taking place in 2009, several infrastructures are expected to be completed along 2008 and 2009 for electoral purposes.
Also, there seems to be a gradual understanding as to the role the construction of major infrastructures can play in the development and competitiveness of the territory. The relief in the government balance obtained in 2007, structural funds and PPP solutions will help finance these projects.
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Early in 2008 the Government, supported by studies carried out by LNEC2 , decided upon the location of Lisbon new airport in Alcochete instead of Ota as previously announced and the location of the third bridge over Tagus River is Lisbon in the Chelas/Barreiro axis.
Other areas are also under the scope of the Government, as energy and water infrastructures and the development of new logistics hubs to complement the existent.
Recent decisions concerning Important Structural Projects
I. New Lisbon Airport Decision: January 2008 Location: Alcochete Opening: 2017 Number of passengers: 19 million in 2017 Cost: € 3,3 billion (estimate)
II. Chelas/Barreiro Bridge Decision: April 2008 Location: Lisbon Opening: 2013 Traffic: Road and Railway (High speed and conventional) Cost: € 500 million (road) + € 1,200 million (rail)
III. National Programme of Dams with High Hydroelectric Potential Decision: October 2007 (preliminary results) Goals: to reduce CO2 emissions and energy dependence and meet the goals of energy production from renewable sources set to 2020
Dam River Produced Energy (MW) Cost (€ Million)
Foz Tua Douro 340 89.1 Fridão, Douro 299 71.0 Padroselos Douro 102 63.9 Gouvães Douro 153 76.2 Daivões Douro 148 87.9 Vidago Douro 114 62.2 Almourol Tejo 209 42.6 Pinhosão Vouga 106 84.3 Girabolhos Mondego 99 71.2 Alvito Tejo 62 46.0 Total 1632 694. 4
Source: National Programme of Dams with High Hydroelectric Potential
All in all, total civil engineering is expected to grow 5.7% with a slight deceleration taking place in 2009 and 2010. The main risks to these forecasts are the weakening of the economy with the consequent impact over government budget and financing difficulties of private partners in face of tight credit conditions. There is also the possibility of investments sliding to the end of 2008 with main growth taking place in 2009 and not 2008 as now estimated.
2 National Laboratory of Civil Engineering
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APPENDIX – DEFINITIONS
Table 1. Population and households: annual average Unemployed and unemployment rate: Employment Statistics, INE (National Statistics Institute)
Table 2. Total Construction Output represents the value of Construction Product as defined in the National Accounts System – ESA 95. Total construction output includes not only the construction production generated by construction companies, but also the construction production generated by other sectors and non declared production. It is therefore a much broader concept than the sector output approach. It excludes VAT but includes subcontracts.
Table 3. Housing stock (dwellings): until 2006 is given by INE, from 2006 onwards is an estimate, using the following formula: Housing stock on year n = Housing Stock on year n-1 + completions year n – demolitions year n Home ownership rate = lodgements occupied by the owner/total lodgements * 100
Table 4a. Storage buildings include industrial, retail and logistic activity storage Offices include all offices dependent on industrial or commercial activity Miscellaneous buildings include coffees and restaurants, transport buildings, cinemas, theatres, hotels and home accommodations (and others not specified).
Table 5. National Accounts (base Year: 2000) National Accounts are subject to European System of Accounts (ESA) rules.
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Country/Pays/Land: Portugal Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 10 509 10 563 10 586 10 604 10 627 10 649 10 671 Bevölkerung
Households ('000s) Ménages 3 816 3 873 3 930 3 989 4 048 4 108 4 169 Haushalte
Unemployed ('000s) Chômeurs 365 422 428 449 452 451 439 Arbeitslose
Unemployment rate (%) Taux de chômage 6.7 7.6 7.7 8.0 8.0 7.9 7.6 Arbeitslosenquote
Change of GDP Variation du PIB 1.5 0.9 1.3 1.9 1.7 1.6 2.0 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 2.4 2.3 3.1 2.5 2.7 2.3 2.0 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 4.5 3.3 4.4 4.0 3.6 3.0 3.0 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.1 3.4 3.9 4.4 4.4 4.4 4.2 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Portugal Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 8 179 -7.5 -6.5 -8.0 -4.0 -3.0 -1.0 1.0
Logement Renovation 4 493 6.0 2.0 0.5 0.8 1.5 2.0 3.0
Wohnungsbau Total 12 671 -3.8 -3.9 -5.3 -2.4 -1.4 0.1 1.7
Non-residential construction New 4 937 -7.0 -8.5 -10.0 7.0 6.0 4.0 4.0
Bâtiments non résidentiels Renovation 1 192 3.1 1.0 -2.5 6.0 3.0 2.0 2.0
übriger Hochbau Total 6 129 -5.5 -6.9 -8.6 6.8 5.4 3.6 3.6
Building New 13 116 -7.3 -7.2 -8.7 -0.1 0.4 1.0 2.2
Bâtiment Renovation 5 684 5.4 1.8 -0.1 1.8 1.8 2.0 2.8
Hochbau Total 18 800 -4.3 -4.9 -6.3 0.4 0.8 1.3 2.4
Civil engineering New 6 238 4.0 -2.0 -5.0 -3.0 6.0 3.0 2.0
Génie civil Renovation 1 276 5.0 2.0 0.0 5.0 4.0 4.0 1.5
Tiefbau Total 7 514 4.2 -1.4 -4.2 -1.7 5.7 3.2 1.9
TOTAL CONSTRUCTION OUTPUT 26 314 -2.1 -3.9 -5.7 -0.2 2.2 1.9 2.3
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 7.85 -1.5 -4.1 -10.3 0.1 0.9 1.0 2.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Portugal Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 30.8 29.9 28.2 26.5 26.1 26.5 27.6 Baugenehmigungen Familienhäuser
Flats Collectif 45.5 43.0 40.4 38.2 37.6 38.2 39.7 Mehrfamilienhäuser
TOTAL 76.3 73.0 68.6 64.7 63.7 64.7 67.3
Housing starts 1+2 family dwellings Logements commencés Individuel Baubeginne Familienhäuser
Flats Collectif Mehrfamilienhäuser
TOTAL 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Housing completions 1+2 family dwellings Logements terminés Individuel 28.6 29.0 23.3 22.3 21.8 21.6 21.8 Baufertigstellungen Familienhäuser
Flats Collectif 42.8 42.8 35.1 33.5 32.7 32.5 32.8 Mehrfamilienhäuser
TOTAL 71.4 71.8 58.4 55.8 54.5 54.1 54.6
Housing stock Logements existants 5 391 5 462 5 520 5 575 5 629 5 683 5 737 Wohnungsbestand
thereof second homes dont résid. secondaires 992 994 999 1 003 1 013 1 023 1 038 davon Zweitwohnungen
thereof vacancies dont inoccupé 674 710 729 741 737 733 717 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 76.2 76.3 76.4 76.5 76.6 76.6 76.5 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Portugal Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) 2) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 789 -5.5 5.0 1.0 2.0 5.0 3.0 2.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 467 1.0 3.0 -10.0 4.0 10.0 7.5 3.0 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 522 -1.3 -15.0 -35.0 20.0 10.0 2.5 2.5 Industriegebäude
Storage buildings Bâtiments de stockage 121 -8.0 -18.0 -25.0 0.0 1.5 6.0 6.5 Lagergebäude
Office buildings Bureaux 1 265 -3.5 -15.0 -10.0 12.0 7.0 5.0 5.0 Bürogebäude
Commercial buildings Commerces 1 423 -3.0 -7.5 2.0 8.0 4.0 3.5 5.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 67 -7.0 -12.0 -18.0 5.0 -1.0 0.0 1.0 Landwirtschaftsgebäude
Miscellaneous Autres 283 -36.3 -8.3 -20.2 -12.8 4.0 1.6 4.2 Sonstiges
Total 4 937 -7.0 -8.5 -10.0 7.0 6.0 4.0 4.0 Insgesamt
1) At 2007 prices, excluding taxes. 2) Cf. Appendix to the individual country report (categories)
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Country/Pays/Land: Portugal Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 3 363 5.0 1.0 -7.0 -3.0 6.0 2.8 1.0 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 907 -0.5 -2.5 -4.0 -2.5 5.0 3.0 3.0 Bahnanlagen
Other transport Autres réseaux 982 2.5 -4.0 1.0 -1.5 4.0 4.0 5.0 Übrige Verkehrsinfrastruktur
TOTAL 5 252 3.6 -0.5 -5.1 -2.6 5.5 3.0 2.1
Telecommunications 2) Télécommunications 135 28.4 38.5 0.0 0.0 0.0 0.0 0.0 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 903 1.0 3.0 1.5 -3.0 3.5 4.0 2.5 Energie- und Wasserversorgung
Other Autres 1 225 7.4 -10.7 -5.0 3.2 8.8 3.5 1.0 Sonstiges
Total 7 514 4.2 -1.4 -4.2 -1.7 5.7 3.2 1.9
1) At 2007 prices, excluding taxes. 2) Rough estimate for 2004/2005. Value for 2006 to 2010 is constant and is included in Other
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Country/Pays/Land: Portugal Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 105.2 2.5 2.0 1.1 1.5 1.4 1.5 2.0 Privater Verbrauch
Public consumption Consommation publique 33.3 2.6 3.2 -1.2 0.3 -0.9 -1.0 -1.1 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 35.3 0.2 -0.9 -1.0 3.2 3.0 2.7 3.2
of which construction 17.6 -1.8 -3.2 -5.4 -0.1 2.0 1.8 2.2
Stocks (contribution as % of GDP) Variations de stocks 0.6 Vorratsveränderung
Exports Exportations 53.3 4.0 2.0 9.2 7.1 5.6 5.0 6.5 Exporte
Imports Importations 65.1 6.7 3.5 4.6 5.4 4.0 3.8 5.0 Importe
GDP PIB 162.9 1.5 0.9 1.3 1.9 1.7 1.6 2.0 BIP
Standard National Accounts, gross figures 1) At 2007 prices.
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SLOVAKIA ÚEOS – Komercia, a.s. www.ueos.sk
Vladimír Lenko e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
SLOVAKIA
1 Summary
In the year 2007 was Slovak economy, economy with the fastest growth in mid – Europe region. Gross domestic product grew by 10,4 % (after deduction of one – shot affect of taxes real growth by 9,7 %). On the side of consumption was GDP affected by proceeding foreign demand, at continual growth of inland consumption. Strong economic growth enabled increase of investment, which was manifested also in the Gross fixed capital formation. Inflation reached 2,8 % and was by 1,7 percentual point lower then in 2006. Unemployment rate fell from 13,3 % to 11,0 %. In following three years will GDP grew with slower tempo (from 7,4 % to 6,5 %), inflation should drop from 3,8 % in the year 2008 to 3,2 % in 2010 and unemployment will drop by moderate tempo. Convergent reports of EU Commission and European Central bank (with attention on inflation risk), published on 07. 05. 2008 recommended admission of Slovakia to Euro-area on 01. 01. 2009.
Growing economy of state affected also development of construction. Constructional production, realised in the year 2007 represented amount of 4,77 Bill. euro, which is real growth by 3,5 % (in comparison with revised data on construction production in 2006, in amount of 4,43 Bill. euro). Constructional production abroad comprises volume of 0,17 Bill. euro, which comprises 3,5 % of total production and growth in comparison with 2006 by 14,2 %.
Growth tempo of the volume of constructional production in inland (real growth by 3,2 %) significantly fell in comparison with previous two years, when real growth by 16,0 % was achieved. In terms of manufacturing orientation grew annually production on buildings by 7,9 %, but on civil engineering fell by – 7,8 %. By directions of construction the highest volume of constructional production comprised construction of non – housing buildings, namely 44,5 %. In comparison with previous year grew share of construction of residential buildings from 22,4 % to 28,7 %, share of civil engineering fell from 30,1 % in 2006 to 26,8 % in 2007. The greatest share on constructional production had tradesmen (33,3 %), enterprises with 50 – 249 employees (19,8 %) and enterprises with max. 19 employees (16,4 %).
Share of construction production by type in % in year 2007
Non-residential Residential construction construction 44,5 % 28,7 %
Civil engineering 26,8 %
Positive results of construction sector in the year 2007 also reflects investment activities and activity of domestic and foreign developers to construction of housing buildings, office buildings, commercial buildings as well as building of industrial objects. Volume of civil engineering was affected by reducing of the volume of building in transport infrastructure.
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Development of constructional production will proceed also in next years, even if with reduced intensity as in 2005 and 2006. It approves also respectable reserve of work of constructional companies at the end of 2007. Prepared are also several new projects. Growing trend is assumed in the sphere of housing construction. Most important will be henceforth segment of construction of non– residential buildings – office buildings, shopping – entertaining complexes, construction for development of tourist market. Besides new – built industrial and logistic parks investors are also interested in building on brown fields with the aim to create multi functional objects of non – production character. Significant share will comprise building and modernization of traffic infrastructure, (where sharp increase is expected in the years 2009 and 2010 by successful implementation of PPP – projects of building of highways). Further part of requirements for constructional production will represent orders from public sector – local schools, health infrastructure and other civil amenities, water supply, sewage, waste water cleaning plants, local communications supported with financial sources by EU funds.
Factors, affecting growth of constructional production:
• Economical development of state, which generates sources for investment and consumption, • Demand for results of constructional production (industrial objects, office rooms of higher quality) and extension of existing infrastructure (shopping, trade rooms and areas), which significantly affects arrival of foreign investors and residences of companies, • Need of construction of new dwellings, increasing of its number per 1 000 inhabitants. Growing dwelling prices and high profit –rate stimulate developers to build new dwellings, • Need of building of road infrastructure (highways, speedways), which is supported by government (modification of legislation, PPP projects) and modernization of railways inclusive railway station buildings, using also EU –funds, • Constructions for environment (sewage, water supply, waste water cleaning plants, flood – protection) reason is to meet obligation towards EU and environmental protection; using also EU funds, • Need for completion, modernization and reconstruction of local infrastructure, also with using of means from EU, • To secure self – sufficiency in production of electric energy, construction of new energy sources, • Availability of credits, • Suitable weather conditions in last years (mild winters).
Factors, decelerating growth of constructional production:
• Relatively complicated administration concerning construction (preparing is new of construction low), • Sometimes very complicated negotiations with self administration and also with civil associations and Greens, • Not always readiness of territory (territorial plans), property – ownership relations, • In some cases lack of financial resources (particularly by public constructions) and postponed start of investment realization, • Insufficient level of use of finances from some EU – funds.
Employment in construction
In connection with growing volume of the constructional production increased also number of employees, working in construction. Average number of employees in 2007 in construction
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SLOVAKIA comprised 165 192 persons, which represents growth in total by 6,1 %, from that 139 173 workers on construction works (84,2 %). From total number was 94 431 tradesmen. Henceforth grows number of tradesmen, (annual growth by 7,9 %) and they produced one third of total production in construction in the year 2007. Share of employees in construction in 2007 represented 7,4 % of total number of employees in economy together (7,2 % in the year 2006).
Prices of constructional works on new construction grew in 2007 in average by 4,0 %, which is almost the same growth tempo, like 3,9 % in the year 2005 and lower, then 4,3 % in the year 2006. It is possible, that considering growing total production of construction, shortage of skilled labour capacities, constructional enterprise will in future refuse on low rentable orders and also increase of prices may occur. Price also means reaction to conditions of market, prices of constructional works reflects not only personal crisis, increasing quality of constructional works, but also growth of energy prices, which enters the manufacture processes and also growth of secondary costs.
Hidden economy
In construction are in a sizeable rate in form of hidden economy offered services without quittance. According to estimation achieved in the year 2006 expenses of households for services of constructional craftsmen without receiving of quittance comprised 317,5 Mill. euro, which is by 21,3 % more then in the year 2005 (261,6 Mill. euro). Since the year 2005 precedes continuous growth in this kind of expenses.
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2 Macro-economic Outlook
In 2007 still proceeded strong growth of Gross domestic product, annual growth in constant prices in 2006 represented 10,4 %; in 2006 annual growth reached 8,5 %. On total GDP formation participated growth of labour productivity (increase of 8,3 %) and at the same time increased also employment (by 1,9 %). GDP formation was induced also by higher collection of taxes from products, reduced by subsidies for products and prestorage by cigarettes (before the increase of consumption tax on the beginning of this years). In case of deduction of extraordinary tax increase, growth will represent 9,7 %.
Annual GDP growth supported all its main expense components. To the reinforcement of domestic demand contributed particularly faster growth of final consumption of households by 7,1 % (1,2 percentual point higher then in last year). On total final consumption participated in a most expenditures for housing, purchase of food products, expenditures for furniture, dwellings facility and regular maintenance of house. Disposable resources of households grew by 10,9 %, on real growth of final consumption positively acted also course of inflation. Export of goods and services grew faster (+ 16,0 %) then their import (+ 10,4 %), but tempo of growth was in 2007 in comparison with 2006 lower by 5 and 7,3 p.p. resp. Component of GDP with the slowest growth was final consumption of public administration 0,7 %, what represents expressive decline in comparison with 2006, when annual growth represented 10,1 %.
Formation of gross fixed capital grew by 7,9 % (in 2006 by 8,4 %). Participation of constructions on Gross fixed capital formation was in current prices, as well as in 2006, higher then 50 % (52 %), while metallic products, machinery and traffic facilities shared on Gross fixed capital formation in amount of 42,2 %. Improved results of financial management led to the increase of the dynamics of investment activity. Most financial means for acquisition of Gross fixed capital invested entrepreneurial subjects in industrial manufacture (4,56 Bill. euro), significant was also volume invested in real estates and rent (2,18 Bill. euro). The lowest investment expenses had sectors education, hotels and restaurants, health and social assistance.
According to the prognosis of the National Bank of Slovakia from the second quarter 2008, economic development of Slovakia will proceed also in following years, but by lower tempo. From 2008 GDP growth tempo will reduce in comparison with previous two years. There is assumed real growth by 7,4 % in 2008 with following decrease of the growth tempo to 6,5 % in 2010. Thank to production of car factories and producers of electrotechnics, export will grow faster then import. Within next three years should final consumption of households grow yearly by more then 6,0 %. Final consumption of public administration should not exceed growth of 2,0 % yearly. Growth of Gross fixed capital formation should in next years reach level from 7,4 % to 6,7 % yearly. By drawing of financial means from Structural funds will be affected also development of Gross fixed capital formation, to the growth of fixed investments should also contribute development of profitability of enterprises, stabile entrepreneurial environment and also accession of Slovakia to Euro-area.
Key macroeconomic indicators in Slovakia from year 2004 to 2007 and forecast for years 2008 - 2010 (Annual percentage change of rate)
200 4 200 5 200 6 200 7 200 8 200 9 201 0
GDP 5,2 6,6 8,5 10,4 7,4 6,9 6,5 Inflation 7,5 2,7 4,5 2,8 3,8 3,4 3,2 Average unemployment rate 18,1 16,2 13,3 11,0 10,0 9,8 9,6 Household consumption 4,2 6,5 5,9 7,1 6,2 6,5 6,4 Gross fixed capital formation 4,8 17,6 8,4 7,9 7,4 7,9 6,7 Source: Statistical Office of SR; Medium Term Forecast of National Bank of Slovakia, April 2008
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Change of GDP, consumer prices, household consumption, GFC formation in %
20 18 16 14 12
% 10 8 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 Year GDP Consumer prices Household consumption GFC formation
Source: Statistical Office of SR; Medium Term Forecast of National Bank of Slovakia, April 2008
Average annual inflation for 2007 achieved 2,8 % (by 1,7 percentual point less then in 2006) as a consequence of deceleration of the dynamics of regulated prices. Crucial impact on increase of entire price level had course of prices of food and soft drinks, prices for housing, water, electric energy, gas and other fuels. By prognosis of National Bank of Slovakia inflation should within next three years move from 3,8 % in 2008 to 3,2 % in 2010. Inflation will be affected primarily by development of prices of energy, foodstuffs and by growth of prices of services.
Faster tempo of economy growth created favourable environment for improvement of conditions on labour market. Employment holds growth trend and declining trend is continuing in development of unemployment. In spite of this, in Slovakia is highest unemployment rate within EU countries. According to results of selective finding of work forces, published by Statistical office SR, average unemployment rate in 2007 represented 11,0 %, which is by 2,3 percentage point lower then in 2006 (13,3 %). Average number of unemployed represented 291,9 thousand persons. Since 2004 decline unemployment rate from 18,1 % to 11,0 % in 2007. In next years is assumed slowly decline of unemployment to 9,6 % in the year 2010.
Even if unemployment rate is high, appears now lack of workers in various professions. This situation is induced also by leaving of workers for outland, reason are mostly higher earnings abroad (about 230 thousand persons), by relatively high share of long-term unemployment and sometimes also not enough active approach to migration for labour within state. In some professions are absent not only people with academic education, but also salesmen, sewers, masons and hardhats.
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3 Housing Market
Construction of housing buildings comprised in the year 2007 28,7 % of inland constructional production. Volume of residential construction grew annually generally by 21,3 %, volume of works on repairs and maintenance decreased by – 4,6 %. In the year 2007 was finished by 14,0 % dwellings more, then in 2006. In comparison with previous year fell number of started dwellings by 12,0 %, when by one third fell number of started dwelling in dwelling houses, while in family houses grew this number by 17,2 %. Building permits were released for fewer dwellings then in the years 2005 and 2006 (by 7,5 % and 9,5 % resp.). However, grew number of dwellings under construction by 2,2 %, when by the end of the year 2007 was under construction 55 259 dwellings.
Considering demand for dwellings, especially in Bratislava and Trnava regions, number of dwellings under construction, announced projects and projects in preparation and need of increasing of equipment with dwellings per 1 000 inhabitants is expected medium growth of the number of finished dwellings and increase of the volume of construction works in construction of dwelling buildings. Meaning is thermal isolation of dwelling houses; reason is decrease of energy demand of buildings and modernization and reconstruction of bought older dwellings.
Number of finished dwellings in the time period 2001 – 2007 and forecast for years 2008 – 2010
20.000
15.000 dwellings 10.000 1 + 2 family houses 5.000
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year
Source: Statistical Office of SR; UEOS – Komercia, a.s., Years 2008 - 2010
In the year 2007 was finished 16 473 dwellings, from that 19,1 % in public sector (3 155 dwellings). In family houses was completed 7 897 dwellings, representing 47,9 % of total number of dwellings finished in the year 2007. In terms of the size structure of dwellings, grows share of finished one and two room dwellings. In family houses highest share represented four room dwellings (38,9 %) and five and more room dwellings (30,6 %). From finished dwellings in dwelling houses highest share represented two room dwellings (39,2 %), three room dwellings (33,3 %) and one room with flat lets (18,9 %). According to statistics, in 2007 drop of dwellings represented 1 442, from that 1 251 by demolition. In 2007 was finished 3,01 dwelling per 1 000 inhabitants.
Average floor (use) area of the finished dwelling achieved 112,0 m2 (116,2 m2 in 2006) and average living area 70,2 m2 (71,0 m2 in 2006). According to statistics was in 2007 started 18 116 dwellings from released building permits, which represents fall of this number in comparison with previous year by 12,0 %, 10 107 dwellings of started dwellings are dwellings in family houses (55,8 %).
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Finished dwe llings by number of rooms in 2006 and 2007
From that
Dwellings One room Three - Five – room Two – room Four - room and flat-lets room and more
Finished dwelli ngs 2006 14 444 1 408 3 100 4 193 3 343 2 400
Finished dwellings 2007 16 473 1 762 3 937 4 545 3 673 2 556 Structure in % 100,0 10,7 23,9 27,6 22,3 15,5
- In family houses 7 897 136 574 1 691 3 075 2 421 - Flats 8 576 1 626 3 363 2 854 598 135
Source: Statistical Office of SR
In terms of regions, most of dwellings were finished in the region with capital Bratislava – 34,7 % (5 726 dwellings), although share of inhabitants in this region comprises only 11,5 % of total number of Slovak population. The lowest number of finished dwellings was in mid – Slovakia, region Banská Bystrica – 5,7 % (934 dwellings). In last period market with real estates is slowly moving also outside Bratislava to other regional capitals (Žilina, Nitra, Trnava, Košice) and to localities, where arrived investments and increased employment. Several municipalities in surround of Bratislava and other larger cities extends their residential areas, or prepares in territorial planning land plots for construction of family houses. Trends in construction of dwelling houses are variously. From construction in existing build –up areas, to construction on “green area” and to building –up on brown fields, particularly in Bratislava, and up to construction of residential objects and zones of family houses. Built – up are complexes of several objects, or side by side one to three towers with more then twenty floors and civil amenities. The highest demand henceforth persists for smaller dwellings (flat lets, one and two room dwellings). Construction of family houses is in many cases realised by “help yourself” system and also by means of illegal labour. On the market is lack of municipal rental dwellings and also price – available dwellings for young families.
In last period becomes in Slovakia very “trendy” purchase of apartment dwellings, particularly in ski centres. Several were finished in 2007 and are ready for sale, next are already built and will be finished in this year. They are mostly apartment houses (with flats), located close to ski – centres and in tourist areas near to golf courses or to thermal swimming pools. Interested on purchase is economically stronger clientele and also foreign buyers.
Prices of dwellings
According to data of National Bank of Slovakia, prices of real estates for housing by the end of 2007 were by 32,5 % higher, then by the end of 2006. The highest prices of dwellings are in capital, where prices according to data of NBS moved from 1 342,8 euro/m2 to 1 493,5 euro/m2 (at this time also about 1 785 euro/m2), prices for dwellings with higher standard are higher and they achieves range of 2 976 – 4 463 euro/m2. In term of future development is expected growth of prices up to 5 – 15 % in this year (depend on region). After admission to Euro-area is assumed deceleration of the tempo of prices growth.
Reasons for the growth of prices of dwellings: • Accessible mortgages (availability of the distribution of payment for longer time period, subsequent purchase even for higher price), • Some people “are in pocket” (economy grows, purchase power grows, unemployment falls), • Strong population years are moving to new habitation (they establish families, young people are earlier self – existent),
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• Growth of real estates prices supports demand (I buy today, because tomorrow the price is higher), • Dwelling acts as an investment, • Purchase of dwellings by foreign subjects (companies buy dwellings for their employees, physical persons often as an investment), • Prices of dwellings in comparison with EU – prices are still on lower level, • It is not possible to exclude completely also using of “black” money an their “washing” by purchase of dwelling in connection with admission to Euro - area, before transfer to euro currency.
Ownership
After adaptation of laws on transformation of housing cooperatives and on ownership of dwellings and non – housing areas (years 1992, 1993 and subsequent amendments) were executed sales of dwellings to the ownership of physical persons – former tenants, therefore exists now high rate of dwellings ownership by private physical persons. Following the information on the ownership structure of housing stock was in Slovakia on 31. December 2006 in ownership of co –operatives 5,1 %, in ownership of towns and municipalities 2,7 % of dwellings and in other form of ownership 92,2 % of dwellings. From dwellings, finished in last five years, share of dwellings in public administration represents from 12 to 19 %. Private rental houses are not actually built – up, on the market persists lack of municipal rental dwellings and also of price – available dwellings for young families. In restituated rental dwellings, hire cost is bounded by rent regulation, which was already prolonged till the end of 2008; further solution is not yet known.
Financial tools for support of housing construction by state
Role of the state within frames of social policy is to establish economical and legislation conditions for availability of housing also for households with low incomes and for socially threatened and marginalised groups of population.
State supports housing development by several forms: • Premium to constructional saving (for 2007 maximum amount 59,5 euro), • Bonus for new mortgage credits (total amount 2,5 %) for interested persons at age till 35, maximum income 1,3 –multiple of average wage in economy in previous quarter, amount of credit maximum 44 638,9 euro, • Financial means for residential construction are, according to defined conditions and listed spheres henceforth offered in form of advantageous credit or non – recoverable allowances from state fund of housing development, primarily for construction of municipal rental dwellings, • Grants from state budget (through the chapter of the Ministry of construction and regional development), (for building of rental dwellings, elimination of system failures and completion of technical infrastructure), eventually state guaranties are provided.
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4 Non-residential Market
In the year 2007 comprised construction works on non – residential buildings the share of 44,5 % of inland constructional production (45,6 % in 2006). In comparison with previous year grew volume of production by 0,75 %, when constructional works on new construction, reconstructions and modernization increased by 6,78 %, while works on repairs and maintenance fell by – 21,8 %.
Henceforth persists demand for higher standard office rooms, intensive are built commercial buildings (shopping centres and stores of different floor area). Grows segment of building of hotels and facilities for free time activities. Concerning industrial objects, their building is in a large extent depending on foreign investment and business environment in state. Well –established companies expands or they plans to expand their manufactures (car factories, electrotechnics) and increases also number of logistic centres.
Besides started complexes are mainly in Bratislava in different level of preparation multifunctional complexes with expected period of construction 2008/2009 – 2013/2017 and with investment 258,9 Mill. euro to 1,49 Bill euro (Twin City, Panorama City, Danubia park (sport), Petržalka City, South City, The Port Lamač also New Nitra). Clearly prevalent in this type of construction are investments from private sources. In the sphere of financing of real estates occurred in the 2007 further expansion of credits from commercial banks, at the some time however also certain correction and stabilization of credit conditions, e.g. level of required own sources.
Office buildings
In the last year started more large projects (on brown fields too), which includes also office rooms or only office buildings (City Business Center III – V, Digital Park, Westend Square). Most of them should be finished in the years 2009 – 2010. Market with office rooms in capital Bratislava proceeds in record growth and slowly goes into phase of maturing. Offer of quality office rooms in Bratislava exceeded 750 000 square metres by the end of the year 2007. In this year (2008) should arrive on market in Bratislava about 200 000 m2 of space area (to the greatest belongs Apollo Business Centre II – 72 000 m2, outside capital Europa Business Center in Banská Bystrica, total 7 500 m2), inclusive office buildings of companies. For the year 2009 is assumed completion of further 110 000 m2 leasable space area. Office rooms are in individual buildings as well as in polyfunctional dwelling buildings. The greatest renters are companies from the sphere of financial services and medial sphere, IT sector, attorney companies and manufacture sector. Other companies are moving to their own buildings and other are moving from rooms of C – category to the objects of higher class. Rent for offices for class A reached in 2007 in average from 11 euro/m2/month to 18 euro/m2/month, marginal areas from 9 to 12 euro/m2/month.
Industrial objects and logistic centres
Well – established producers consider expansion of manufacture (KIA), or already started to build new manufacture plants (Sony, Samsung). Extention of manufacture is linked with arrival of supply companies and with building of logistic and distribution centres. On Slovak territory is disposable 51 industrial parks with different orientation and further tens of industrial zones. Further investors prefers construction on “green meadow”, eventually reconstruction and modernization of existing objects. In May 2008 should be approved law and released regulation on payment of levies for permanent occupation of the land from agricultural land resources. Incoming investment prefers west Slovakia, where in some areas already exists problem with sufficient labour force. In term of state are preferred areas with high unemployment rate and east part of country.
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Developers acquired tens hectares of land and they are preparing projects for industrial eventually logistic parks. For building of logistic centres is important traffic connection, therefore are they built near by over regional transport communications. Most attractive and quality objects for logistic are situated very closely to Bratislava, along D1 highway direction Žilina and Košice and also along the D2 highway direction Czech republic. Further developing areas are in east Slovakia near the cities Košice and Prešov. Overall surface of modern storehouses in Bratislava region is estimated for 420 905 m2 and in whole Slovakia 805 405 m2, major part of them arose during last four years. Considering need are in term of transport and technical criteria preferred new logistic spaces against older facilities. Consequently is expected trend of moving of logistic companies to new specs. Average rent, regardless of quality of storage rooms, represents 4,10 euro/m2/month.
Shopping buildings
Construction of shopping facilities doesn’t fall, it is expanding also to smaller towns, where are built business operations of smaller extent. Henceforth is in progress construction or preparation of new shopping buildings of different quality and extent, from modern shopping centres of higher standard (Aupark Piešťany, with some problems Aupark Žilina, Aupark Košice; Gallery MLYNY in Nitra), through supermarkets in peripheral areas of towns, to the shops of lower extent (to 3 000 m2), low cost shopping centres (e.g. Max type) and in smaller towns also street mall. Market chains (TESCO, COOP) will invest into low size stores with floor area of 300 to 500 m2. Further shopping rooms are located together with office rooms and dwellings in polyfunctional buildings. Concentration of shopping centres on east Slovakia is relatively low.
Hotels and sporting constructions
In connection with arrangement of Ice – hockey World Championship is necessary to build in Bratislava new multipurpose sporting hall, assumed costs are about 104,2 – 119 Mill euro This hall will be built by means of PPP – projects. In field of sporting – recreation objects are built aqua parks equipped by apartments dwellings, golf courses with back round, smaller football stadiums with artificial gross – surface and halls of smaller extent. Construction of apartment dwellings is realized particularly in ski and tourism centres. In last two years is developed construction of hotels and accommodation facilities. In capital, hotel of higher class is component of nearly each new polyfunctional complex (Riverpark – Kempinski River Park Hotel; Eurovea – Sheraton). In Košice, the second city, where also occurs part of Ice – Hockey World Championship in 2011, will be built three further hotels, current capacity will be thus increased by 1 000 beds. In several towns of Slovakia, where thank to investment proceeds development, are built new hotels, existing hotels are reconstructed, modernized or expanded (e.g. Hotel Tatra in Bratislava, hotels Slovan and Hutník in Košice). Construction of accommodation facilities proceeds also in tourism centres. Holland developer Dan Leisure, in cooperation with the company Van Dale and Friends count to build on east Slovakia, near to town Humenné entertainment – thematic park “Bird valley”, overall investment of 100 – 125 Mill euro. Part of this complex will be also three entertainment parks, golf courses, down hill track, several sport grounds and further attractions. Slovak side will contribute by building of infrastructure and offer of lands.
The Castle
For repair and reconstruction of Bratislava Castle in capital was allocated 59,5 Mill euro. Works should start in this year and should be finished within five years.
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5 Civil Engineering Market
In the year 2007 comprised civil engineering the lowest share on constructional production, namely 26,8 %, in 2006 was share higher and comprised 30,1 %. Annually fell both new construction, modernizations and reconstructions (by – 6,5 %) and repairs and maintenance (- 15,9 %), which represents overall drop by – 7,8 %. Drop aroused mainly by reason of lower volume of constructional production in transport infrastructure, then in 2006. Essential part henceforth comprises and will comprise building of transport infrastructure – highways and speedways. On autumn 2008 and spring 2009 shall be signed contracts with concessionaries, which will manage building of highways and speedways in form of PPP projects. In case of successful agreement (after evaluation by the Ministry of Finance) there is assumption of more expressive growth of the volume of constructional production in building of roads in the years 2009 and 2010, which is not fully reflected in current prediction. In building of railway infrastructure is growth in the years 2009 and 2010 affected, besides modernization of existing lines also by plan of start of building of the underground corridor of interconnection of railways in Bratislava, as a component of international railway corridor Paris – Vienna – Bratislava.
Transport infrastructure
Completion of transport infrastructure represents important precondition for economical development of single regions of Slovakia. It concerns development of superior road infrastructure (highways and speedways) as well as modernization of railway corridors and need of the infrastructure for air traffic (in capital). For development of transport infrastructure will be used financial sources from state budget, from EU funds (highways, speedways and roads of first and second class, railways). Also use of private sources through PPP – projects is assumed.
Road infrastructure
In the year 2007 National Highways Company finished and devolved to regular operation 43 km of highways, from that 15,6 km incomplete, with only two traffic lanes. In the year 2008 is counted with completion of three new segments in total length of 21,1 km. Works shall start on 19 segments, from that 13 constructions within the PPP. For some segments, however failed ensuring of financial sources from EU funds, for other segments is situation solved by bridging loan. Government wants to accelerate building of highways, and till the year 2010 (except tunnels – they should be finished till 2012) plans to inter connect the capital in the west part of country with the greatest city in the east part – Košice by the highway D1 and also to finish speedway R1 Nitra – Zvolen. To make possible to build more and with higher tempo superior transport infrastructure, government decided, that absent segments shall be ensured by means of PPP projects. In total it represents 151 km of roads (assumed costs 3,1 Bill euro). Segments are split to three groups, for their realization was already announced public procurement on autumn 2007 and beginning of 2008, which is however prolonged. In connection with acceleration of construction of specified segments was accepted law for settlement of parcels under prepared segments of highways in form of acquisition or expropriation up until approving inspection.
Railway infrastructure
In 2007 took place works on modernization of railway to higher transport speed. Finished was also reconstruction of two railway stations (Prešov and Poprad) and electrification of the segment Zvolen – Banská Bystrica. Within construction works are changed railway embankments, rails and power lines,
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modernized are platforms, eventually underpasses. In 2008 will proceed modernization of existing railway corridor V in segment Nové Mesto nad Váhom – Púchov (Zlatovce) and corridor VI Žilina – Krásno nad Kysucou and charging station Žilina – Teplička. For modernization are used resources from Cohesion fund EU. Effort of society will be also aimed on reconstruction and revitalization of the railway station buildings; goal is improvement of technical state of buildings and on the other side maximum use of their rooms and plots in conjunction with public transport. Also using of PPP project is assumed. In preparation is interconnection of airport in capital with railway (start of building in 2009) and construction of underground corridor with stations, as a completion of railway corridor Paris – Vienna – Bratislava (palned start of building 2010 – 2011) .
Airports
Considering growing number of passengers on Bratislava – Airport it is necessary to build new terminal and related infrastructure. It is planned to invest till the year 2012 145,8 Mill euro, from that 83,3 Mill. euro expansion of the airport, new buildings, and the rest for improvement of trucks, car parking. In 2007 were on airport realized constructional modifications (building of boarding tunnels) for 8,9 Mill euro to meet condition of Schengen-area. On the airport Sliač will start in summer 2008 reconstruction of landing track, works will take 12 months, gross estimation of costs represents 59,5 Mill euro.
Power stations
In 2007 was in industrial park in Levice put in operation steam – gas power station (output 80 MW, costs 59,5 Mill euro). After elimination of the second block of nuclear power plant in Jaslovské Bohunice will raise dependence of Slovakia on import of foreign electric energy. In this connection are realised or in preparation several projects of building of new energy sources by various investors in years 2008/2009 (steam – gas cycle in Lučenec, 47,6 Mill. euro; near Coca Cola plant 14,8 Mill euro; thermal power plant in east Slovakia, gas power plant in Malženice). Company Enel Slovenské elektrárne, according to strategic investment plan up to 2013, aims to invest 3,27 Bill euro. Investment will lead to nuclear power plant (completion of a building of started third and fourth block in Mochovce, culmination of works in 2010 – 2011, modernization of thermal power plants Vojany and Nováky, small range water power plants and exploitation of the biomass). On the present are in Slovakia three small wind parks (Cerová, Ostrý Vrch, Skalité). Several investors try to build wind power plants also in other locations. Field of exploitation of wind energy for production of electric energy is in term of state not considered for significant potential energy source.
Environmental constructions
Slovakia lags in equipment by constructions for environment and therefore exists obligations towards EU with the aim to increase equipment in stated field. To the investment belongs building of sewage and water supply in locations, where they are missing, renovation of existing and building of new wastewater cleaning plants and waste dumps. On spring of 2007 started works on flood protection on riversides of river Danube in Bratislava and surroundings, and works will proceed till 2010. Costs 36 Mill euro, 85 % co finance from Cohesion fund. Besides their own investment of water companies, in high rate are also used financial sources from EU funds.
Operational Programme Environment is a programming document of the Slovak Republic for utilisation of EU assistance for environmental sector defined for 2007-2013 programming period.
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Global objective of this programme is improved environmental status and rational use of resources achieved by completing and improving quality of environmental infrastructure in Slovakia pursuant to EU and SR regulations and stimulation of environmental part of sustainable development.
Achievement of the global objective in operational programme will be facilitated by the six priority axes, from that: Priority axis 1 - Integrated protection and rational utilisation of water (completion and improved quality of water management infrastructure) Financial plan for the whole programming period – 1,0 Bill. euro (EU and national sources). Priority axis 2 – Flood protection (Facilitating complex flood protection of SR territory) Financial plan for the whole programming period – 141,2 Mill. euro (EU and national sources). Priority axis 4 - Waste Management - also construction, or modernisation separated waste collection facilities, cultivation and regeneration of area.
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APPENDIX – DEFINITIONS
Table 1 • Households (thou.) – operating households, estimated from last census. • Unemployed (thou.) – average number of unemployed by selected survey of work forces, published by Statistical Office SR, until 2007; outlook – calculation of the author of the report. • Unemployment rate, change of GDP, consumer prices – development for 2008 – 2010 according Medium-term prediction of fundamental macroeconomic indicators of National bank of Slovakia. • Construction works prices (% of change) – yearly average; development for next years estimation. • Short – term interest rate – Bratislava inter bank offer rate, 3 months, sale, 2008 –2010 estimation. • Long – term interest rate –state bonds, maturity 10 years, NBS; years 2008 – 2010 estimation.
Table 2 • Constructional production – inland construction works, made by own employees in enterprises with 1 – 19 and above 20 workers, by tradesman and by constructional plants of non – construction enterprises, without black economy and DIY. In the row modernization, reconstructions are listed constructional works on repairs and maintenance. • Data on constructional production for years 2004 – 2006 are adapted from the Yearbook of construction 2007, subtracted are works abroad; data and structure for year 2007 according the data from Statistical Office SR; structure also estimated.
Table 3 • Building permits – total number of dwellings in new family houses with one dwelling and total number of dwellings in new buildings with two and more dwellings. Not included are new dwellings in reconstructed buildings, arose by reconstruction, adaptation or by construction of additional new upper floors. • Housing starts – started dwellings from building permissions, number of dwellings, for whose constructions were issued building permits in monitored time period. • Housing completions – finished dwellings from approval decisions (in family houses, in dwelling houses, non – residential buildings, acquired by reconstruction, adaptation or construction of new upper floors). • Housing stock - calculation; original state according to census in 2001 + finished dwellings – drop of dwellings (in individual following years). • From that secondary residences – start value year 2001, census May 2001 recreation cottages in housing stock, unoccupied dwellings (individual years – estimation). • From that vacation spots and holiday dwellings – start value year 2001, census May 2001; unoccupied dwellings (individual year – estimation).
Table 4a • Industrial buildings inclusive complex of industrial objects. • Stores and agricultural buildings – rough estimation. • In other non-residential buildings are included also hotels and similar buildings, buildings for traffic and telecommunication and buildings for culture, public entertainment. • m2 (in thou.) – useful area according building permits.
Table 4b • Roads - highways and local communications, bridges, overpasses, tunnels and estimation of repair and maintenance works. • Railways inclusive bridges, overpasses, tunnels and estimation of repair and maintenance works.
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• Years 2004 – 2006 based on Yearbook of construction 2007, Tab. II.2-10; Statistical Office SR,
Table 5 • Data and development for years 2004 – 2007, Statistical Office SR, www.statistics.sk • Assumed development for years 2008 – 2010 is adopted from Medium-term prediction of fundamental macroeconomic indicators of National bank of Slovakia, April 2008. • Gross fixed capital formation – construction, data in current prices from database SLOVSTAT; percent of change and prediction calculated by author of the report. • In the year 2007 was statistical difference in sum of GDP - 150,4 mil. Euro.
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Country/Pays/Land: Slovakia Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 5 383 5 387 5 391 5 397 5 401 5 405 5 409 Bevölkerung
Households ('000s) Ménages 1 920 1 926 1 931 1 936 1 938 1 942 1 946 Haushalte
Unemployed ('000s) Chômeurs 481 428 353 292 265 260 255 Arbeitslose
Unemployment rate (%) Taux de chômage 18.1 16.2 13.3 11.0 10.0 9.8 9.6 Arbeitslosenquote
Change of GDP Variation du PIB 5.2 6.6 8.5 10.4 7.4 6.9 6.5 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 7.5 2.7 4.5 2.8 3.8 3.4 3.2 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 6.1 4.3 3.9 4.0 4.4 3.9 3.5 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 3.7 3.1 4.8 4.3 4.3 4.1 4.1 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.9 4.9 4.9 4.9 4.9 4.8 4.8 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Slovakia Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 1 091 2.6 19.6 19.8 28.7 9.1 4.0 1.0
Logement Renovation 229 -16.1 32.9 4.8 -4.6 0.1 1.3 2.6
Wohnungsbau Total 1 320 -2.3 22.6 16.1 21.4 7.5 3.6 1.2
Non-residential construction New 1 717 22.1 4.3 17.4 6.7 -0.5 -1.6 0.2
Bâtiments non résidentiels Renovation 331 -7.0 5.4 21.6 -21.8 1.7 2.7 6.0
übriger Hochbau Total 2 047 14.9 4.5 18.2 0.8 -0.2 -0.9 1.2
Building New 2 808 15.3 9.1 18.2 14.3 3.2 0.7 0.5
Bâtiment Renovation 560 -10.4 14.8 15.0 -15.6 1.1 2.1 4.6
Hochbau Total 3 368 8.8 10.3 17.5 7.9 2.9 1.0 1.2
Civil engineering New 1 076 5.1 32.5 16.1 -6.5 15.3 15.7 8.1
Génie civil Renovation 161 -28.9 40.7 -2.9 -15.9 7.0 3.5 3.3
Tiefbau Total 1 237 -2.3 33.8 12.9 -7.9 14.2 14.2 7.6
TOTAL CONSTRUCTION OUTPUT 4 604 5.6 16.6 16.1 3.2 5.9 4.8 3.2
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 2.51 -2.9 11.5 23.4 9.1 6.0 4.0 4.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 33.603 SKK
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SLOVAKIA
Country/Pays/Land: Slovakia Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 8.1 7.1 7.3 9.0 8.4 8.0 8.0 Baugenehmigungen Familienhäuser
Flats Collectif 6.3 10.4 10.6 7.2 9.0 9.5 9.8 Mehrfamilienhäuser
TOTAL 14.4 17.5 17.9 16.2 17.4 17.5 17.8
Housing starts 1+2 family dwellings Logements commencés Individuel 9.7 8.4 8.6 10.1 9.5 9.3 8.8 Baubeginne Familienhäuser
Flats Collectif 6.9 11.4 12.0 8.0 9.2 9.5 10.0 Mehrfamilienhäuser
TOTAL 16.6 19.8 20.6 18.1 18.7 18.8 18.8
Housing completions 1+2 family dwellings Logements terminés Individuel 8.6 8.7 7.7 7.9 8.3 9.0 9.1 Baufertigstellungen Familienhäuser
Flats Collectif 4.0 6.2 6.8 8.6 9.2 9.0 8.9 Mehrfamilienhäuser
TOTAL 12.6 14.9 14.4 16.5 17.5 18.0 18.0
Housing stock Logements existants 1 930 1 943 1 956 1 958 1 974 1 991 2 008 Wohnungsbestand
thereof second homes dont résid. secondaires 46 47 48 49 davon Zweitwohnungen
thereof vacancies dont inoccupé 178 179 180 181 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 91.6 91.8 92.2 92.7 92.8 93.0 93.1 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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SLOVAKIA
Country/Pays/Land: Slovakia Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 57 14.7 5.2 20.3 21.8 -15.8 -12.5 -7.1 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 54 10.6 0.3 14.0 8.2 -27.8 -7.7 8.3 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 488 48.5 5.5 15.1 -4.4 0.6 -0.6 -1.2 Industriegebäude
Storage buildings Bâtiments de stockage 131 50.9 8.5 86.1 20.9 0.0 -9.1 -5.0 Lagergebäude
Office buildings Bureaux 327 265 75.7 2.9 15.4 17.5 3.6 1.8 1.7 Bürogebäude
Commercial buildings Commerces 339 -20.7 3.0 19.1 10.6 0.1 -0.9 -0.9 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 27 17.9 7.4 37.5 8.2 22.2 -9.1 10.0 Landwirtschaftsgebäude
Miscellaneous Autres 295 15.7 4.3 5.2 3.5 -2.0 -1.0 3.1 Sonstiges
Total 1 717 1 930 22.1 4.3 17.4 6.7 -0.5 -1.6 0.2 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 33.603 SKK
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SLOVAKIA
Country/Pays/Land: Slovakia Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 536 -3.7 51.3 16.3 -15.6 33.3 8.3 3.9 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 253 2.2 81.4 20.3 2.2 5.9 44.4 23.1 Bahnanlagen
Other transport Autres réseaux 21 133.2 -48.3 9.0 18.9 28.6 44.4 -15.4 Übrige Verkehrsinfrastruktur
TOTAL 809 1.3 51.9 17.3 -10.2 24.6 18.9 9.4
Telecommunications Télécommunications 136 0.5 12.5 -1.4 6.9 -10.1 0.0 -4.9 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 170 1.8 21.2 14.8 -11.6 0.9 7.8 4.8 Energie- und Wasserversorgung
Other Autres 122 -18.8 -4.2 -1.3 -1.4 -9.8 -2.7 5.6 Sonstiges
Total 1 237 -2.3 33.8 12.9 -7.9 14.2 14.2 7.6
1) At 2007 prices, excluding taxes. 1 euro = 33.603 SKK
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SLOVAKIA
Country/Pays/Land: Slovakia Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 30.8 4.6 6.5 5.6 7.1 6.1 6.4 6.4 Privater Verbrauch
Public consumption Consommation publique 9.7 -2.0 3.5 10.1 0.7 2.0 1.9 1.9 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 14.2 4.8 17.6 8.4 7.9 7.4 7.9 6.7
of which construction 7.4 5.7 13.0 28.6 3.3 3.8 3.0 3.0
Stocks (contribution as % of GDP) Variations de stocks 0.7 Vorratsveränderung
Exports Exportations 47.6 7.4 13.9 21.0 16.0 11.2 8.6 7.2 Exporte
Imports Importations 47.8 8.3 16.1 17.7 10.4 9.7 7.4 6.6 Importe
GDP PIB 55.1 5.2 6.6 8.5 10.4 7.4 6.9 6.5 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 33.603 SKK
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SPAIN ITeC – The Catalonia Institute of Construction Technology www.itec.es
Josep Ramon Fontana e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
SPAIN
1 Summary
The Spanish economy is facing a new cycle without having had the opportunity to replace its economic model. This model has provided 14 years of uninterrupted growth in a context of fiscal consolidation, EU aids, affordable and abundant financing, affordable labour due to immigration and strong housing and infrastructure construction activity. It is clear that this context is dissipating extremely quickly, making the weaknesses of the model all the more evident, particularly the lack of economical drivers to replace construction and the propensity towards inflation and high levels of personal debt. GDP readjustments in Spain will principally occur in 2008, when the expected growth rate of 2.1% will strongly contrast with the previous year’s level of 3.8%. A slowdown in growth with rates of between 1.5% and 2% is expected for 2009 and 2010, given that there are few hopes of recovering the growth rates experienced in the past years by both private consumption and investment.
The new housing market continues to be the protagonist of the construction sector, except that now it is in the negative. The residential housing crisis has finally become a tangible, profound and probably persistent phenomenon. The downturn in property sales, initially brought about by the deterioration in financing, is generating a drop in prices which as it is expected to become more noticeable in the short-term is dissuading potential buyers even more. Due to the inertia caused by the significant supply of new projects in 2006 and the first half of 2007, the production of new housing has not been able to react quickly enough and the market is saturated with a product for which there is no demand or which demand cannot absorb in the current conditions. Moreover, there is an additional source of supersaturation: properties bought as investments during the peak years of the cycle with a view to selling in the medium-term and which are now on the market to alleviate the financial charges facing owners. For these reasons, a severe readjustment of the residential housing market is expected, with downturns in production of more than 15% during 2008 and 2009 at the least.
The sub-markets that will be affected by the economic slowdown are the focus of the non-residential property chapter: commercial construction will suffer from the decrease in consumption and the cancellation of numerous urban projects, and industrial construction will enter into a stagnation phase. The main positive counterpoint continues to be office construction, which seems to retain a strong position in the short-term. As a whole, non-residential markets aim to maintain current production levels, oscillating very little upwards or downwards throughout the forecast period.
Finally, the Spanish construction sector’s highest – if not only – expectations for growth over forthcoming years are centred on civil engineering. Unlike recent years, during which this market experienced strong growth based on growing tender levels, this trend has been truncated, presumably due to the elections last March. In view of the new government’s commitment, this dip is considered to be a fleeting episode and a recovery in growth is expected over forthcoming months. This impasse will make itself felt in 2008 production levels, which are expected to grow by only 3.5%, which is moderate given that the average of the last four years was approximately 7%. A progressive but gentle upturn is forecast from 2009 onwards, based on numerous long-term infrastructure plans which have been fulfilled up to now and the predicted erosion of public resources available to continue executing them.
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2 Macro-economic Outlook
This chapter on the country’s economic environment is usually given over to analysing the latest national accounting results in some detail, in search of the symptoms that can be used to describe the market environment in which the construction sector will develop in the short-term. At this particular time, when a considerable contrast is expected between the behaviour of the Spanish economy in 2008 in relation to 2007, it is rather redundant to attempt to extrapolate too many conclusions from the 2007 results. Therefore, we will not linger on this aspect but simply point out that the estimates that foresaw a good level of growth for 2007 (3.8%) have been fulfilled, sustained as is becoming the norm by strong internal demand (which began in the first quarter growing to 3.5% to finish in the fourth at only 2.7%) and due to the fact that, in the overall calculations for the year, the construction sector was still able to achieve a brilliant initial quarter prior to a slowdown in the second.
2008: expectations continue to deteriorate
The first data genuinely pertaining to 2008 bears little relation to the 2007 climate we have just described, particularly in the inflation and unemployment chapters. The progression of oil and food prices has seen the CPI rise to levels higher than 4% during the first months of the year, which strongly contrasts with the lowest level of 2.2% achieved in the summer of 2007. Construction prices are behaving in a similar manner, despite the fact that the stagnation of labour costs is helping to absorb the impact of the rises in material costs. Some analysts, including the European Commission and the Bank of Spain, expect inflation to slow during the second half, which will ensure that the overall rate for 2008 finishes at around 3.6%.
Unemployment figures are showing abnormally significant increases, reverting to levels seen in the mid 1990s. The construction sector’s contribution to this phenomenon is very significant: it is the sector with the highest growth in unemployment in relation to the prior year, in accordance with the latest Labour Force Survey (LFS 1Q2008). If we add this erosion in the labour market to credit and debt circumstances, it should be no surprise that private consumption will accentuate the process of slowdown that got quietly underway a few years back. Investment also seems bound to follow a similar path, and while there was still some hope that investment in consumer goods during 2007 would be capable of amortising to a minimal degree the effects of changes to the housing cycle, these expectations have been severely eroded in 2008.
After the change in government following the March elections, a series of measures for economic recovery were announced in April amounting to an approximate value of Euros 10,000 million, equivalent to 1% of the GDP, taken from the budgetary surplus of the last years. The main breakdown of the package is Euros 6,000 million to stimulate consumption and Euros 4,000 million allocated to assist SMEs. Moreover, it contains various specific measures aimed at the construction market and specifically towards protected housing sub-markets (increase in rate of development, mortgage guarantees for buyers) and property renovation (revision of the tax treatment). In addition, tax charges arising from renegotiating mortgages for families choosing to extend amortization schedules to reduce monthly instalment amounts have been removed for two years. For the moment, the possibility of a general tax exemption for homeowners has been discarded out of concerns that this may have a distorting effect on prices.
The official GDP estimate for 2008 is 2.3%, one tenth below that of the Bank of Spain but significantly higher than the 1.8% published by the IMF. Private banking operates within a range of 1.9 and 2.6%, depending mainly on the age of the estimate. The hypothesis chosen for this report is GDP growth
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SPAIN
2.1%, an intermediate point that does not share the government’s optimism in regard to the maintenance of private consumption, nor the same pessimism as some of the other sources in regard to the deterioration of the investment.
2009: the most critical time
The various analysts’ estimates for 2009 basically follow two common threads: maintenance or very slight reduction in GDP levels for 2008, or continuation of the economic deterioration, reducing the rate of downturn experienced 2008. The hypothesis chosen for this report follows this last approach, proposing a growth of 1.6% for the Spanish economy in 2009.
It is no accident that this phase of virtual stagnation coincides with a period that may well be particularly delicate for the construction sector. With private consumption at a predictable minimum, practically the only arguments to counterbalance this negative impact arise from the delayed materialisation of some of the effects of the Spanish Ministry of Economy action plan. Specifically, there are hopes that in 2009 an increase in company liquidity will begin to be felt as a result of VAT refund advances. It has not been discarded that the government may enact a second phase of the plan in 2009, given the evolution of the economic situation.
2010: too early for a genuine recovery
Given the current context of uncertainty, it is not necessary to stress the fragility of a three-year estimate. The most optimistic voices speak of the possibilities for a turning point at the end of 2009. However, beyond locating the temporary point at which the bottom is hit, they do not point to a conclusive recovery. A prudent approach has been taken for the purposes of this report; 2010 indicators have been imagined at similar levels to those of 2008, in other words at low levels (for the normal standards of the Spanish economy) but not as extreme as those for 2009. The worst of the economic readjustment will have passed, but there does not seem to be reasons to expect a strong recovery, given that the most visible legacy of this transition may be, on the one hand, a high unemployment rate, and, on the other hand, a distrustful market in which to once again drive new housing towards an upward cycle similar to that which we have left behind.
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SPAIN
3 Housing Market
Estimates for the Spanish new housing market contained in the Euroconstruct report of December 2007 hardly considered the possibility of a deterioration as swift as the one experienced, which points toward an even more severe drop in production than indications suggested six months ago. The scenarios on which the most negative hypotheses contained in that report were based are in many respects becoming reality:
Financing: In addition to the fact that there was no change in interest rate trend in the first quarter, in the short-term it would not appear that the banks are going to relax their risk assessment policies; indeed, quite the contrary. Housing prices: according to Spanish Ministry of Housing statistics, we have moved from the previous price slowdown stage to zero virtual growth (0.8% quarterly growth in 1Q2008), which corresponds to an actual reversal in prices if the effects of inflation are calculated. If the decrease reflected by the official index is moderate, there is no shortage of indications that this is only the tip of the iceberg, whether because there is a predominant general perception that the reaction of the official price index tends to be delayed with regard to the market or because we are seeing sales practices involving deals that conceal the real price drops.
Both factors have been widely circulated and all kinds of conclusions have been extracted about their impact on the economy of Spain and its citizens. Therefore, we should not be surprised that the effect of the repercussion of these factors has over the last few months contributed to a not insignificant negative psychological effect. The effects of this climate of distrust can be noted in the levels of transactions and mortgages, and the latter have greater reach as they are mixed with credit related to the completed product (purchase of property) and to the product to be produced (financing new developments):
Mortgage Property transactions (year-to-year variation) (total new and used housing, units per quarter)
█ variation of new credit amounts –– variation of the number of new credit operations Sources: BDE, AHE, Min. of Housing
Cooling demand reflected in the decrease in transactions contributes to refuelling the issue of dropping prices, and everything points to the fact that there are further drops ahead. The IMF places the potential readjustment at between 15% and 20% in real terms, and although this estimate has been challenged by the government it undoubtedly reflects the direction the property market will go in the short-term. Bearing in mind that postponing the decision to buy might lead to significant savings for the buyer, it is unlikely that sales will recover in the short-term.
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SPAIN
In normal circumstances, the reduction in offers would be proportionate to the reduction in demand, but currently the construction of new housing has slowed down to a greater extent than could be expected in a market readjustment situation. The explanation lies in the scarcity of stocks, a factor mentioned in previous reports which warned of the existence a notable number of properties purchased during the booming period and held by owners in the hope of selling them at a later date, trusting in their up to now undeniable potential for appreciation. Despite the fact that it is now extremely difficult to find a buyer, part of this stock is on the market because some owners cannot bear the mortgage charges, which unlike prices have not stopped growing.
The result is that currently, and probably for some time to come, it will be possible to satisfy a very substantial part of the demand with a combination of new constructions completed over the last 12 to 18 months (which in the best case scenario are placed very slowly) together with properties bought some years ago with a view to reselling them in the medium-term. This circumstance explains why developers have so abruptly interrupted processing more new construction starts, which is quite clearly reflected in the permit figures for the third quarter of 2007.
Two-speed crisis: single-family v. multi-family homes
New construction permits The separate evolution of single-family and multi-family homes Twelve-month period, index 2004=100 shows some particularities. There can be no doubt that the 180 residential boom of the last few years has mainly been fed by the construction of apartments, and that therefore a priori this 160 flats [1] was the sub-market most vulnerable to a substantial fall. 140
flats [2] Simultaneously, since 2006 there has been a decrease in the 120 single-family housing market share (see Euroconstruct report Munich ’06) as it is a more expensive product for the end buyer 100 and the municipality in which it is built. There has been no
80 slowdown in this trend, which could give rise to the paradox single-family that single-family housing experiences a lighter drop than forecast 60 multi-family housing but nonetheless insufficient to recover the loss of market share. Specifically, in the period 2000-2003, 40 29% of the total housing started was single-family. In 2007 the 2004→ 2005→ 2006→ 2007→ 2008→ share dropped to 15.5%. The Euroconstruct estimate for 2008 Note: flats [1], official Ministry of Public Works figures; flats [2] envisages some recovery, but a return to above 17% will be ITeC’s estimation of the real number of flats which have been difficult. effectively started
The impact in terms of production will be substantial. Whereas in 2007 we were still talking about maintaining production levels (not in vain the completed housing record was beaten in 2007), there will be a marked recession in 2008 and 2009 when the production drop could oscillate between -15% and -20%. These next two years will be, at the least, an indispensable time for restructuring a sector that over the last five years produced an average of 700,000 homes a year and now finds that in the absence of significant demand it is highly risky to produce 300,000 more new homes a year. The key for this demand to recover in the more medium-term will be because prices find a new level of stability (presumably lower and therefore more attractive) and because the financial market recovers some of the permissibility of recent years.
Within the context of a residential sector that needs time to find a new sustainable rate of activity, two exceptions to the negative dominant tonic should be mentioned:
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Social housing
In 2007 the uptrend of protected housing starts was interrupted and the 95,255 starts of 2006 were not exceeded, but nonetheless the levels remain high for the standards of the recent history of social housing in Spain. Therefore, public housing will make a considerable contribution to the activity balance sheet of the new residential construction sector in 2008, and a potentially substantial recovery is even expected in 2009 and beyond due to the following factors:
On the one hand, the new government has made a commitment to regenerate investment in public housing, not just as a countermeasure to alleviate the decrease in activity in the private sector but as a way to satisfy the needs of substantial portions of demand that were left unsatisfied during the property boom. Specifically, the target of constructing 150,000 subsidised homes per year has been considered, a figure without recent precedents and which should therefore be embraced with caution if only because it arrives at a very critical time for the sector. In fact, some contractors seem to be willing to accept more restrictive public housing conditions as an alternative to the low demand and excess risk of private housing development. Constructing more social housing would make little sense if it continued to be inaccessible to the target public, which in the main continues to opt for buying above renting. Thus, the same package of government measures to soften the impact of the change of cycle includes Euros 5,000 million intended for securitizing mortgages for buying social housing. According to the calculations of the Ministry of Economy, this will finance up to 250,000 homes. It is possible that further additional measures are introduced or that those described above are extended.
Social housing activity New construction and renovation permits units, started and completed Twelve-month period, index 2004=100
125 100 000 120 90 000 starts 115 renovation 80 000 110 70 000 105 60 000 completions 100 new 50 000 95 40 000 90 30 000 85 00 01 02 03 04 05 06 07 2004 2005 2006 2007 2008
Sources: Ministry of Housing, Ministry of Public Works
Residential renovation
The previous report mentions how the marked decrease in new construction permits in the middle of 2007 seemed to coexist with a relative maintenance of the permit rates for renovation projects. This trend continues six months later, ratifying up to now the hypothesis that both markets– new housing and renovation– can move at independent rates.
We must once again recall the fact that renovation permits may only be interpreted as an indicator of the “major” renovation activity and that they cannot be used as an explicit sign of what is happening in the smaller-scale renovation sub-market. This is a more vulnerable part of the market. For instance, it depends to a large extent on the level of property transactions, within which there is a large proportion of used homes changing hands and being renovated at the same time. We have already noted how these indicators are going through a weak period, as a result of which it remains to be seen how
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SPAIN renovation carried out by the actual occupants of the property for repair or enhancement purposes reacts.
The new renovation-specific government measures seem to be aimed at this kind of market. The focus has been to ease tax burdens through two taxes:
VAT: the scenarios in which it is possible to recover the VAT borne have been extended. Until now, to choose this system it was necessary to show that the cost of the renovation exceeded 25% of the combined cost of purchasing the property plus the impact of the land price. After the reform, the impact of the land will be removed from the calculation, so that more projects will have the opportunity to benefit from this more advantageous tax system. Personal income tax: analogously, the scenarios in which homeowners may benefit from the renovation investment deduction for their homestead have been extended, which were also limited by the rule of 25% of the total property plus land. As in the previous case, now only the property not the land will be calculated.
Surely 2008 it is too early a time to expect palpable results from these measures, which is why a negative growth scenario for residential renovation is proposed for this year. For forthcoming years, it is hoped that the situation does not deteriorate, postponing the genuine improvement for the medium- term once the markets have recovered their normality.
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SPAIN
4 Non-residential Market
In the previous Euroconstruct report it was pointed out that the chief expectations of the Spanish non- residential building sector relied on the reasoning that this market was not linked to the residential property cycle, and that economic slowdown so far was not deep enough to impact production and employment. Six months later, these expectations have only half materialised. On the one hand, as proof of the relative autonomy between housing construction and non-residential construction, an incipient transfer of investors has been identified who are abandoning the residential market to seek refuge in non-residential markets, of which offices are one of the most attractive proposals at the moment. Unfortunately, this is a vector of little magnitude, in as much as there does not seem to be very many investors who have abandoned the residential property business in a sound enough position to be able to consider diversifying or transferring their portfolios to other sectors.
However, the impact on the economy is more profound than expected, and it is upsetting the immediate horizon of non-residential construction. Commercial construction is worst hit, dragging along with it logistics-related construction and to a lesser extent tourism and leisure construction. On the other side of the coin is office construction, which does not seem to have exhausted the inertia of the last quarters during which numerous projects were through the permit process that are still being executed or will be soon. Adding these sub-markets forms a virtually stagnant non-residential sector without clear possibilities for take-off throughout the whole forecast period.
Surfaces to be built contained in the permits Evolution over twelve-month period (index 100 = January 2004) Industrial buildings Retail and warehouses 130 130
120 120
110 110
100 100
90 90
80 80
70 70 04→ 05→ 06→ 07→ 08→ 04→ 05→ 06→ 07→ 08→
Offices Leisure related buildings 130 130
120 120
110 110
100 100
90 90
80 80
70 70 04→ 05→ 06→ 07→ 08→ 04→ 05→ 06→ 07→ 08→
Source: Ministry of Public Works Industrial buildings
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SPAIN
When the last winter Euroconstruct Report was written there was a certain expectation that the boost in industrial construction in 2007 would extend into 2008. The number of permits issued during the last two quarters shows that this sub-market is slowing, but for the time being there are no indications that would lead to making more profound adjustments to the forecast, beyond anticipating for 2008 the stagnation that was forecast for 2009. The other indicators that describe the industrial climate of the country only ratify this sluggishness: the industrial production index for the last few months is showing modest year on year growth in the range of 1-2%, the orders for capital goods are beginning to decline, and in terms of employment a very slight increase in the number of workers (LFS 1Q2008) has been maintained, although not enough to avoid a substantial increase in the unemployment rate in this sector.
Commercial buildings and warehouses
The commercial sub-sector is showing greater vulnerability than the rest of the non-residential markets. On the one hand, demand for more commercial surface area is slowing as tradespeople anticipate greater cut backs of private spending in the coming season. Furthermore, we must also point to the fact that the slowdown in the residential sector is responsible for much less demand of new urban structure, which usually contains a proportion of new commercial construction within. There are the beginnings of firm indications that the retrenching of commercial construction in terms of permit numbers will be more than a passing phenomenon, which has led us to reconsider our forecasts positing a stagnation in production to a negative growth scenario: -3% for 2008 and -4.5% in 2009. Our forecast for the evolution of warehouse construction, closely linked to commercial logistics, is similar: negative growth although the downturn will not be as sharp.
Offices
Unlike the residential market, where the world economic crisis has coincided in time with the slowdown in housing, the change in the growth rate of the economy has hit the Spanish office market in the midst of an upward cycle. A substantial part of the projects begun during the year and in the next few quarters is the result no doubt of decisions taken prior to the events of the summer of 2007, and for the time being everything is pointing to the fact that most of these projects will be built, ratifying therefore the good prospects for 2008 that were set out in our previous report. Several factors are sustaining these projects. On the one hand, the service sector is the branch of activity that is best withstanding the change in economic cycle; for instance, the tertiary sector has created the most jobs in the LFS 1Q2008. From the real estate point of view, 2007 ended with increased in rental prices (15% year on year in Madrid, 5% in Barcelona) and declining vacancy rates (6.6% in Madrid, 5.3% in Barcelona), which are signs of a healthy level of demand giving the sector a certain margin to withstand a foreseeable deceleration during the year. As mentioned above, we should point out that the office market is attracting certain investors who have decided to seek alternatives to housing investment. Once the peak in activity (+5.5%) that is anticipated for 2008 has been breached, we foresee a possible scenario in which it is assumed that the high level of production will have created sufficient supply to moderate demand without saturating it. If this is so, there could be a soft landing for 2009 and beyond.
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Agriculture, livestock and fishing
The slight increase in 2008 in production of buildings of this type is based on an increase similar to that of 2007 in the processing of new projects. For our long term forecast, we have taken into account that the primary sector may be the most jeopardized by a worsening economy, the first symptoms of which have already begun to be reflected in the negative employment rates during the first quarter.
Other non-residential construction
In spite of the existence of mixed signals in this somewhat heterogeneous area, more credit is given to models that tie the performance of this sector to private spending, based on the fact that this category includes particularly the construction related to tourism and leisure. There are two market niches that have been specially weakened: the construction of new hotels and the recreational facilities included in large shopping malls.
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5 Civil Engineering Market
The civil engineering sector is going through a conjuncture that is somewhat particular given that the Spanish construction industry – in fact, Spanish society in general – is aware that this is the only market that has sufficient potential to soften the fall in residential construction. Although in the last few years there have hardly been any reasons to doubt the strength of the civil engineering sector, at this time there is somewhat more uncertainty, for two reasons. The first is that 2007 ended, for the first time since 2004, without an increase in tenders. No doubt the electoral calendar made its impact felt somewhat more than expected. The second reason is the fear that the different infrastructure plans could have financing problems in the medium term, since the argument put forward by the Government, in order to ground its investment – the existence of a sizeable budget surplus – may be used up sooner than anticipated. 1
Public tenders for engineering works Year-on-year evolution (MEUR x 1000) 36 Seopan 34
32
30 Ministry 28
26
24
22
20
18
16
14 2003→ 2004→ 2005→ 2006→ 2007→ 2008→
Source: Ministerio de Fomento, Seopan
In any case, the Government’s opting for infrastructure construction cannot be qualified as timid: its budgets for 2008 contain almost a 13% increase in investment allocated to the Ministry of Public Works, and more than 25% to the Ministry of the Environment. Therefore, in spite of the worsening of the economic climate in the country, there are still arguments to construe the deceleration in tender numbers as a passing phenomenon. Indeed, the government has announced in its economic reactivation measures that it will submit the degree of progress in the execution of public works to quarterly scrutiny.
If we take this commitment to setting public works on a growth path as a point of reference, we must maintain the spirit of the assumptions we set out in our previous report, in which we posited that the market would be capable of continuing to grow at average rates of 4% until 2010. The difference in relation to the scenario described six months ago relates to one specific year, 2008, which will have a somewhat mediocre result: if before we believed it was possible to reach 5% growth, we have now
1 It also appears that the amendments to the Public Sector Contracting Act, applicable as from May, are having a negative impact on the growth of tenders. This legislative reform has received some criticism as it generated the need to redesign the bidding terms of new projects, and, in general, because of the fact that it is being implemented without a definitive set of Regulations pursuant to it. Obviously, this reform is affecting both the tendering of civil works and building works.
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lowered this to 3.5% as a result of the drop in tenders this past fall-winter. The tenders for the next few months will give us a hint as to what we can expect for 2009 and beyond, especially in the area of road infrastructure: if, as we believe, the rate of road project tenders can be reactivated, the public works market could grow around the aforementioned 4%, which, although it may seem modest in comparison with recent history, would be a very good result indeed given the fact that 2009 may foreseeably mark the lowest ebb in the economic cycle.
The other phenomenon of note is that there is a growing contrast between the growth in the public works promoted by the central government and that promoted by local government. As we mentioned in the previous Euroconstruct report, local administrations are experiencing financial difficulties as a side consequence of the housing crisis, given that the taxes on residential development represented a substantial portion of the budgets of city councils and provincial bodies. Already at the 2007 year end it was possible to draw an initial balance sheet of the phenomenon: while central government tenders grew slightly, tenders of territorial bodies fell severely by more than 20%, which impacted with greater intensity on the local networks of roads and urbanization projects.
We discuss below the expectations for each of the sub-markets:
Roads
The construction of road infrastructure is undoubtedly the market sector in civil engineering in which the slow down in public tenders has had the greatest impact. At the same time, road construction is also the sector in which there is the greatest expectation that growth rates can be recouped quickly enough so that the consequences for production may be not too severe. In any case, even a hypothetical stagnation of this sub-market would mean the maintenance of certain levels of activity that are objectively high: only in the area of major volume motorways can we see that there are between 400 and 500 km of construction underway, and Euros 3,400 million pending adjudication and execution as part of the First Generation Motorway Refurbishment Plan. The basic scenario that forms the basis of our forecast is that once the new government has been consolidated we will probably see a firm recovery of tender numbers, although only in the tenders promoted by the central administration and affecting the major motorways. Anyway, there is a fear that this new boost will not push production back up to the 2004-2006 growth rates, which makes us think that 2008 will be a year of stagnation. We should not, therefore, lose sight of the fact that the current weakness in local-scale works shows no inkling of once again being able to boost its contribution to the total until 2010, the year scheduled for fresh municipal elections.
Rail
The rates of growth in rail tenders are no doubt those that have been less affected by the 2007-2008 electoral calendar in Spain, continuing along their upward path that they have been on for more than two years. It is estimated that in the spring of 2008 there are 1,800 km of high speed rail lines under construction covering virtually the entire country, plus another 1,100 km ready for tendering and 4,300 km at project stage. All this leads us to think that the objective of the PEIT2 of having 10,000 kms of rail lines operating by 2020 looks more and more realistic. The experience to date shows that very often the arrival of a new high speed rail line to an urban centre is the detonating factor in urban rezoning and reorganization of existing conventional rail lines. Therefore, the advance of the high speed rail network is very significant for the sector, not only for the construction of the infrastructure
2 PEIT – Spanish acronym for Plan Estratégico de Infraestructuras y Transportes (Strategic Infrastructure and Transport Plan) continues to be the basic design of public transportation Works in Spain for the period from 2005 to 2020.
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SPAIN properly speaking, but also for these catalysing effects on public works in the cities, which has come to be called “rail integration”. We would like to remind the reader how a very substantial part of the construction and maintenance activity of the Spanish rail network is under the umbrella of the Contract Program Government-ADIF, which will manage the investment of approximately Euros 23,000 million spread out over the new few years until 2010. There are no reasons therefore to modify our forecast of six months ago on this market specifically, in which the most substantial growth expectations are concentrated and which is continuing to gain specific weight within the civil engineering sector.
Other transport infrastructures
2007 has been a good year in respect of tenders for both harbours and airports, which has ratified the forecast in our last report in which substantial growth was predicted for 2008. Once again we should point to the boost in tenders from harbour infrastructures, relating to the expansion underway of the ports of Barcelona, Algeciras, Valencia and Gijón. The imminent completion of the new Barcelona airport terminal may lead to a certain relaxation in airport investment, although this will be offset in part by the continuation of the Canary Islands Plan and the other local airports under the PEIT. Given this situation, for 2009 and 2010 we maintain our prognosis of growth at intermediate levels between our rail and road projections.
Hydraulic infrastructures
Tender statistics continue not to show growth in hydraulic infrastructure (sewers, irrigation and drinking water). As our latest reports have shown, there has not been sufficient progress in the execution of the series of desalination plants under the A.G.U.A. program in order to remedy the accumulated delay. In view of the current shortage of potable water in the driest regions, it is evident that there is a need and even some urgency for investment in this area, earmarked either for the desalination plants originally contemplated in the plan or for other infrastructures that would replace or complement them. Furthermore, at the end of 2007 the National Water Quality Plan was announced, which was designed to satisfy the demands arising from EU legislation on urban waste water treatment (Master Water Directive and Directive 9/217/CEE). The scope of the plan reaches 2015 and foresees a total investment of Euros 19,007 million.
Energy infrastructures
Red Eléctrica de España, the company which since July 2007 has been acting as the exclusive electricity carrier in Spain, has been investing at a steady pace since 2008, aware as it is that demand is still growing and that a new market is being consolidated as a result of the installation of renewable energy sources that need to be connected to the power grid. In the medium term, the company has reaffirmed its 2007-2011 investment program, especially now given that since last February there is already a new revised rating framework. Within this program of special note is the Rómulo project for the electrical inter-connection between the Peninsula and the Balearic Islands, which is expected to come on line in 2010. From the perspective of energy production, there is unanimous opinion that it is premature to consider that the business reorganisation in the Spanish energy market has finally ended. This is something that may cause certain decisions (and investments) to be postponed, especially in relation to the country’s general energy model. After the complex episode in the change of corporate ownership of Endesa (which seems only to have been resolved provisionally, as long as the three-year pact between Enel and Acciona lasts), the major role in the next few months will be played by Iberdrola,
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where two scenarios are possible: either a purchase by the French EDF or a merger with Spain’s Gas Natural.
Urbanisation
Public works in urbanisation are very dependent on two factors which at this time are at a low ebb: demand for new land for residential and non-residential development, and the local election cycle. As we have said previously, the change in the residential cycle has not only paralysed the construction of many town planning projects, but has also had a rather serious effect on local treasuries, which are now less able to invest, amongst others, in the maintenance and repair of streets and public spaces in general. The worsening of the forecast for the residential sector has also meant a cut back in our forecast for the growth in “other civil engineering works”, which reflects the public works in urbanisation projects. Only in 2010, if the downswing in the housing cycle reaches bottom could the approach of new municipal elections slightly reactivate this activity.
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APPENDIX – DEFINITIONS
Table 1 Population: figures refer to January 1st of each year Unemployed and unemployment rate: from the results of the quarterly household Labour Force Survey (LFS) conducted by INE. Data conforms to ILO definitions.
Table 2 Construction output: is the addition of the production generated by companies in the construction sector plus the construction production generated in other economic sectors. This explicitly excludes taxes (VAT), intermediate production (self-consumption) and the production generated in other economic sectors by construction companies.
Table 3 Building permits source: total figure are architects' permits as compiled by CSCAE; split between single-family dwelling and apartments is an estimation by ITeC Housing starts source: technical architects' permits as compiled by the Ministry of Public Works. Please note that strictly speaking this is not an account of how many dwellings have been effectively started, but an account of building projects that receive the technical go-ahead from an Association of Surveyors. Such permissions are not granted to preliminary projects, but to projects that include the full technical detail about materials and techniques, plus a plan of execution work. Therefore it is assumed that any project that has been developed with this degree of detail is ready to start, but there is no way to check if every one of them is finally executed. Housing completions source: ITeC’s estimations Housing stock: total of all built spaces suitable to be inhabited by persons and dedicated exclusively to residential use. Collective dwellings (which have mixed uses i.e: residential + recreational or residential + health) and mobile dwellings are explicitly excluded. Total housing stock figures up to 2006 are supplied by the Ministry of Housing; the forecast and the split between secondary and empty stock is estimated by ITeC. Secondary dwellings: the part of the housing stock allocated to seasonal residential use. Vacant dwellings: the part of the housing stock presently unoccupied, but in an adequate state to be eventually used as a main or secondary dwelling. This includes those dwellings that are at present waiting to be sold or rented, and those that are abandoned; the dwellings in state of ruin are explicitly excluded. Home ownership rate: quotient between the dwellings where the occupant is its legal owner and the total of occupied dwellings (main + secondary)
Table 4a The value figures have been revised for this report. It has been necessary to re-allocate some of value from some categories to the rest as a result of some compensation derived from the phenomenon of mixed-use projects; this is, projects that contain different modules (industrial spaces, office spaces, storage spaces) that are administratively classified in the category which consumes the largest surface.
Education buildings: schools, high schools, universities, professional schools and other specialised education centres. Health: clinics, hospitals, first aid facilities, rehab centres and buildings for veterinary activity. Industrial: buildings allocated to the manufacture of goods, plus those for production and distribution of energy, and those related to mining, petroleum and gas.
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Storage: warehouses in general, cold storage, liquid & gas storage (i.e: gasoline) Offices: private and public offices, law courts, police stations and banks. Commercial: shops, supermarkets, hypermarkets, “public markets” (in the French sense), buildings for wholesale commerce, petrol stations and their satellite shops. Agricultural: also includes buildings related to farming and fishing. Miscellaneous: permanent collective dwellings (residences for the elderly, for students and teachers, prisons, orphanages, residences for the military and clergy) eventual collective dwellings (hotels, motels) buildings for transport and communications (car parks, airport terminals, railway and bus stations), fire stations, buildings for religious uses.
Sources National Statistics Institute (www.ine.es), Bank of Spain (www.bde.es), Ministry of Public Works (www.mfom.es), Ministry of Dwelling (www.mviv.es), Spanish Council of Architects (www.cscae.com), Association of National Construction Companies (www.seopan.org)
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Country/Pays/Land: Spain Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 43 198 44 108 44 709 45 201 45 750 46 300 46 850 Bevölkerung
Households ('000s) Ménages 15 614 16 050 16 450 16 900 17 150 17 400 17 700 Haushalte
Unemployed ('000s) Chômeurs 2 159 1 841 1 811 1 927 2 200 2 530 2 700 Arbeitslose
Unemployment rate (%) Taux de chômage 10.6 8.7 8.3 8.6 9.6 10.8 11.3 Arbeitslosenquote
Change of GDP Variation du PIB 3.3 3.6 3.9 3.8 2.1 1.6 1.9 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 3.0 3.4 3.5 2.8 3.8 2.9 2.8 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 7.2 4.5 5.9 5.1 5.8 4.2 3.6 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.1 2.2 3.1 4.3 4.2 4.0 4.0 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.1 3.4 4.0 4.4 4.5 4.5 4.5 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Spain Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 77 355 4.5 6.7 8.1 -2.2 -18.0 -16.0 -2.0
Logement Renovation 32 460 4.1 4.5 5.0 3.4 -3.0 0.5 1.5
Wohnungsbau Total 109 815 4.4 6.1 7.2 -0.6 -13.6 -10.5 -0.7
Non-residential construction New 32 300 2.6 1.9 1.8 2.3 0.2 -0.3 0.9
Bâtiments non résidentiels Renovation 17 680 3.0 2.4 2.1 2.2 0.5 0.8 1.6
übriger Hochbau Total 49 980 2.7 2.1 1.9 2.3 0.3 0.1 1.1
Building New 109 655 3.9 5.2 6.2 -0.9 -12.6 -10.7 -0.9
Bâtiment Renovation 50 140 3.7 3.7 4.0 3.0 -1.8 0.6 1.5
Hochbau Total 159 795 3.8 4.8 5.5 0.3 -9.2 -6.9 -0.0
Civil engineering New 47 315 6.6 9.0 7.7 5.9 3.6 4.2 4.6
Génie civil Renovation 10 015 3.9 4.6 5.2 3.8 3.0 3.8 4.4
Tiefbau Total 57 330 6.1 8.2 7.2 5.5 3.5 4.1 4.6
TOTAL CONSTRUCTION OUTPUT 217 125 4.4 5.6 6.0 1.6 -5.9 -3.7 1.4
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 56.08 3.9 7.3 8.5 0.3 -6.0 -4.0 1.5 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Spain Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 207.0 221.0 180.5 93.0 65.0 58.0 65.0 Baugenehmigungen Familienhäuser
Flats Collectif 554.5 600.0 735.0 510.5 300.0 257.0 280.0 Mehrfamilienhäuser
TOTAL 761.5 821.0 915.5 603.5 365.0 315.0 345.0
Housing starts 1+2 family dwellings Logements commencés Individuel 186.7 193.5 166.0 101.2 58.0 52.0 60.0 Baubeginne Familienhäuser
Flats Collectif 500.3 536.2 699.6 550.3 272.0 233.0 255.0 Mehrfamilienhäuser
TOTAL 687.0 729.7 865.6 651.4 330.0 285.0 315.0
Housing completions 1+2 family dwellings Logements terminés Individuel 180.0 185.0 180.0 158.0 75.0 65.0 55.0 Baufertigstellungen Familienhäuser
Flats Collectif 456.0 483.0 569.0 637.0 395.0 300.0 245.0 Mehrfamilienhäuser
TOTAL 636.0 668.0 749.0 795.0 470.0 365.0 300.0
Housing stock Logements existants 22 623 23 210 23 859 24 600 25 400 25 950 26 300 Wohnungsbestand
thereof second homes dont résid. secondaires 3 680 3 795 3 920 4 040 4 175 4 270 4 330 davon Zweitwohnungen
thereof vacancies dont inoccupé 3 335 3 410 3 485 3 540 3 555 3 580 3 560 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 87.0 87.0 88.0 88.0 88.0 88.0 88.0 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Spain Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2) 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 730 3) 1.5 3.6 0.5 1.5 1.5 1.0 1.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 370 3) 7.0 4.4 0.0 1.0 1.7 1.5 2.0 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 9 080 9 992 000 1.2 2.8 0.9 2.3 0.9 0.3 0.2 Industriegebäude
Storage buildings Bâtiments de stockage 6 275 4 088 000 2.5 3.0 2.1 1.6 -2.0 -1.0 1.2 Lagergebäude
Office buildings Bureaux 5 370 2 625 000 1.9 -0.5 1.6 3.7 5.5 3.0 1.5 Bürogebäude
Commercial buildings Commerces 5 020 2 517 000 6.4 0.5 3.4 3.0 -3.0 -4.5 1.0 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 1 090 1 193 000 1.5 0.8 -1.0 1.2 1.5 0.0 -0.5 Landwirtschaftsgebäude
Miscellaneous Autres 4 365 4 475 000 1.3 1.9 2.7 1.5 -1.5 -0.5 1.6 Sonstiges
Total 32 300 24 890 000 2.7 1.8 1.8 2.3 0.2 -0.3 0.9 Insgesamt
1) At 2007 prices, excluding taxes. 2) Source: municipal permits 2007, provisional data 3) Surfaces for educational and health buildings are included in the 'miscellaneous' category
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Country/Pays/Land: Spain Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 22 545 7.0 13.3 6.8 4.1 1.5 3.0 3.5 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 12 175 6.4 1.9 8.5 9.2 8.0 7.0 4.0 Bahnanlagen
Other transport Autres réseaux 2 365 3.3 3.0 6.0 4.6 5.0 4.0 3.0 Übrige Verkehrsinfrastruktur
TOTAL 37 085 6.5 8.8 7.3 5.8 3.9 4.4 3.6
Telecommunications Télécommunications 3 385 5.4 4.8 4.4 5.2 3.0 3.0 3.5 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 12 450 5.0 7.2 7.9 6.0 5.0 6.5 8.0 Energie- und Wasserversorgung
Other Autres 4 410 5.8 9.3 6.5 2.1 -4.0 -5.5 3.0 Sonstiges
Total 57 330 6.1 8.2 7.2 5.5 3.5 4.1 4.6
1) At 2007 prices, excluding taxes.
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Country/Pays/Land: Spain Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 587.7 4.2 4.2 3.7 3.1 1.9 1.6 2.0 Privater Verbrauch
Public consumption Consommation publique 202.1 6.3 5.5 4.8 5.1 4.7 4.5 5.0 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 326.4 5.1 6.9 6.8 5.9 1.4 0.4 1.7
of which construction 187.9 5.6 6.1 6.0 4.0 -5.0 -4.0 1.0
Stocks (contribution as % of GDP) Variations de stocks 2.2 Vorratsveränderung
Exports Exportations 275.0 4.2 2.6 5.1 5.3 3.3 2.6 2.8 Exporte
Imports Importations 343.7 9.6 7.7 8.3 6.6 3.5 3.0 4.5 Importe
GDP PIB 1 049.8 3.3 3.6 3.9 3.8 2.1 1.6 1.9 BIP
Standard National Accounts, gross figures 1) At 2007 prices
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SWEDEN Prognoscentret AB www.prognoscentret.se
Bengt Henricson e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
SWEDEN
1 Summary
Last year, the Swedish economy grew 2.6%. This was considerable lower than 2006 which had a growth of 4.2%. This was lower than expected last year and the reason is to be found in a weaker export development caused by capacity problems. For this year, we expect the public consumption to regain its growth after a slowdown in the end of last year. The global financial turbulence, to a large extent caused by the sub prime crises, has a dampening effect on the global economic growth. In general, our expectations on the economy is less optimistic compared to the previous report and this has influenced our assessment of the construction industry. However, according to estimations so far, Swedish banks have a marginal exposure to the sub prime affected assets. The labour market is believed to remain strong at the same time as the raise in salaries ended up lower then expected last year. Higher inflation is mostly a result of higher food and energy prices and they are expected to grow slower the coming years. This leads to lower pressure on inflation. Konjunkturinstitutet (National Institute of Economic Research) estimate interest rates to drop in two steps during 2008 (to 3.75%). This should obstruct a continuous economic slowdown.
The inflows of orders and production volumes have been growing strong during a few years and the industrial capacity usage was above 90% during last year. The industrial confidence indicator was stable around +8 to +9 by the summer of 2007 but has dropped down to +1 in Mars this year. The confidence indicator for the construction industry has seen a similar development going from record levels of around +45 to +25 during the same period. Last year, productivity dropped slightly with 0.4% for the first time in many years. New labour has difficulties to produce at the same level as trained employees when the industry has production levels above 90 percent of their capacity. The construction activity continues to grow end there is still a shortage in both labour and building material.
The structure of the Swedish construction market has changed significantly over the last decade. Before the major dropdown in the early 1990ies, which to a large extent was an effect of the government’s reconstruction of the Swedish economy, the four market segments were almost equally big. Compared to last year, the volume of started new residential buildings was almost twice as high and the drop in new non-residential buildings The market structure of the Swedish construction is even more dramatic. However, during the market 1990 (excl. civil engineering) last three years the negative development in new non-residential buildings has stopped and 24% New Residential (24%) new housing has grown significantly. Based 24% on new residential buildings, the market of New Non-residential (25%) new constructions is going through a R&M Residential (27%) transformation phase from fast growing to 27% 25% R&M Non-residential (24%) basically remain on this years activity level throughout the forecast period.
The R&M segments have also declined The market structure of the Swedish construction market 2007 (exkl. civil engineering) slightly since 1990, but are indeed much more stable. All in all, the total construction market New Residential 27% has declined around 30% since 1990, to a 31% New Non-residential total value of around 17 billion Euros in 2007 (excl civ eng). Swedish 7construction industry R&M Residential R&M Non-residential becomes more and more dependent of the 10% R&M sector which is still growing during the forecast period. 32%
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Investments in building constructions in million Euros. New New New R&M R&M R&M TOTAL Residential Non-residential Civil engineering Residential Non-residential Civil engineering CONSTRUCTION 2005 3 798 1 743 5 341 5 014 4 726 1 179 21 800 2006 4 336 1 809 5 637 5 315 4 949 1 238 23 283 2007 4 569 1 766 5 819 5 510 5 214 1 281 24 158 2008 4 526 1 736 6 258 5 712 5 418 1 326 24 975 2009 4 467 1 736 6 521 5 932 5 585 1 366 25 606 2010 4 491 1 867 6 651 6 205 5 761 1 393 26 368
The Swedish construction market regarding residential buildings has indeed recovered well after a long period of extremely low activity. R&M increases further and our forecasts the coming years are optimistic even if the activity in new constructions is flattening out. The market for new non-residential construction has been facing a down warding trend in several years and in 2004 the total outcome ended up at the extreme low level of 1.95 million square metres. The sparse upturn in building starts during 2005 and 2006 and a strong growth in building permits show that the negative trend was broken but compared to the rest of the Euroconstruct members; Sweden is still producing very few new non-residential buildings. The predicted increase last year was not realised despite a good investment environment and a large stock of building permits. If these planned projects did not start this time, they will probably not be started during this business cycle which is why we believe in a continuous low activity in new constructions throughout the forecast period. R&M is normally affected at a later stage and we see no signs of a weakening trend. Big residential R&M projects are expected to increase and growth in this segment will be around 4% towards 2010.
Public stimulations to new rental flats was withdrawn last New Year and support to large R&M projects will not be introduced. Sell outs of publicly owned rental flats started this summer and the property tax has been replaced by a regional fee which has lead to a significant cut in living costs, and higher prices, in attractive areas. The government has also announced the introduction of self owned flats and has an intention to make rents more market driven. The long term goal is an industry independent of public stimulation.
The Swedish construction market to 2010
12 000
10 000
8 000 Residential
6 000 Non-resident. Civil engin. 4 000 Million Euros 2 000 0
7 8 9 0 1 2 3 4 5 6 7 8 9 0 9 9 9 0 0 0 0 0 0 0 0 0 0 1 9 9 9 0 0 0 0 0 0 0 0 0 0 0 1 1 1 2 2 2 2 2 2 2 2 2 2 2 Year
In 2007, the total investments in civil engineering ended up at 7.1 billion Euros. This is lower than expected from the last report. The reason is a big revision of the actual investments during the last five to six years, (done by the National Institute of Economic Research and the Statistical Bureau). This showed that less money have been spent on new constructions and more on R&M, (especially when it comes to roads and transport). Our forecasts have not been significantly changed and we still see a continuous growth in almost all segments, especially energy investments which are expected to peak in growth this year. The major reason is a strong public economy, a need to catch up with a previously low activity and high energy prices that have stimulated private investments in heating and energy. However, this is the market based on turnover. Higher costs have forced public authorities to ask for more money to be able to stick to their previous project plans.
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2 Macro-economic Outlook
The best years is now behind us
In general, the Nordic countries have for a couple of years seen a strong economic development. Exports, household consumption and investments have all been rising rapidly. The principal forces driving this surge are high global growth, an expansionary monetary policy, high asset prices and solid balance sheets of households and firms. Also contributing to growth is the current upward spiral of the Swedish economy and a strongly improved labour market. GDP growth was 4.1% 2006 and dropped to 2.6% last year. It is expected to stay around 2.5% a year during the forecast period.
This is not in line with our expectations from the report in November. The growth this year has been revised downwards due to a weak development in the end of last year. The financial turbulence has affected the Swedish GDP development. The major reason is a weak export development which is a result of a slowdown in the global economy. The uncertainties are creating confusion since forecasts differs significantly between sources. But since the end of last year, each report has stepwise been more pessimistic. But the macro economists have one belief in common; the best years are behind us and we are approaching a period with slower growth and weakening demand from households and industries.
Among the surprises the latest years are the investments, which went up 7.7% 2006 and another 8.0% last year. This is based on the growth in energy investments, an expanding public sector and a growing activity in new residential buildings. However, higher interest rates and weaker global economy will contribute to a dampening effect and the forecast indicates a growth of around 5% this year dropping towards 3 percent during the rest of the forecast period. The export development dropped from +8.9% 2006 to +5.6% last year and import went up +8.2% to +9.5% during the same period.
The situation is not all on the negative side. There have been more than 10 years of continuous growth in private consumption in Sweden. A short period of slow development after 2001 has been followed by a steady growth during the latest years. The household’s confidence has been steady just above +20 a couple of years due to a strong business cycle, low interest rates, improved labour market and rising incomes. The confidence has dropped to +11 in Mars 2008 which is not surprising since a part of that figure reflects the view on the Swedish economy. But the households expectations on their own economy is still strong (around +20), and not yet affected by the latest turbulence. This, together with a stable labour market and a strong public economy (which is predicted to lead to a few more tax cuts during the forecast period) is believed to keep public consumption relatively unchanged.
The Swedish economy is small and open which is why the export always has been important. The export industries impact on the economy is also growing which is why the latest year’s strong development is met with such satisfaction. A bit more than 50% of the GDP growth in 2006 was related to the export development. This also explains how the drop in growth last year affected the GDP as much as it did. The global demand on durable goods, which is something of a Swedish speciality, reacts clearly to the changes in the economic climate. But exports of services have also risen strongly in recent years and are becoming an increasingly important segment of the Swedish economy. Business services in particular (including so-called merchanting) have been generating rapidly rising export revenue. When the growth of exported goods dropped from 8.2% in 2006 to 2.6% last year, the export of services went up from 10.9% to 13.9% during the same period. The contribution to growth from the balance of services – that is, exports of services minus imports of
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services – has been substantial in recent years. During the forecast period, this contribution is expected to be regained.
The GDP development, the strong labour market and the sales of publicly owned companies has made the public economy unusually strong. This opens up for reforms, among them further tax cuts, but also a growth in public consumption. After a few years with weak development in public consumption, 2006 showed a growth of 1.5%. Last year it dropped to 0.8% but we expect a stable growth above 1 percent during the forecast period. For the construction industry, we expect this to affect the R&M sector rather than new constructions.
Last year, the amount of working hours in the private sector went up 4.0% and the production went up 3.7%. This means that the five year growth trend in productivity have been broken. The major reason is that new labour has difficulties to produce at the same level as trained employees and it is difficult to increase the productivity when the utility level of the labour force is close to a maximum.
Despite the negative influences on the economy, we will see a decent growth of around 2.5% a year during the forecast period. It is driven by domestic demand and a good export development. We have had a few years of fast growing house prices, higher debts among households and raising salaries. This has forced Riksbanken (the Swedish Central Bank) to raise interest rates. The latest statistics from the statistical bureau shows that house prices are flattening out and the salaries grew 3.1% last year which was lower than expected. The inflation is mostly driven by higher prices on food and energy which is predicted to have a more moderate growth the coming years. This has a dampening effect on the interest rates and Konjunkturinstitutet (National Institute of Economic Research) estimate interest rates to drop in two steps during 2008 (to 3.75%). This is more than predicted in the previous report from November last year. Riksbanken themselves however, indicates a need to stay on this level during 2008, but this is also a part of the traditional messages sent to the market.
The new government has been in power for a bit more than one and a half year. The impact on the Swedish macro economy is getting clear. Tax cuts for both income and property has been decided and implemented. The employer tax has been reduced or excluded for parts of the service sector and the fortune tax is cut 50% with the goal of being completely excluded before the end of 2010. This will affect the value of the Krona since the flow of money outside Sweden will go down. We have seen a raise in consumption growth and house prices have already gone up as an effect of the lowered property tax last year. The government is selling out big parts of publicly owned companies and publicly owned shares in companies. The latest one was Vin&Sprit, sold for 5.63 bill Euro to Pernod Ricard, a much higher price than expected. Other valuable companies is planned to find new owners. This gives the government valuable space to reform the economy through, among other things, further tax cuts to boost the economy. It also lowers the need to lend money and limits availability of public bonds which push the long term interest rates down.
The Labour Market is reaching the limit
One of the first decisions made by the new government was to harmonize the policy for how to calculate unemployment with the rest of the European countries. This means that students looking for full time jobs is categorised as unemployed which the old government didn’t. In the chart we have for the first time used the new definition (according to ILO) which is why the figures are higher than the ones in previous reports. After a few years with weak labour market development (jobless growth) the figures approved surprisingly well during last year. The unemployment is expected to stay just under 6% during the forecast period.
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The improved situation is also a result of the work from the previous government but now, the tactics have changed. Today’s government has battled unemployment by making it more favourable to work. This means lower income tax and costs for hiring new employees, simplifying the process when hiring/laying off labour, a cut in taxes for house hold services and downsizing support to unemployed. This has generated new jobs but most of them in short term employments and/or service jobs with low salaries. For the construction industry, this should be favourable since the need for personnel during limited periods is often useful and another extra hand makes highly qualified workers more efficient.
Change 2004 2005 2006 2007 2008 2009 2010 GDP 4,1% 2,9% 4,2% 2,6% 2,5% 2,6% 2,7% Private consumption 2,6% 2,7% 2,5% 3,1% 2,6% 3,0% 2,7% Public consumption -0,2% 0,4% 1,5% 0,8% 1,2% 1,4% 1,2% Unemployment 5,3% 6,0% 5,4% 4,5% 3,9% 3,6% 4,2%
The macro-economic impact on the Swedish construction market
The non-residential market is mainly dependent on employment/unemployment, private consumption, export (regarding industrial buildings), private industry investments and public investments. The fluctuation in building costs and interest rates also affect the investments outcomes of the whole construction industry. In a similar way, the market of residential buildings is especially dependant on disposable incomes and wage development, employment/unemployment, interest rates and private consumption. Demographic changes also have an impact on mainly new construction of residents, but foremost in a long-term perspective. The fluctuation in building costs and interest rates affect the investments outcomes of the whole construction industry.
The Swedish civil engineering market is almost exclusively ruled by the government; hence the most important factor for the development of the market is government politics and investments. New construction and renovation of roads and infrastructure, the expansion of the digital broadcast network are all examples of government investments. Of course, the general economic trends, energy costs and the use of different IT services have impact on the civil engineering market, (especially private investments in energy and coverage of telecom and data networks) but not as much as governmental initiatives.
The construction activity has been growing strong since 2003 and the amount of companies believing in a continued expanding market is still in majority. The confidence indicator for the construction industry has dropped from record levels of +48 in August 2006 to +25 in Mars this year. The number of incoming orders is still strong; the firms have carried out extensive recruitments and the unemployment among construction workers are below 4% for the first time since the beginning of 1990. Incoming orders will likely continue to grow, construction activity is expected to pick up further through an expanding R&M market but the activity is limited by the availability of experienced labour. Shortage of labour and in many cases building material has been the main barrier growth and it will continue to be a big obstacle the coming years, when the market activities in new construction are flattening out. Construction costs have raised and the growth during the last two years is according to ByggIndex (a part of Statistics Sweden, (SCB) and the Swedish Construction Industries), around 6% a year. This is mainly because of the price development on many building and raw materials but also a favourable salary development in the sector. The construction cost development is one of the major reasons why we see a dampening growth during the forecast period.
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3 Housing Market
Residential buildings have indeed recovered well since the millennium shift, moving from around 12 000 new dwellings a year during the second half of the nineties to above 36 000 last year. R&M activities, especially the DIY market have had a steady growth for more than 10 years. However, decisions from the government by the end of 2006 have created some statistical turbulence and made the forecast more difficult. Economic slowdown, raising costs and a lack of labour and building material is limiting further expansion.
New residential buildings
Sweden has seen a significant upswing in new constructions of residential buildings. Last year more than 36 000 residents were started, around 22 000 of these were flats and 14 000 residents in 1+2 family dwellings. These figures have to be related to the average housing construction between 1993 and 2004 of 15.700 residents per year. This upturn differs from previous ones from the early 50ties since it was not the result of a new publicly subsidised stimulation package. This growth is mostly the result of a response to meet the demand from the market and to lower the rate of housing shortage that almost every larger city in Sweden is facing today.
However, the activity in new residential buildings is still on a low international level; and by far the lowest level in the Nordic market. According to Prognoscentrets calculation based on demographic development in Sweden we need to build 38 000 to 40 000 new dwellings a year. During 2007 to 2010 we predict around 35 000 a year. Adding some 3 500 homes created through transformations we are just reaching the low end of a normal activity.
The statistics of housing starts is dramatic for 2006 since it ended up over 45.000 which is a growth of 41% from 2005. All this can be explained by the increase in flats that went up from around 19.800 in 2005 to almost 31.800 in 2006. The new government cancelled the public subsidies for new rental flats on January the first which was earlier than expected. It was originally planned to run to the summer of this year and thereafter probably be exchanged by another stimulation package towards new, cheaper rental flats. This decision was announced in November and as a result, many planned projects had to cast their elevator foundations before the New Year to be able to take advantage of the subsidies, (that is what’s needed to have the project officially started). This new figure shows that the effect of the withdrawn subsidy has been even slightly bigger than we saw in the previous report. Most of these projects will be finished according to previous plans. We calculate that 9 500 more flats have been started during 2006 which otherwise would be put in the statistics during the coming two to three years. This explains the difference between the figures in table 2 and 3.
Another impact on the market is the change in property tax. For flats it’s down to 0.4% of the assessed value and for family houses; 0.75%, or maximum 6.000 SEK/year (and the name is changed to: “Municipal fee”). As a compensation for the drop in public income, the tax on capital gain when selling property will be raised from 20% to 22%. The respite right is limited to 1.6 Mill SEK and the respite itself, new or existing, is covered with an interest rate of 0,5%. This affects both family houses and flats and is a slight change of proposals described in previous reports. But all in all, it is still a significant cut in costs for especially attractive family houses in big city areas. This will raise prices on property during the forecast period.
Even if the liberation and lowered municipal fee for new constructions remains during the first 10 years, these changes will make new residential constructions less favourable compared to buying
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SWEDEN existing homes. In the long run however, higher prices should stimulate new constructions. The cancelled subsidies will affect the construction of new rental flats with low costs negatively especially since they have been difficult to finance for some time. The government has announced an ambition to approve self owned flats by the end of this year, but it will only impact on the activity during the end of the forecast period. They have also, just recently, presented a proposal to move towards a market adaptation of rental fees. The system is complicated but the big picture is that the geographic location of the flat will be more important when deciding the rent. However, there will be a limit of 5% raises a year. This would in the long run make it significantly more expensive to live in a rental flat in attractive areas. This proposal was met with criticism but in the long run, it would make it possible again to finance new rental flats. This will not affect the activity during this forecast period but it is a subject to keep an eye on. All in all, we see the total impact on the market, based on these government decisions to have a slightly negative impact on new flats. We will have a growth in new semi public flats and possibly self owned flats, but this will not cover the loss in new rental flats. However, the growth since the millennium have been mainly on family houses and semi public flats so the total impact will not be as large as critical voices have announced. Many planned new rental flats will also be built as semi public or self owned flats. We see no major impact on new 1+2 Family Houses. New residential buildings are, through these decisions, taking a major step towards market adaptation.
The conditions for a continued increase in demand for housing constructions are in the long term favourable. The population has been growing with 65.000 to 70.000 people the last two years compared to the average of around 30.000 during the first five years after the millennium shift. The migration to the larger urban areas and other regions of growth is still strong. The northern west coast (Gothenburg) had a slight minus in the net figures but Stockholm is back as the most attractive region for the second year in a row. The period of price growth above 10% to 15% a year is behind us for this business cycle. According to statistics from real estate companies the prices of 1+2 family houses went up 7% and flats 4% over the last twelve months. However, figures for the last three months show no changes so the prices are flattening out. The level of employment has been growing fast and is not expected to drop during the forecast period. Weaker, but stable, growth in disposable income among households and an interest rate going down slightly is one of the reasons why we don’t see a drop in new constructions the coming years.
We predict that the annual outcome of started new residential buildings in Sweden will amount to 36.350 units in this year. Split by type of residential, this means 14.000 dwellings in 1+2 family houses and 22.350 residents in flats. For 2009 1+2 family dwellings will even out on 14.000 units and flats go down to 20.500 residents. This activity on flats is our assumption based on an investigation made to calculate how many of the 9.500 prematurely started flats from the last two years that will be started this year. Since there is a shortage of labour and building material, we would like to highlight the possibility that entrepreneurs have overestimated the resources available and some of the projects planned for this year will even be started 2009. In reality, the building activity of new flats will even out towards 2010.
This forecast can be seen as both optimistic and pessimistic. Despite a solid demand of new residential buildings, we don’t see a continuous growth towards an activity level of most other EC- member countries. Lack of resources and raising building costs are the two biggest obstacles. According to a recent study from the University in Luleå, the building cost of new residential buildings has gone up 35% during the last 5 years. On the other hand, important drivers are believed to remain fairly stable. This is why we don’t see any drop either.
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It’s important to have in mind that the macroeconomic outlook is unusually uncertain. There is also a possibility that building costs will continue to grow fast the coming years due to the price development on transports, labour and raw material. We have to consider the risks to be on the negative side.
R&M Residential buildings
Last year the total investments in R&M residential increased by 3.7% to a level of 5.5 billion Euros. Of these investments, approximately 3.3 billion Euros were invested in 1+2 family dwellings and accordingly 2.2 billion Euros in flats. The lion part of the increase came from the Do-it-Yourself (DIY) market, as many previously years before, (+ 4.7% last year and over 6% and 7% in 2006 and 2005). Despite the slight drop in growth, the DIY market keeps on strengthening its position and the willingness to renovate in the private household is very high in Sweden. We have also seen a strong growth in household investments to reduce energy consumption. According to our quarterly surveys regarding the DIY-market, the strongest reason to renovations is in fact “tired of the old”.
Over the last years, many foreign and domestic retailer stores have been established on the Swedish market and this goes hand in hand with the growing interest in renovating private homes. So far, we can not see any sign of a weakening trend in media or in household’s willingness to invest. However, we can see signs of an over-established market with pressed margins and lower profits. The higher costs on building material have so far been covered by a strong growth. But by time, smaller margins will lead to a market switching from fast growth to consolidation.
The trend of renovating private homes is, not surprisingly, strongest in the urban regions, but we can also see that the interest has risen outside the cities. The driving forces for new residential buildings (increasing mobility for instance) are also affecting the R&M market in a positive direction. For some time, important drivers for R&M like the level of employment, the growth of disposable income and the development of private consumption have all been strong for many years. This together with tax cuts on both labour and living makes us believe that the growth will continue. The government has also cancelled a law stopping the transformation of rental flats to semi-public flats. There a lot of transformations planned, especially in the attractive parts of the big city areas. This will also affect the market in a positive direction but probably not until the second half of the forecast period.
There are clouds in the sky. The number of larger renovation projects (e.g. not DIY and mostly flats) has been almost 30% down on average for the last 10 years. The annual number of flats under renovation for the period 1990-2005 has been 31.000 units when the calculated need is around 60.000 units. Every year, more and more properties are in need of renovation. This is especially the case for the large amount of properties being built in the period 1965-1975, the so called “Million Program”. The reason for the weak trend in renovation of block of flats is in many cases due to difficulties to adapt rents to finance the investments. Even if the municipality owned residential buildings have had a period with improved economy due to low interest costs, these resources have often been used to support other public activities. Some owners of these buildings have also been stalling projects in the hope of receiving public stimulation. The government has announced no such thing and since they have managed to be credible in this message, we have seen signs of more large R&M projects being planned and started. There is also more room for these activities when the public economy is getting stronger. It has not done much on the total activity yet but in a few years, we should see a significant growth of larger R&M projects. The biggest problem is the availability of skilled specialised labour and material. This will drive costs and keep the activity below the preferred level well beyond the forecast period.
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We predict that the market will grow throughout the whole forecast period. In 2008 the total investments in R&M residential buildings will increase by 3.9% which is slightly less than expected in the previous report. The major driver for this market; property price development, interest rates, private consumption and the labour situation are in total getting weaker. Our own investigations towards the DIY market have indicated a slower growth and larger R&M projects on flats have been delayed. Lack of skilled labour and higher costs on building material are partly responsible for this development. The total market is predicted to grow 3.9% 2009 and 4.6% 2010. By then, larger R&M projects on flats is assumed to take the role as the growing sector from the DIY market which is transforming from a growth of 5% to 7% a year to more moderate levels of around 3% towards 2010.
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4 Non-residential Market
The market of new non-residential construction has been facing a down warding trend for several years and in 2004 the total outcome ended up fewer than 2 million square meters. The outcome of 2005 and 2006 shows a weak growth in projects started and the negative trend was at least broken. By the end of last year, the total project reserve (projects with a permit that has not yet started) was above 1.2 million sqm. For Sweden this is a large figure and this together with a favourable economic outlook pointed towards a strong development of new non-residential buildings last year. However, the total outcome ended up less than 2 million sqm which is back to the level of 2004. Most building types developed according to our forecast with the exception of industry and miscellaneous buildings. The coming years, Sweden will remain with a very low activity in new non-residential buildings, in fact one of the lowest in Europe and by far, the lowest among west European countries. R&M is however predicted to have a positive development to 2010.
New non-residential buildings
The volume of building starts decreased almost 43% between 2000 and 2004. The decrease is mainly explained by a weak development within the private sector, such as industrial investments, offices, business and warehouses. The weakening of the market is very much an urban area dilemma and office buildings have earlier kept the construction on a fairly good volume. The decline in the IT-sector led to high vacancies and offices started dropped dramatically down to only around 100.000 square meters 2004. This had a significant impact on the construction market especially in the Stockholm region.
The outcome of 2005 for new non-residential buildings gave us positive indicators that the negative trend was broken. This trend continued but a growth in buildings starts from 1.95 mill square meters in 2004 to 2.04 mill in 2006 is far from dramatic. Approximately 1.77 billion Euros were invested in this type of buildings in 2007. Investments in education and health increased last year, all other building types went back, (even if some of them had a slight growth in buildings starts). The most dramatic change is in industry and miscellaneous buildings which both decreased more than 10% compared to 2006 and are the biggest reason why the outcome became that weaker than expected. There has been a decreased activity in new industry buildings during three consecutive years (from 576 000 sqm buildings start in 2004 to 427 000 sqm last year). This is unique in a situation of strong economic growth, very high utility level and historically strong results from Swedish industry companies. The biggest surprise was the drop in new miscellaneous building where buildings start in sqm is -31% in 2007 compared to 2006. This is normally a quite stable building type.
Why have wee seen this development? First of all we have a large stock of non-residential buildings in Sweden since previous years of high activity. This is especially the case from the late 50-ties to late 70-ties when a large part of industry, office, education and hospitals where built, and is still in use. The latest raise in demand for industry products has been met by investments in efficiency to a much larger extent than in previous years. Completely new units have been built but often outside the country closer to the market. Last years drop, in combination with a strong growth in building permits, is also a result of a new sensitivity to the turbulent credit situation. We have seen a wish from investors to shorten the time from decision to building starts of building types more sensitive to economic changes. The major drop was in the second half of last year and signals from the credit crises have made investors wait and see. The drop in new miscellaneous buildings, and especially publicly financed ones, is also a result of the election result in the end of 2006. Many regions saw a change in power and one of the first things to do have been to re-evaluate previous dictions. Many projects will be started later, (especially buildings for traffic and communication) but all in all, this
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SWEDEN together with the construction industry’s capacity problem and cost development have resulted in a continuously weak activity of new non-residential buildings.
The absence of growth in new constructions last year does not mean that these projects are going to be started later this forecast period. The investors are likely to hold on to the building permits of offices, shopping malls and industry buildings until the credit turbulence is over and the economy gains new optimism in an up going business cycle. This is not expected to happen until the end of this forecast period which is why the activity in new non-residential buildings is believed to remain on a low level throughout the forecast period. Commercial buildings will regain some activity this year and office buildings are expected to grow slightly towards 2010 to meet the demand from a continuously strong labour market. Miscellaneous buildings should grow again next year and 2010 mostly due to public investments. The biggest change is in buildings for health, where a new hospital project in Stockholm (Karolinska Institutet) is planned to start its largest stage in 2010.
R&M Non-residential buildings
The R&M non-residential market is the most stable market in the Swedish construction industry. It is also a market that should grow through the years due to an increase in the building stock. When the industry plunged in the beginning of the 90ties the non-residential R&M market kept many companies alive. Today, it is the only market segment where the activity per capita in Sweden is high and clearly above the average European countries.
Over the last years, the investment level of R&M non-residential buildings has been both up and down. In 2003, the segment faced a significant setback, and decreased with 11%. There are many reasons to the decrease. The decline in the IT-sector and uncertainties as to when the world economy would turn had a negative influence along with high level of vacancies in mainly office and commercial buildings. During periods of recession, the public sector usually increases its R&M work in education and health care.
The negative trend was temporary, and the outcome since then has been positive with an annual growth of 5%. Last year the R&M market for non-residential buildings was worth 5.21 billion Euros. Every building type increased compared to the annual outcome of 2006. We predict that R&M non- residential will grow throughout the forecast period. Same macroeconomic factors as mentioned earlier will be relevant for this market since the same factors affects especially privately financed projects. These drivers have weakened which will affects R&M activities the coming years. The total annual growth is expected to drop from 5% a year to 3.5%. Due to a large stock, the commercial segment is focusing more on R&M projects than new constructions. The industry activity is very high and export is growing. This have generated R&M projects both in buildings used for production today and previously empty industry buildings taken over by expanding companies. New jobs, higher vacancies due to new large projects and tougher competition among shopping centres makes us expect a continuous growth in the R&M sector also in the end of the forecast period.
Since public economy has become stronger and spending is planned to grow through the whole period, this will drive the market for publicly financed R&M in a positive direction. Public spending is more important in the R&M market than in new constructions and there is a large stock of buildings needing improvements. The government’s slight cut in public spending will mostly affect new jobs. In total, the growth throughout the forecast period with around 3.5% a year is slightly higher than specified in the previous report. This is mostly based on a more positive outlook on publicly financed R&M projects. Growth is expected in all building types, especially health, education and commercial buildings.
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5 Civil Engineering Market
It is difficult to get a grip of the over all investments in Civil Engineering in Sweden. SCB (Statistical bureau) and KI (National Institute of Economic Research) put statistics together which seldom is in line with what National Accounts presents. Adding to the confusion, BI; (Sweden’s Construction Industries) put together statistics that can ad a third view on the how this market looks like. The independence on how each region in the country uses their budget is large and the report routines is not all that accurate. So to be honest, no one really know the exact figure on the money spent on civil engineering, especially since the definition on what is categorised as R&M fluctuates. However, this spring SCB (Statistical bureau) and KI (National Institute of Economic Research) made a large revision which they do with 5 to 6 years interval so the statistics in this report is unusually accurate and harmonised.
The result of the revision shows that the volumes from the previous report have been adjusted down. This is especially the case when it comes to roads, other transport and telecommunication. On the other hand “other” (including R&M) have been adjusted up slightly. This has not affected the total market development too much, with two exceptions; compared to the previous report, the growth in 2006 became 2.4% lower and the forecast of +11.1% in 2007 ended up on a much more moderate 3.3%, (mostly due to revised volumes on energy and waterworks). It is obvious that planned projects have not been started as planned and more money has been spent on R&M. This is why we have total forecast for this year and the next slightly upwards, (+6.8% this year and +4.0% 2009). It is especially Energy and waterworks that will grow this year. Growth of energy prices stimulates both public and private investments to save energy and the market has not been able to step up capacity to meet the demand from last year.
The weak development in 2005 is mostly an effect of strained governmental budgets. Unlike many other countries, the Swedish civil engineering market is almost solely financed by governmental funds. However, discussions regarding Private Financed Initiatives (PFI) have begun after a review of a British example. PFI aims to increase the investments through co-operations between the Swedish government and the private sector. The new government looks at this alternative for a few large railroad investments in the Stockholm region (Citybanan and Tvärbanan) However, this will probably not affect the investments in any significant way until perhaps at the end of the forecast period but there is a political understanding over party lines that PFI projects shall be introduced. Totally, the investments in the Swedish civil engineering market summed up to 7.1 billion Euros in 2007.
The by far biggest growth this year is expected in Energy, Heating and Water works where we will see a growth in investments of 13%. We have adapted this figure up 7.0% from the Vienna report due to slower development than expected last year. Investments have been delayed due to lack of resources. Energy prices are predicted to remain on a high level and tougher goals for energy consumption in new buildings are introduced this summer. In many regions there are investments in heating plants to lower the use of direct electricity and oil. This includes plants for power, heating, natural gas, bio fuel and wind mills. More and more buildings are connected to district heating and the amount of installed heating pumps and heating boilers for bio fuel is breaking records each year. The investments in wind mills have previously been low in Sweden but it is growing more than any other segment. The government has set a long term goal that 10 twh/year shall be generated by wind in 2015 (compared to around 0.8 twh 2007). In September 2006 the government also decided that the limit in size of windmills that can be build without having to get approval through environmental legislations shall be increased from 1 MW to 25 MW. This is predicted to have a large impact in private
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SWEDEN investments in this segment. We expect a more moderate growth after this year with 4.0% in 2008 and around 3.7% a year towards 2010.
The Road and Railroad department’s budget have been strengthened and project plans is indicating a continuous growth during the forecast period. Many larger highways are inferior or substitute to major renovation/modernization. Revised figures show that the growth in 2006 and 2007 was not as large as expected (around 2% a year instead of 6%). This is a result of resources being used in R&M projects instead of new constructions and the lack of resources has forced projects to be delayed. We do not see any reason to change the forecasts in this segment. I few big projects are running like “Norra Länken” in Stockholm and “Road 45” in Västra Götaland. We also see a positive trend in rail roads where a few large projects are running throughout the forecast period, like “Bottnia Banan” “Ådalsbanan” and “City tunneln” in Malmö. Last year the decision to start “Citytunneln” in Stockholm was taken and an annual growth of around 5% during the forecast period is not unrealistic.
It’s important to have in mind that a major reason for a stronger budget during this forecast period is higher costs. Raising investments has not generated the same growth in amount of planned projects. There is a debate in Sweden around investments in railroads and strong forces are lobbying for high speed trails connecting the biggest Scandinavian cities. This will not affect the activity this forecast period but the positive experiences from for instance Spain indicates that railroad investments, together with energy investments can face a significant growth in the long run to meet ever tougher demand come to terms with coal-monoxide discharges.
The R&M in civil engineering is a fairly diversified part of the market and comprises everything from snow clearance in the winter to maintenance of power plants, railways, airports and harbours. There are also different definitions on what an R&M project is between regions. R&M in civil engineering tends to grow, or change, very slowly over time, but in the short run it can fluctuate, mostly due to cuts or extra spending in public budgets. We had a strong growth in 2006 with 5.0%, partly due to an unusually long and cold winter in the south which has stretched the budgets for snow clearance. This winter was mild which also can be seen in the figures. However, the development in R&M civil engineering has been positive over the last years. The forecast towards 2010 is optimistic, with an annual increase around 3%. The Road Department has stated that under a situation of unchanged budgets, it is more important to ensure the activity in R&M.
The telecommunications sector is the most difficult sector to forecast, due to all the uncertainty that surrounds the new technology and problems operators are facing getting permissions to expand their networks, especially 3G networks. The major part of the 3G network (in terms of coverage) is built but the use of mobile services has increased and the operators are obliged to cower 98% of the population. This will ensure a stable activity to step up capacity and cover the last pieces of Sweden. The major part of the positive development the coming years is due to an ongoing expansion of the fixed broad band network to also cover small communities. The growth of around 2% a year during 2008 and 2009 is based on a continuous expansion of fixed broad band networks. This is a slightly lower growth than expected in the previous report. Operators margins are going down and investments in new network are expected to be slightly more careful. This activity will probably slow down by 2010. If the use of more advanced mobile services pick up significantly by the end of the forecast period this might cover for the drop in fixed networks since operators will have to step up capacity.
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APPENDIX – DEFINITIONS
Table 1 The macro figures 2004-2010 refer to the National Institute of Economic Research (Konjunkturinstitutet, KI) and Statistics Sweden (Statistiska Centralbyrån). The figures regarding 2010 is based on long term forecasts from National Institute of Economic research together with Prognoscentret AB:s own estimations. The text about Macro Economic Outlook: besides Prognoscentret AB:s own comments, inputs from National Institute of Economic Research (Konjunkturinstitutet), Nordea and The Swedish Central Bank (Sveriges Riksbank). The figures on unemployment are according to the ILO standard. The figures state the end of the year. The construction prices refer to new construction of flats only.
Table 2 The figures for R&M residential include DIY investments.
Table 3 The figures show housing stock at the end of the year. The figures on housing completions are including transformations to flats. Second homes: there is no such statistics in Sweden. Vacancies: refers to annual official figures (Statistics Sweden) of vacancies in multi-dwelling buildings. Home ownership rate: Last official census for Sweden was carried out in 1990 and the current status of home ownership is estimated by Prognoscentret AB.
Table 4 A - B There is no official statistics on “agricultural buildings”, as Swedish farmer do not have to apply for building permits as long as they own the land. Therefore, it is hard to estimate the level of investments. There are around 65,000 farms in Sweden. It is possible to give a rough estimation based on reliable figures on sub segments within the agricultural industry. The volume should be around 500,000 m2 a year, plus minus 50,000 m2. However, new figures from National Institute of Economic Research indicate optimism among farmers in Sweden and both turnover and revenues are growing. This affects the building activity in this segment positively during the forecast period. The figures of civil engineering is based of the National Institute of Economic Research (Konjunkturinstitutet) and ByggIndustrin:s estimations, worked up by Prognoscentret AB.
Extra For the absolute volumes in table 2, 4A and 4B, VAT is excluded. The absolute volumes for 2007 in the Euroconstruct tables for Sweden are given in million or billion Euros (1 Euro = 9.4043 SEK, rate of April 2008).
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Country/Pays/Land: Sweden Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 9 011 9 048 9 099 9 170 9 221 9 262 9 301 Bevölkerung
Households ('000s) Ménages 4 325 4 334 4 368 4 387 4 416 4 442 4 472 Haushalte
Unemployed ('000s) Chômeurs 353 356 330 292 279 281 282 Arbeitslose
Unemployment rate (%) Taux de chômage 7.7 7.7 7.1 6.2 5.9 5.9 5.9 Arbeitslosenquote
Change of GDP Variation du PIB 4.1 3.3 4.1 2.6 2.5 2.6 2.7 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 0.4 0.5 1.4 2.2 2.9 2.2 2.5 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 3.4 4.0 6.6 5.4 4.1 4.0 3.5 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 2.4 1.5 3.0 4.0 3.8 3.8 3.9 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 3.8 3.4 3.6 4.3 4.3 4.5 4.6 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Sweden Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 4 569 30.9 20.1 14.2 5.4 -0.9 -1.3 0.5
Logement Renovation 5 510 3.1 4.4 6.0 3.7 3.7 3.9 4.6
Wohnungsbau Total 10 079 12.6 10.7 9.5 4.4 1.6 1.6 2.9
Non-residential construction New 1 766 -10.6 -2.4 3.8 -2.4 -1.7 0.0 7.6
Bâtiments non résidentiels Renovation 5 214 8.3 2.0 4.7 5.4 3.9 3.1 3.2
übriger Hochbau Total 6 980 2.2 0.8 4.5 3.3 2.5 2.3 4.2
Building New 6 335 12.1 12.0 10.9 3.1 -1.2 -0.9 2.5
Bâtiment Renovation 10 724 5.6 3.2 5.4 4.5 3.8 3.5 3.9
Hochbau Total 17 059 7.7 6.2 7.4 4.0 2.0 1.9 3.4
Civil engineering New 5 819 4.9 -5.8 5.5 3.2 7.5 4.2 2.0
Génie civil Renovation 1 281 3.0 1.9 5.0 4.5 3.5 2.5 2.0
Tiefbau Total 7 100 4.5 -4.5 5.4 3.3 6.8 4.0 2.0
TOTAL CONSTRUCTION OUTPUT 24 159 6.7 2.8 6.8 3.8 3.4 2.5 3.0
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 2.35 2.0 9.0 14.2 10.7 8.3 -2.0 -1.0 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 9,4043 SEK
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Country/Pays/Land: Sweden Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 11.2 12.7 15.0 16.6 15.6 15.2 15.5 Baugenehmigungen Familienhäuser
Flats Collectif 17.0 21.6 30.7 16.3 16.9 21.5 22.0 Mehrfamilienhäuser
TOTAL 28.2 34.3 45.7 32.9 32.5 36.7 37.5
Housing starts 1+2 family dwellings Logements commencés Individuel 10.6 12.3 13.6 14.0 14.0 14.0 14.5 Baubeginne Familienhäuser
Flats Collectif 17.0 19.8 31.8 15.7 19.5 20.5 21.0 Mehrfamilienhäuser
TOTAL 27.6 32.1 45.4 29.7 33.5 34.5 35.5
Housing completions 1+2 family dwellings Logements terminés Individuel 11.6 10.5 12.5 13.6 13.9 13.9 13.7 Baufertigstellungen Familienhäuser
Flats Collectif 18.1 16.3 22.7 22.9 24.1 22.0 22.5 Mehrfamilienhäuser
TOTAL 29.7 26.8 35.2 36.5 38.0 35.9 36.2
Housing stock Logements existants 4 379 4 406 4 436 4 473 4 511 4 547 4 584 Wohnungsbestand
thereof second homes dont résid. secondaires davon Zweitwohnungen
thereof vacancies dont inoccupé 26 26 24 23 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 66.1 66.6 66.7 66.9 68.0 68.9 69.7 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Sweden Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) 1000 m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 126 133 -45.5 5.6 -19.7 15.6 -9.4 -4.4 -13.4 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 134 114 -28.1 68.6 -1.4 181.6 -16.2 -36.3 167.1 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 351 427 2.2 -9.0 -5.0 -11.1 -1.8 -0.1 2.0 Industriegebäude
Storage buildings Bâtiments de stockage 186 325 7.7 -23.4 11.4 -7.5 4.9 -0.6 3.6 Lagergebäude
Office buildings Bureaux 213 237 -28.9 6.1 75.9 -2.2 0.5 3.0 4.9 Bürogebäude
Commercial buildings Commerces 326 376 -13.5 12.0 -9.7 -9.0 10.1 6.4 -1.9 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 500 Landwirtschaftsgebäude
Miscellaneous Autres 430 346 -3.6 -5.0 8.6 -10.5 -7.8 4.7 2.2 Sonstiges
Total 1 766 2 458 -10.6 -2.4 3.8 -2.4 -1.7 0.0 7.6 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 9,4043 SEK
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Country/Pays/Land: Sweden Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 1 662 -0.7 -13.3 2.5 -4.4 5.2 5.2 0.7 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 632 3.0 2.1 5.4 5.0 5.0 7.0 1.1 Bahnanlagen
Other transport Autres réseaux 454 8.9 -28.7 8.2 11.1 5.0 2.0 3.1 Übrige Verkehrsinfrastruktur
TOTAL 2 748 1.5 -13.2 3.9 0.0 5.1 5.1 1.2
Telecommunications Télécommunications 921 14.3 -22.0 4.4 -1.3 2.0 2.0 0.0 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 2 150 5.2 21.8 8.5 10.0 13.0 4.0 3.7 Energie- und Wasserversorgung
Other Autres 1 281 3.0 1.9 5.0 3.5 3.5 3.0 2.0 Sonstiges
Total 7 100 4.5 -4.5 5.4 3.3 6.8 4.0 2.0
1) At 2007 prices, excluding taxes. 1 euro = 9,4043 SEK
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Country/Pays/Land: Sweden Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 150.6 2.6 2.7 2.5 3.1 2.6 3.0 2.7 Privater Verbrauch
Public consumption Consommation publique 81.7 -0.2 0.4 1.5 0.8 1.2 1.4 1.2 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 60.3 5.7 8.9 7.7 8.0 5.7 3.6 1.9
of which construction 25.1 6.3 4.7 9.9 6.6 5.4 4.0 2.7
Stocks (contribution as % of GDP) Variations de stocks 2.2 -0.3 0.0 0.2 0.7 -0.7 -0.3 0.0 Vorratsveränderung
Exports Exportations 167.4 11.0 6.6 8.9 5.6 6.6 5.4 5.7 Exporte
Imports Importations 145.9 6.8 6.9 8.2 9.5 6.3 5.4 5.1 Importe
GDP PIB 316.3 4.1 3.3 4.1 2.6 2.5 2.6 2.7 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 9,4043 SEK
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SWITZERLAND KOF ETH Zurich Swiss Economic Institute www.kof.ethz.ch
Yngve Abrahamsen Marc Altenburg Roswitha Kruck e-mail: [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
SWITZERLAND
1 Summary
In 2006, the Swiss government was forced to apply the strict fiscal rules according to the «debt brake». This is a constitutional requirement which forces the government to balance the debts and surpluses over the business cycle. This affected the whole civil engineering sector, especially the railway (-10.9 per cent in 2006) and road construction (-3.6 per cent in 2006). Beginning in 2007, the situation has started to change. Since there is still the need to do the postponed work, the overall transport infrastructure investment will recover by 10.3 per cent on average in the current year.
High fluctuations in this sector will have to be reckoned also in the future. This is due to some overlaps in several large public infrastructure programs. The public sector investment might also benefit from the decision to foster education and science. At the same time, the restrictive budget policy that was a consequence of public deficits at the beginning of the century will come to an end and new expenditures are motivated by rising tax revenues. Further investment in the energy sector and other civil engineering works may support the construction output additionally. Due to several additional public infrastructure projects, we expect that the growth rate for total civil engineering will even accelerate in 2008 by 7.3 per cent, but will decrease again in the successive years by 1.5 and 1.7 per cent, respectively. The large growth rate in 2008 can mainly be seen as a counter effect to the decreases in the previous years.
% Construction by type: Total Construction by type 2007 8 Civil engineering: Renovation 6 11.6%
Civil 4 Residential engineering: construction: New New 2 9.8% 34.4% 0
-2 Non- residential construction: -4 Renovation 18.0% Residential -6 Non- construction: residential Renovation 2005 2006 2007 2008 2009 2010 construction: 11.0% Total construction output Residential construction New Non-residential construction Civil engineering 15.2%
Residential construction passed its peak in 2005 and is now gradually slowing. However, the expected increase in the housing stock this year is still large amounting to 42,000 units. Construction permits and permit applications are only tailing off slowly, so residential construction activity is also likely to decline slightly. Thanks to considerable increases in income and the continuing positive influence of immigration, the absorption of the new housing stock will also remain high in 2008. Supply and demand develop virtually in parallel, which is why we believe that vacancy rates will hardly change this year. The high level of immigration should initially benefit the market for rented accommodation. Uncertainty about whether the relatively high real-term increases in income will continue may have a small dampening effect on demand for owner occupied homes. Demographic effects (the children of the baby-boomer generation move out of their parents’ house, leaving those with more disposable income) explain the run on second homes.
Within the non-residential construction sector, the categories of commercial buildings (3.3 per cent) and buildings for health and education (both: 5.5 per cent) will are characterized by high positive growth rates in 2008. By 2.8 per cent in total, they are above average of the construction industry as a whole. To evaluate this in its whole dimension, the boost of 2004 for the commercial sector (46 per
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cent) and the favourable development in the health buildings in the past two years has to be taken in account, when the spending in these sectors more than doubled.
In 2008, we expect the office property market to perform a little bit more moderate than in 2007. Thanks to the robust economic situation and the increase in office-based employment, demand for offices will continue to rise this year, unless economic activity takes a dive. However, the growth rate this year (1.6 per cent) will be lower than the 2007 figure (3.9 per cent). The supply side will be stable, too. Permits are being granted at a constant rate, so, with a slowly rising demand, the new property coming into the market in 2008 should be absorbed, and vacancy rates should fall slightly. This will have a positive effect on office rents. In the city centres, in particular, rents will rise; but also in the conurbations prices will increase in the course of this year, albeit less sharp.
The good performance of the retail trade sector is currently masking some of the underlying and unresolved problems. In the current year, however, these problems could become more apparent. Overall, we expect last year’s trends to continue, with a similar volume of new property coming into the market. The gap between prime and peripheral locations will probably widen, though not as quickly as last year. However, it should be emphasized that the risks of forecasting have increased because of the turbulences on the financial markets. Nevertheless, we think that there will be a consolidation of new construction activity in the retail property sector regardless of overall economic performance. However, this consolidation could hit the market sooner and harder than expected. All together, the retail construction output will not increase until the end of the forecast period: in 2009 and 2010 we expect growth rates to drop down by 2.4 and 3.4 per cent, respectively.
Since the boom in the total construction output already lasts since 2003 – except the year 2006 -, there seems not much space left for a further dynamic development. We expect a slight plus by 1.9 per cent in 2008, followed by a stagnation in the forecast period (0.1 per cent in 2009 and 0.5 per cent in 2010, respectively).
One special characteristic of the recent past is the sharp increase in construction prices which has accelerated in 2006 (3.1 per cent) and in 2007 (3.9 per cent). These figures are significantly above the consumer price inflation of 2.3 per cent in 2007. This is mainly due to shortages of raw materials and products, caused by a high international demand. Additionally, some firms also reported a lack of skilled workers. A stable, non-growing construction output over the coming years should ease these restrictions. Nevertheless, another possible source of inflation might have been coming in at the beginning of 2008. As the constructors’ association announced, the wages have risen by 2.7 per cent on average from January on. Bearing in mind that many construction firms do not make much profits – according to their own statements -, the entrepreneurs will have to raise prices to avoid losses.
No substantial change is expected for the share of new building and renovation in the overall construction output. Since 1997, the share of new construction fluctuates around 54 per cent, coming from more than 60 per cent during the 1996 boom in the construction industry. The share of new construction in the main contract work is a little bit higher and amounted to 60 per cent in the first-half of 2007. Here we see a slight trend downwards, having reached its peak in 1995 with more than 70 per cent. In the subcontracting work, the new construction stands for only 34 per cent at the beginning of the current year. This sub-sector had its trough in 2001/2002 with only 30 per cent, but is slowly recovering since then. Interpreting these figures, it seems to be clear that with existing buildings, the most investment is made in subcontracting work which is more open to smaller renovation firms. As a last remark, both the main and the subcontracting work seem to be independent from any business cycle movements and follow a long-term trend.
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2 Macro-economic Outlook
A strong fourth quarter in 2007 dispelled earlier fears that a global recession might pull Switzerland along in its wake. Real GDP grew by an estimated 3.1 per cent in 2007, which was about the same as in 2006. This rate, however, cannot be sustained in the current and the coming year. Nevertheless, growth rates of 2.1 per cent in 2008 and 2.0 per cent in 2009 do imply that the economy is really faltering. As such, the positive economic outlook that started in 2004 should then be lasting for at least six years.
The crisis on the US real estate market is affecting the Swiss economy indirectly due to the economic downturn expected in the European trade partners. This is having a stifling effect on Swiss exports. Hence, exports will probably not provide any growth impulses for the moment. The export of financial services will be the most affected.. Domestic demand, on the other hand, will grow vigorously and thereby provide substantial support to Switzerland’s economic growth. The main reason for this is the strong growth in employment and consequently of disposable income, which will produce a conspicuous increase in private consumption in 2008. The public sector will probably be in a business- cycle-neutral position during the forecast period. Private investments will generate no appreciable impulses. For 2009, the development will be somewhat less dependent on domestic growth. The increase in the consumption rate will slow down, but exports will grow faster in 2009.
Total Demand by Expenditures 2007 % Gross Domestic Product 10
Private 8 consumption 39.6% 6 Exports 38.3% 4
2
0
Stocks: -0.2% -2 Gross fixed Public 2004 2005 2006 2007 2008 2009 2010 capital consumption 7.4% Gross Domestic Product Private consumption formation Public consumption Gross fixed capital formation 14.7% Exports Imports
Sustained high growth generally stimulates the labour market. In 2007, employment increased sharply by 2.7 per cent, especially where full-time jobs were concerned. The upswing touched all sectors, albeit with regional differences. As of 2008, employment will continue to climb, but not as dynamically. The gradual increase in the potential labour force will signal a drop in the unemployment rate until autumn-2008. After that, the unemployment will rise slightly, and the annual rate for 2008 and 2009 will be 2.3 per cent.
In spite of increasing expenditures on infrastructural works, the public sector is currently enjoying surpluses. The overall public administration budget is estimated to have a surplus of 1.6 per cent of GDP. The slight drop this year and the next will be balanced out by a surplus in social insurances. Overall, the fiscal policy is appropriate for the current situation.
The year 2007 was marked by a rise of the Swiss franc against the dollar. The decline against the euro came to a halt, and at the beginning of March, 2008, the franc even stood at 6 per cent above its lowest level. The monetary policies of the Swiss National Bank (SNB) are notable for their stability,
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especially in light of the turbulence on international financial markets. The SNB did increase liquidity in the short term, but maintained the interest rate. Restrictive lending practices did not materialise. The SNB kept its course even in the face of an inflation rate of more than 2 per cent at the beginning of the year as the reason for higher inflation was first and foremost the volatile prices of fuel and heating oil. This effect should be diminishing in the course of the year. By 2009, the rise in the price of consumer goods should be around 1 per cent. Therefore, a change in the interest rate is not expected.
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3 Housing Market
Whereas the number of housing completions has been rising since 2003 more or less constantly, the investment has developed differently. The construction activity increased from 2003 till 2005. However, there was a surprising decline of 1.2 per cent in 2006 (down to 15,400 million euro), followed by an estimated -0.8 per cent in 2007 and -1.6 per cent in 2008, although the housing completions increased permanently. Finding the reasons for this is not easy. It could be that the sharp rise in construction prices (by more than 3 per cent in 2006 and 2007) led to a counter-effect which is characterized by a postponement of construction works or a switch to cheaper materials (which leads to lower amounts in real terms).
In fact, homes are still being built at a relatively high pace. At the end of the fourth quarter of 2007, 58,500 homes were under construction. This is the highest level ever since statistical records were started in 1994. The large number of homes currently being built alone will ensure that production is going to remain at a high level for some time to come. Most of these homes will come into the market this year or 2009, respectively, because in Switzerland residential construction projects are rarely stopped once building has begun. With the number of projects under construction at a record level, we are unlikely to see a fall in the number of new units coming into the market until the end of the forecast period. Owing to the massive immigration, demand should be high enough to ensure that most of the supply is absorbed. As a consequence, the vacancy rate will hardly change at all in 2008/09, sticking at around 1 per cent.
Number of flats 60 000 Vacancies and New Flats & Dwellings
50 000
40 000
30 000
20 000
10 000
0 2000 2002 2004 2006 2008 2010 Vacancies New dwellings
Viewing the number of homes for which building permits have already been issued, this enables us to make a better estimate of future trends in residential construction. Hence, we expect the number of permitted residential dwellings to continue to rise in 2008 and 2009, being replaced by a small decrease in 2010. If the Swiss economy suffers more from the current financial market turbulences than expected, the typically delayed reaction of immigration patterns could act as a buffer that should keep oversupply within bounds even in a worst-case scenario, at least in a medium-range perspective.
Nevertheless, there are some uncertainties of the estimation. In Switzerland construction projects for which permits have already been issued can still be cancelled. In the long term, only 85 per cent on average of approved houses and apartments are actually built. This ratio is influenced by interest rate trends more than anything else. Rising interest rates in the past quarters have made financing more expensive and pushed the cash value of some residential construction projects into negative. In such cases investors no longer have any incentive to continue a project. Uncertainty caused by the crisis on
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the US real estate market may also have made people more sensitive to risks. Mortgage rates returning from the low levels of 2003–2005 towards historical average levels made one of the main drivers of the residential construction nearly disappear.
In the wake of the massive inward immigration, demand for accommodation is rising particularly quickly in the urban centres where the booming economy provides most of the new jobs. The structural change in immigration, which by now is supplying Switzerland with more highly trained and well paid employees, tends to benefit the city centres more than the suburban municipalities. The latter ones are more likely to attract the less well-off immigrants. Against the background of a rising number of building permits in the urban centres, the construction of rented accommodation is no longer playing such an important role as a growth driver. By now, condominiums are the dominant driving force in residential construction, accounting for more than 44 per cent of the total amount.
Permits for single-family dwellings show a clear downward trend. We believe that the decline of this segment is due to the high prices now charged, especially for building land. Eight years of constant price growth have pushed the dream of owning a single-family dwelling beyond the affordability of many households. A rise in building costs of more than 11 per cent over the past three years has also contributed to this development. Some of this unsatisfied demand has shifted over to condominiums, which should help to keep supply growing at a high pace in that sector. The largest share of homes or condominiums, respectively, is currently being built in periurban and rural municipalities. These are the outermost municipalities at the edge of the conurbations where the town already meets the countryside. Building land tends to be more available and cheaper there than in the suburban parts of conurbation. Thanks to the development of the transport infrastructure, these areas are by now within a reasonable commuting distance.
Number of flats Apartment Size of Completed Flats & Dwellings 45 000
40 000 4 902 35 000 4 642 4 820 11 720 30 000 3 636 4 422 3 924 4 044 11 142 11 098 25 000 10 858 9 692 20 000 8 477 8 760 15 636 15 000 13 386 13 920 10 783 10 003 10 728 10 000 9 849 5 756 7 126 5 000 4 630 4 440 4 230 5 003 5 634 1 779 1 792 1 941 2 125 0 1 720 1 401 1 665 2000 2001 2002 2003 2004 2005 2006
1 room 2 rooms 3 rooms 4 rooms 5 rooms 6+ rooms
Coming from a very low level, vacancy rates in Switzerland reached slightly more than 1 per cent between 2006 and 2008. This is far from the peak of 1.9 per cent seen in 1998 and surprisingly low regarding the high completion levels between 2003 and 2006. There are, however, large regional differences. The housing space is particularly scarce in the Geneva Lake region, where only 0.19 per cent of the dwellings are unrented or unsold. The agglomeration of Zurich shows a stable vacancy rate of 0.8 per cent, which also points to a high attractiveness of this area. Regions with the largest share of non-occupied flats are the cantons of Uri and Jura (with vacancy rates higher than 2 per cent). This
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SWITZERLAND is in line with the trend of the constant migration of well-educated and qualified people who leave their rural homeland and move into the economic centres.
Despite the clear picture that appears in the aggregated data, there are several signs of regional dissonances and of a growing mismatch between supply and demand. This becomes manifest in very different regional and segment-specific vacancy rates without affecting the countrywide figures:
• The vacancy rate for new buildings, contrary to the rate for the housing market as a whole, has continued to rise, moving up slightly since the previous year from 5.0 per cent to estimated 5.4 per cent in 2009. The difficulties in coordinating supply and demand in the property market are the main reason that vacancy rates for new buildings are typically higher than in the existing building stock.
• Turning to the different types of housing, vacancy rates in single-family dwellings have risen since 2004 to the current 0.37 per cent. This slow increase already caused a decline in construction activity in the single-family dwelling sector. The rising number of objects for sale points mainly towards weakening demand. This might be caused by rising prices or by a growing supply of homes that no longer meet the preferences of to-be house buyers. In the years to come, demographic factors will cause more single-family homes entering the market without a suitable rise in young households. Add to this the often unrealistically high prices expected by sellers, and it is clear why more and more of these houses will stay empty, particularly since the emergence of the condominiums has provided potential buyers with a viable alternative.
• Only the urban centres have seen vacancy rates remain steady, despite the sharp increase in housing completions. The housing markets of central Geneva and Zurich are increasingly tight, as buyers and renters find it hard even to consider a removal to the suburbs. Demand for housing in tourist municipalities has been boosted by the recovery of the tourism industry and by demographic trends. The first of these factors has created a lot of jobs, many of which have been taken by inward immigrants. Demographics have also played a part in this because many baby-boomers are now buying second homes as they have more money at their disposal.
Price growth may well increase in the course of this year. In the condominium sector – still the most important one in the residential property segment – rents will continue to get more expensive. For single-family dwellings we believe that prices will still go up slightly, and in the dynamic rental apartment sector we expect rent increases of 2 per cent and more. Nevertheless, price trends can vary considerably from region to region. Especially the areas around Lake Geneva and Zurich will see a sharp increase in all sectors of the market.
A particular measure for the rent prices in Switzerland, called the «supply rent», describes the development for flats that are new on the market – either because the dwellings are newly built or because they are about to change their tenants. Because it is very likely that the landlords raise the rents every time they sign a new contract, this measure is usually higher than the rents for already existing tenancy agreements. This is supported by the statistics: The Swiss supply rents increased between 3 and 4 per cent in 2006. In 2007 and the beginning of 2008, this lowered down to numbers between 2 and 3 per cent (first quarter of the current year). The high housing completions may be one reason for this. A special feature of the Swiss rent price system has still to be mentioned. The rents are still quasi officially linked to the mortgage interest rate. If the interest rate rises by 0.25 percentage points, landlords are allowed to raise the rents by 3 per cent. As the interest rates increased in the first-half of 2007, this may be one reason for the observed inflation in rents. At this point it has to be
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mentioned that politicians plan to link the rents to the overall consumer price index instead to the mortgage rates. This will probably prevent rents from ever going down, since the consumer prices have been rising virtually constantly over the past 20 years.
There was also a rather fast increase in the prices for freehold apartments and detached houses (although relatively small compared to other countries). This may be mostly due to the good economic environment, associated with positive income prospects for the population. Having a good earning almost for sure, people are more likely to enter long-term binding contracts like the purchase of real estate. But, this trend seems to come to an end now: Whereas freehold apartments were between 6 and 8 per cent more expensive in 2002 and 2003 than the previous year, the rise in prices reached only 2.5 per cent in 2007 and 2.2 per cent in the first quarter of 2008, respectively. The same holds true for detached houses. A moderate increase by 2.5 per cent could be observed in 2006. Since the beginning of 2008, this figure decreased to 0.5 per cent (compared to the preceding year). Nevertheless, the demand for property seems to be very robust. It is quite unlikely that there is a «real estate bubble» in Switzerland.
A last, but crucial issue of the housing market is the growing importance of flats instead of detached houses. Over the years to come, the latter will account for about three quarters of the completions. Although mainly freehold flats will be constructed, the home ownership rate will only show a small increase. Many purchasers of these flats acquire them only for financial reasons (or to have a broader portfolio which assures their retirement provisions) and will rent them out later. Statistically, this means that these dwellings are still rented flats although they do not belong to a real estate company. Regarding the fact that the private purchase of flats in larger buildings has not been possible until recently, the comparatively low home ownership rate of 34.9 per cent (2006) is not surprising. It rose slowly to 35.1 per cent in 2007 and will do so up to 35.3 per cent at the end of the forecast period.
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4 Non-residential Market
After a period of slight weakness in 2006, the non-residential investment got back on its growth path again. We estimate the investment in 2007 to increase by 4.5 per cent to 5,085 million euros, followed by 2.8 per cent in 2008. However, the construction activity will turn down again and decrease in 2009 and 2010 by 1.7 and 2.0 per cent, respectively. Almost every sub-sector has had its share in the dynamic growth of the non-residential market, which evidences the broad basis of the current economic upswing and the end of the fiscal austerity policies. The most important and fostering factors in 2008 are the buildings for education and health. In 2009 and 2010, the growth in this sector will weaken slightly, but nevertheless both sectors remain driving forces in the course of the forecast period.
Investment in Educational and Health Sector Facilities
In 2007, investment in the health sector concentrated in the Zurich region. As one example, the complete refurbishment of one municipal hospital (the «Waid Spital») was finished in the current year. It amounted up to 177 million euros and lasted 18 years. Another large project, the also municipal «Triemli Spital», experienced the completion of the first reconstruction stage in the range of about 150 million euros. The next stage is the complete new building of the ward block, with estimated costs of 270 million euros, which is expected to be finished by 2012. As the government aims to reduce the costs mainly for hospitalisation, it can be assumed that there will be further renovating projects – not only to improve the quality for patients, but also to make the treatment more efficient. One of the main reasons for this is that many of the large hospitals were built or extended in the 1960s and 1970s and they are currently in a relatively bad state. Inadequate isolation, for instance, is responsible for massive losses of energy. As an additional factor, hospitals suffer from very short renovation cycles because of their intensive use, and they have to be under general overhaul every 25 –30 years. Since the techniques and medical equipment become more and more complex, this raises the requirements to the existing buildings even further. What we see from the figures in 2006 is that the spending for health buildings increased by 15.5 per cent. This trend will continue, although on a weaker level, until the end of the forecast period with growth rates between 5.5 per cent (2008) and 3.0 per cent (2010).
With a rather low share of students and high school graduates compared to other OECD countries, the education system seems not to be totally ready for the challenges that stem from a globalised knowledge society. Having recognised this as a problem, the Swiss government introduced a national education program which raises the means for education by 5 per cent a year beginning in 2008. This is in contrast to the austerity policy that was implemented under the budget constraints over the past few years, when the means decreased by 5.6 per cent in 2006 and even by 7.2 per cent in 2005. Hence, it is no surprise that as a result of this political change, the expenditures for education buildings will rise constantly over the years to come. This is only partly due to the effort to keep pace with the international development. Also, many school buildings need renovation or even refurbishment. Last but not least, there are several large projects stemming from the universities. The «Science City» of the ETH Zurich (Swiss Federal Institute of Technology), for instance, is still under construction and remains a large part of the federal investment in the education sector. In other cities, the local universities are expanding as well or are even newly founded.
Industrial/storage Building
After a sharp decline by 17.3 per cent in 2006, the growth rates of industrial buildings construction recovered again and amounted to 4.8 per cent in the last year and 2.3 per cent in 2008. We expect that the currently positive «output gap» which is caused by the booming economy and the rising
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demand will be closed at the latest in 2009. This also leads to decreasing investments in industrial buildings later on. Whereas the capacity utilisation is on record levels at the moment, it can be reckoned that it slowly falls back to the long-term average level. One main reason for this is the export sector, which will grow less dynamically over the next years than in 2006 and 2007. Further, it can be stated that the very abrupt increase in industrial buildings investment in 2005 with a growth rate of 117 per cent has effects on the firms. Considering that construction of factories is only the first step of a company’s expansion plans, further investment in machinery and human capital is needed. Therefore, the recently constructed factory buildings will have to reach their full capacity before a substantial increase in construction investment is to be seen.
Additionally, the construction of industrial and commercial storage buildings will grow by around 2 per cent in the current year. The past upturn of this sector in 2006 was almost as dynamic as in the industrial building construction the year before. It is not easy to find an explanation for this. Nevertheless, it seems as if there was an enormous backlog demand which is not completely satisfied yet. This backlog may result from a concentration on «normal» factory building in the current boom and therewith a neglect of the facilities for storage. Now, when the boom of the economy seems to have reached its peak, the attention might shift more to other possibilities to invest. Having finished this in 2008, the growth rates of the storage construction will show a minus sign from then on.
Office building
The rise in the amount of office property in Switzerland was slightly more positive in 2007 (3.9 per cent) than in the previous year (-1.3 per cent). The total volume of new office space that came onto the market last year was estimated to about 500,000 m2, amounting to a value of about 1,000 million euros. This is an increase of 1.1 per cent compared to the existing stock. Construction of office buildings is concentrated in the metropolitan regions of greater Zurich, Geneva, Lausanne, Basel and Berne, where 60 per cent of all new offices are built. The two financial centres, Zurich and Geneva, experienced the largest amount of property coming into the market. This was mainly due to the prospering banking business over the past three years (a development that changed completely since the outbreak of the international financial market crises). 20 per cent of all Swiss investment in office space was in each of these two centres and their surrounding conurbations.
Large sums are invested in office property in the City of Zurich (8 per cent of the total amount). While new office space there is mainly produced by regeneration, conversion and new development in the North (Oerlikon) and West (Escher-Wyss), the city of Geneva has virtually no room left for new offices. Consequently, construction activity in Geneva tends to be focused on the wider conurbation. There is evidence that in 2008 the development will slow down in both cities, but still reach positive growth rates. Big efforts to establish a completely new service area have also been made in Basel. Not only the highest office tower in Switzerland is planned there (the «Roche Tower», built by the producer of pharmaceutical products of the same name), but also a completely new campus for the fast developing life science sector (announced by Novartis, a competitor in the same industrial sector). Additionally, the fast growing Basel airport, which benefits from its location in the border triangle, provides further positive impulses on the office market there.
In Zurich, the conversion of a former industrial area in the west of the city centre continues. The «Züri West» project started a couple of years ago with the first projects already being finished. It is about to reach a new stage in the next few years, when several office towers (among them the «Prime Tower») will be constructed. One remaining bottleneck of the development of this area is the traffic infrastructure. But two main projects are on their way now after being brought to referendum or court,
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All together, there are two main trends that characterise the office market in Switzerland. On the one hand, it becomes more and more important to modernise the office space and make it more flexible to meet the different requirements of the customers. If this did not happen, the problem could arise that the owners of existing office space would have to deal with a structural vacancy and rapidly lowering value of their property. The second trend is the aforementioned transformation of former industrial areas to high-value office locations. This gives new chances both to the local governments, who can approach the solution of infrastructural challenges that exist in part since decades, and to prospective investors who face the problem of a scarcity of new building land in the city centres.
Vacancy rates for offices are only available in a few regions. Besides the cantons of Neuchatel and Basel-Land, all five major urban centres or their cantons, respectively, keep statistics on vacant office space, covering about 44 per cent of the office property market. The amount of vacant office space in the City of Zurich continued to fall in 2007. The decline by 30,000 m2 means that by now there are 250,000 m2 of space unrented. This results in a vacancy rate of 4.6 per cent. Owing to the slightly higher increase in supply, the reduction in vacant space was not as sharp as in 2006. The supply overhang which became evident in 2002/2003 has therefore still not been completely removed. Nevertheless, the vacancy rate in Zurich is still low, compared with other international centres. While the non-occupancy rate in London, for example, amounts to 5 per cent, more than 10 per cent of office space is currently empty in Frankfurt, Amsterdam, Brussels and Stockholm.
Vacancy rates also fell in 2007 around Lake Geneva and especially in the city. In the canton as a whole, the vacancy rate declined from 1.7 to 1.1 per cent. In the city centre itself it gets increasingly hard to find available office space at all. Outside the centre the situation is more relaxed. In Lausanne and in the canton Vaud the vacancy rate is 1.8 per cent. The low rates there are mainly due to the proximity to the city of Geneva and to the high population density and low reserves of developable land there. In the cities of Basel and Berne vacancy rates have risen. Berne has a low level of vacant office space (33,000 m2, resulting in a 1.1 per cent vacancy rate), so the slight increase is not too disturbing. The figures are somewhat higher in Basel (2.6 per cent), but the increase there was partly offset by a decline in the Canton Basel-Land. The overall situation in the region has hardly changed, and the shift from the centre to the wider conurbation seems to continue.
Against this background, we expect the construction investment in the office market to grow all in all by 1.6 per cent in 2008. Since there is still much unrented space, the activity will decrease in the next two years by 4.0 and 4.6 per cent, respectively. This is also due to the current problems the Swiss financial institutions have to deal with. As a result of the crises in the international financial markets, the two biggest banks reported high write-downs of financial assets and have already announced to release several thousands of their employees in Switzerland and worldwide. This leads to less demand for office space.
Commercial building
The growth in commercial buildings construction seen in 2006 (10.8 per cent) may slightly fall back to a more moderate level. After 6 per cent growth in 2007, the construction activity will still rise by 3.3 per
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cent in the current year and decline by 2.4 and 3.4 per cent in 2009 and 2010, respectively. The downturn in 2009/2010 can be considered as a counter-effect after a period with high growth rates and might be an indicator for possible market saturation.
Going into detail, the «Sihlcity» shopping mall in South Zurich, one of the biggest projects of this kind in Switzerland, opened for business last year. Thanks to the economic boom, the timing of its opening could hardly have been better. But it is much too early, however, for a broader assessment. It takes years for shopping malls of this size to establish in the market. Nevertheless, it is conceivable that the success or failure of «Sihlcity» will have a knock-on effect on the rest of the industry.
After some difficulties at the beginning, the German discounter Aldi seems to do quite well in the Swiss food market and expands constantly. Although another discount chain from Germany (Lidl) is also expected to enter the Swiss market, there is no reliable information yet about how many stores, when, and where. According to rumours, the company will enter at the beginning of 2009 by opening several dozen shops at once and then expand further. This will surely lead to a harder competition in the commercial sector with expanding retail space and rising investment. On the other hand, the margins per sqm will decrease because the private consumption cannot keep pace with the speed of the sales area expansion. This might also mean that the rents cannot stay on their current level.
Last but not least, the two biggest remaining shopping mall projects are on a good way. The Westside Mall in Bern is already under construction, completed in the building shell, and about to open in autumn 2008. The Ebisquare project near Lucerne, whose realisation seemed to be a little bit unclear during the last two years, has found an anchor tenant with a large retail group (Coop). That is one reason why the construction is still about to start in 2008. Completion is planned for 2011. Depending on the business development of these major projects, this might be a jump start for similar projects. Still, the retail space in such huge malls (including entertainment and probably even wellness or similar facilities) is noticeably below the space available on average in other countries.
Even if there is still a long way to go until the building of Switzerland’s «shopping paradises» is complete, it is likely that, once the current major projects are finished, the boom will settle down in the medium term and give way to a more modest growth. The current net increases in retail floorspace might still be higher than the market as a whole is able to absorb. The constant inflow of new space coming into the market, mostly as large-scale retail developments, will probably come to an end when Bern Brünnen, the Stucki Areal in Basel, the AFG Arena near St. Gallen and perhaps Ebisquare in Ebikon are once completed.
It is not unlikely that the booming economy with high growth rates in private consumption (by 2.0 and 2.4 per cent in 2007 and 2008, respectively) will tempt developers to expand supply excessively, but in general the industry has become more professional. Some time ago it was possible to plan a retail project simply referring to the continuing population growth and rising incomes; additionally, one or two «anchor tenants» sufficed as the proof of the projects’ success. But now a more rigorous strategy is required. This strategy means to take market share from other retail spaces. As a result, we may be a net reduction in the total retail space in Switzerland. Any growth in floorspace that outstrips sales growth will no longer be sustainable. When the next downturn hits the market, this could already put pressure on rents, and only the very best locations will be able to resist.
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5 Civil Engineering Market
Generally, civil engineering is the construction sector which is the most difficult to forecast, although it is mainly driven by public investment. In Switzerland the share of huge infrastructure projects is high. The overall cost of these projects (NEAT – mainly the Lötschberg and Gotthard base tunnel through the Alps) sums up to more than 10,000 million euros. However, delays, unexpected difficulties in the execution of construction work and higher construction prices may affect not only the project itself, but also related projects with common funding. Therefore, in 2006 only 75 per cent of the designated 1,300 million euros were spent. This led to a decrease in total civil engineering expenditures by 0.7 per cent. In 2007 and 2008 we expect a construction growth by 2.4 and 7.3 per cent, respectively. In 2009 and 2010, however, negative growth rates (-1.5 and -1.7 per cent) are likely to occur.
But there are also good news coming from the NEAT. As the first large project, the Lötschberg line between central Switzerland and Italy is virtually finished. The first test trains passed the 35 kilometres tunnel already in summer last year. Regular passenger trains followed in December and reduced the travelling time by almost one hour. The biggest problem for the remaining NEAT works (that are assumed to be finished in 2017 or 2018 for the Gotthard line) is the increase in costs. Since the total amount of money available for the NEAT railway projects is fixed, rising costs for one of the project mean less money for the others. Therefore, a recently started political initiative aims to increase the cap for the so called «Finöv»-Fund. This Fund is the main financial source for the Swiss public transportation system.
It’s not only technical reasons that are responsible for the observed difficulties. An appeal of a contract of the Gotthard line, which has already caused a substantial delay in the building process, was resolved only in spring 2007. Further delays, albeit only by several months, were generated by a company that appealed the placing of the contracts for the installation of the railway technology. But this problem could also be solved, and the works amounting to about 1,000 million euros started recently.
The investment in new railway stretches and new roads balanced in 2005 for the first time, after decades when most funds were spent for new motorways. The projected national motorway network was completed to 93.2 per cent by the end of 2007. In 2007, about 5 kilometres of new motorways were opened. The next big steps are about to come in 2009 and 2010 when the western by-pass of Zurich can be used by the drivers. The length of the new motorway stretches amounts to 7 kilometres in 2009 and 16 kilometres in 2010. However, since most of the construction work is already done there, this project will have only a small influence on the overall civil engineering investment in the next years. A larger impact comes from the partial renovation of the very important motorway A2 between the Gotthard tunnel and Basel. Because some of the national motorways have already reached their capacity, enlargement investments are also needed, e.g. along the northern Zurich motorway by-pass, where a third tunnel is planned. The federal government has allocated 570 million euros for this project.
The cantons and the municipalities benefit the most from the currently booming economy, especially through rising tax revenues. We expect the investment for regional and local roads to increase at least at the same pace as for the federal motorways. This might also be true for other public civil engineering works. However, it is also the aim of the local governments to lower tax rates in order to attract more firms and high earners. In the long run, the expenditures for streets and motorways will rise by approximately the same rates as those for railways.
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Taking all the aforementioned difficulties and developments into account, the numbers look as follows: In 2006 about 5,000 million euros were spent for transport and infrastructural purposes. That was 5.6 per cent less than in the previous year. For 2007 and 2008, we expect this civil engineering part to grow by 3.6 and 10.3 per cent, respectively. The growth rates will be negative in 2009 (-2.1 per cent) and in 2010 (-2.8 per cent). Including the other parts of civil engineering, like telecommunications, energy and water works and miscellaneous, the sign of the numbers remains, but the amplitude is weaker.
The construction work for energy production and distribution is likely to be influenced by the federal plans for the «2000 Watt society». If those plans were implemented, the investments in electric power supply infrastructure could turn out to be very much different from what had been planned earlier. The focus of the plans is not to increase the electricity production generally, but to achieve a more efficient use and distribution of it and to increase the local production. This does not mean reduced investment. However, the means are redirected to other projects. Well prepared construction firms may profit if the plans come true.
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APPENDIX – DEFINITIONS
Table 1 • Population: average resident population • Unemployed and unemployment rate: Official figures from State Secretariat for Economic Affairs, only registered unemployed, the unemployment rate is calculated using a constant working force from the last census (2000).
Table 2 Construction sector output: The statistical basis for the construction sector output is the «Bau- und Wohnbaustatistik für die Schweiz» from the Swiss Federal Statistical Office (BFS). It contains construction investments for all categories as well as for new construction and modernisation. Current maintenance is only published for public construction activities. Non-investive private repair and maintenance measures were estimated by KOF.
Table 3 • Housing completion reflects the level of activity in the housing sector. Starting June 2008, estimated data for permissions and starts are provided. These series are incompatible with the earlier published «non-utilised permits» and «number of houses under construction» at December 31… • Housing stocks, second homes and home ownership rate: Figures are available from the «Wohnungs- und Gebäudezählung 2000» for the year 2000. The housing stock is annually adjusted according to the construction and demolition activities.
Table 4a The classification of a building is determined by its main purpose. • Education buildings: All kind of buildings for educational purpose, including public research buildings and sport facilities used in educational institutions. • Health buildings: All kind of hospitals and nursing homes. Also included are buildings for veterinary purposes. • Industrial buildings: All kind of buildings for industrial and manufacture production, also included are logistic centres, laundries and abattoirs. • Storage buildings: All kind of buildings for storage, including cisterns and non-farm silos. • Office buildings: All kind of public and private administrative buildings • Commercial buildings: Retail and wholesale buildings, private service buildings with public access, petrol stations, exposition buildings, hotels and restaurants. • Agricultural: Agriculture and forestry buildings, including farm silos. • Miscellaneous: Other Buildings, including sports and sacral buildings and buildings for infrastructure purposes (e.g. airport buildings).
Table 4b • Roads: All kind of roads • Railways: Railway stretches, tunnels, bridges • Other Transport: civil engineering work for airborne or waterborne transport, tramway and cable car civil engineering • Telecommunication: Civil engineering for cable networks, communication antennas. • Energy and water work: Civil engineering work for fresh and waste water treatment and transportation. Dam for power plants and civil engineering work for power cable networks, pipelines and district heating.
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• Other civil engineering contains other infrastructure work (e.g. avalanche protection, river banks, melioration) and the civil engineering part of residential and non-residential buildings
Table 5 All national Account (according to ESA 95) data were revised last autumn. They are incompatible with earlier Euroconstruct publications. The growth rates are measured as changes at previous year’s prices and the chained volumes are non-additive. Financial Intermediation Services Indirectly Measured (FISIM) is allocated to production sectors and final expenditure categories. Public Consumption and the consumption of the Non Profit Institutions Serving Households (NPISH) are measured at input prices.
All construction figures in Table 2 to 4 are without VAT. The normal Swiss VAT rate is 7.6 per cent, which is also used for construction activities.
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Country/Pays/Land: Switzerland Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 7 454 7 501 7 558 7 617 7 693 7 753 7 815 Bevölkerung
Households ('000s) Ménages 3 311 3 339 3 368 3 403 3 437 3 468 3 497 Haushalte
Unemployed ('000s) Chômeurs 153 149 132 109 89 91 93 Arbeitslose
Unemployment rate (%) Taux de chômage 3.9 3.8 3.3 2.8 2.3 2.3 2.4 Arbeitslosenquote
Change of GDP Variation du PIB 2.5 2.4 3.2 3.1 2.1 2.0 2.1 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 0.8 1.2 1.1 0.7 1.7 1.1 0.8 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 1.5 2.2 3.1 3.9 1.3 0.3 0.1 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 0.4 0.7 1.4 2.4 2.6 2.8 2.8 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 2.7 2.1 2.5 2.9 3.1 3.4 3.5 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: Switzerland Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 11 513 12.8 5.0 -1.2 -0.9 -1.6 1.9 3.1
Logement Renovation 3 694 1.7 4.8 -1.1 -0.5 -1.6 1.9 3.1
Wohnungsbau Total 15 208 9.9 4.9 -1.2 -0.8 -1.6 1.9 3.1
Non-residential construction New 5 085 1.8 6.6 -1.4 4.5 2.8 -1.7 -2.0
Bâtiments non résidentiels Renovation 6 045 -4.2 4.5 -2.1 4.6 3.3 -0.6 -0.9
übriger Hochbau Total 11 130 -1.6 5.5 -1.8 4.5 3.1 -1.1 -1.4
Building New 16 598 9.4 5.5 -1.3 0.7 -0.3 0.8 1.5
Bâtiment Renovation 9 740 -2.0 4.6 -1.7 2.6 1.5 0.3 0.6
Hochbau Total 26 338 4.9 5.1 -1.4 1.4 0.4 0.6 1.2
Civil engineering New 3 284 -4.7 -1.7 -5.7 2.0 7.4 -1.5 -1.8
Génie civil Renovation 3 879 4.0 -7.6 4.1 2.8 7.2 -1.6 -1.5
Tiefbau Total 7 163 -0.3 -4.8 -0.7 2.4 7.3 -1.5 -1.7
TOTAL CONSTRUCTION OUTPUT 33 501 3.7 2.9 -1.3 1.6 1.9 0.1 0.5
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 4.64 6.5 7.9 -0.2 -0.5 -0.3 0.3 0.9 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 1.64256 CHF
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Country/Pays/Land: Switzerland Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel 14.9 14.1 11.8 11.0 10.9 11.0 9.6 Baugenehmigungen Familienhäuser
Flats Collectif 32.3 36.2 37.5 38.7 39.9 41.2 36.5 Mehrfamilienhäuser
TOTAL 47.2 50.3 49.3 49.7 50.8 52.3 46.1
Housing starts 1+2 family dwellings Logements commencés Individuel 12.7 12.2 10.8 9.5 9.3 9.4 9.6 Baubeginne Familienhäuser
Flats Collectif 26.6 30.2 32.4 33.0 33.8 35.0 36.2 Mehrfamilienhäuser
TOTAL 39.3 42.4 43.2 42.4 43.1 44.4 45.8
Housing completions 1+2 family dwellings Logements terminés Individuel 13.0 12.4 12.0 9.7 9.3 9.3 9.5 Baufertigstellungen Familienhäuser
Flats Collectif 24.0 25.6 30.0 32.9 32.7 33.6 34.7 Mehrfamilienhäuser
TOTAL 36.9 38.0 42.0 42.5 42.0 42.8 44.2
Housing stock Logements existants 3 710 3 749 3 792 3 835 3 877 3 921 3 966 Wohnungsbestand
thereof second homes dont résid. secondaires 521 529 538 547 556 566 575 davon Zweitwohnungen
thereof vacancies dont inoccupé 33 37 40 41 42 47 53 davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 34.8 34.9 34.9 35.1 35.2 35.3 35.3 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: Switzerland Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 499 -3.0 -7.2 -5.6 3.0 5.5 3.4 3.0 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 250 -8.4 -18.1 15.5 5.3 5.5 3.4 3.0 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 1 066 -8.9 117.8 -17.3 4.8 2.3 -3.4 -4.1 Industriegebäude
Storage buildings Bâtiments de stockage 325 -3.9 1.2 31.2 4.4 2.1 -3.7 -4.4 Lagergebäude
Office buildings Bureaux 883 -17.8 7.6 -1.3 3.9 1.6 -4.0 -4.6 Bürogebäude
Commercial buildings Commerces 971 45.8 -10.7 10.8 5.9 3.3 -2.4 -3.4 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 241 6.9 -15.0 -1.7 2.0 -2.5 -1.5 -2.0 Landwirtschaftsgebäude
Miscellaneous Autres 848 5.1 -19.2 -1.1 4.7 3.3 -0.6 0.6 Sonstiges
Total 5 085 1.8 6.6 -1.4 4.5 2.8 -1.7 -2.0 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 1.64256 CHF
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Country/Pays/Land: Switzerland Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 2 654 1.4 -10.2 -3.6 3.0 15.0 1.0 -1.0 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 2 281 7.2 1.2 -10.9 4.3 5.2 -6.2 -5.1 Bahnanlagen
Other transport Autres réseaux 193 -7.7 -18.6 57.9 4.2 7.0 -1.7 -4.3 Übrige Verkehrsinfrastruktur
TOTAL 5 128 3.6 -5.4 -5.6 3.6 10.3 -2.1 -2.8
Telecommunications Télécommunications 177 -18.5 -7.2 46.3 -25.0 6.0 8.0 -4.0 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 1 054 -7.0 3.9 0.5 2.6 -1.5 -1.0 2.4 Energie- und Wasserversorgung
Other Autres 804 -12.6 -12.0 27.6 2.9 -0.1 -0.3 1.5 Sonstiges
Total 7 163 -0.3 -4.8 -0.7 2.4 7.3 -1.5 -1.7
1) At 2007 prices, excluding taxes. 1 euro = 1.64256 CHF
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Country/Pays/Land: Switzerland Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption 2) Consommation privée 180.2 1.6 1.8 1.5 2.0 2.4 2.2 2.2 Privater Verbrauch
Public consumption Consommation publique 33.5 0.8 0.5 -1.4 0.7 0.6 1.0 1.7 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 66.9 4.5 3.8 4.1 3.5 2.3 1.5 2.6
of which construction 29.8 3.9 3.5 -1.4 1.3 1.6 0.5 0.6
Stocks (contribution as % of GDP) 3) Variations de stocks - 1.0 -0.2 -0.2 -0.3 -1.7 0.3 0.3 0.2 Vorratsveränderung
Exports Exportations 174.0 7.9 7.3 9.9 9.8 3.6 4.0 4.9 Exporte
Imports Importations 145.4 7.3 6.7 6.9 5.2 4.7 4.9 6.0 Importe
GDP PIB 308.2 2.5 2.4 3.2 3.1 2.1 2.0 2.1 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 1.64256 CHF 2) Including final consumption expenditure of NPISH's, ISBLM inclus, einschließlich POoE 3) Including net aquisitions of valuables, net aquisitions d'objets de valeur inclus, inkl. Nettozugang an Wertsachen
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Kelly Forrest [email protected]
65th EUROCONSTRUCT Conference Rome, June 2008
UNITED KINGDOM
1 Summary
2007’s strong economic growth is unlikely to continue in 2008. The impact of the US sub-prime lending crisis will ripple far from its source. The impact of global financial institutions necessarily writing off billions of dollars worth of assets has to be felt. Jobs are likely to be shed and confidence hit. The risky lending practises of a few have had consequences for many and it may take quite some time for confidence to be restored in wholesale money markets. With banks reluctant to lend to each other, and increasingly so to households, credit availability and accessibility as we know it may be no more.
In light of the current troubles UK construction output is forecast to decline marginally in 2008 as the moribund housing market constrains new residential construction and weaker and uncertain economic prospects dampens non-residential work, particularly in the offices and commercial sub-sectors. Civil engineering is the bright spot on an otherwise gloomy horizon and will help return the industry to growth in 2009.
Financial turbulence continues to play havoc with the UK residential property market nearly a year after the sub-prime lending problems in the US first surfaced. Lenders’ willingness to lend has been severely dented by the troubles and some lenders are refusing to accept new mortgage clients. In these uncertain times several of the UK’s largest housebuilders have issued profit warnings, cut jobs and scaled back starts estimates for the current year. They are reluctant to embark on risky new developments when buyer activity is slowing rapidly. New residential output is forecast to fall sharply this year and next.
Prospects are better for residential renovation, although growth in output will be moderate at best. Weaker growth in consumer spending implies investment in home improvements will lessen. However, the current problems in the housing market may deter some from moving altogether and instead encourage expansion or redevelopment of their existing home.
New non-residential construction has so far avoided a decline but its future prospects have been seriously dampened. With offices markets in turmoil and a more fianancially cautious consumer sector, private non-residential construction will encounter challenging conditions in the near term. For the public sector it is a different story. A committment to deliver facilities for the Olympic Games by 2012 and the early waves of the government’s ambitious Building Schools for the Future programme means that public sector construction work will go some way towards compensating for a contraction in private activity.
The majority of non-residential renovation work is undertaken by the private sector. Non-residential renovation output was worth €33.9bn in 2007, 3 per cent higher than in 2007. The outlook is for further modest growth in renovation activity as work accelerates in the private sector and postponed public investment in public facilities is eventually undertaken.
New civil engineering construction has strong prospects over the forecast period, and is to a large extent sheltered from the impact of abnormally risk averse credit markets. Large rail projects, a few new power stations, and significant ports expansion are among the high value projects scheduled to start in the next year or two. Additionally ongoing work on the water companies Asset Management Programme 4 (AMP4) improvements and renewal schedules will provide a steady steam of work. By 2010 output is forecast to be 30 per cent higher than in 2007.
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DBERR statistics include civil engineering renovation expenditure within non-residential renovation spending and therefore official civil engineering renovation statistics do not exist. Thus figures quoted in this section are best estimates based on the reported spending plans of the major players in the market, including the Highways Agency and Network Rail. The main drivers of the civil engineering renovation sector are believed to be the roads and rail sub-sectors.
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2 Macro-economic Outlook
The rate of economic growth continued to strengthen in 2007. GDP rose by 3.1 per cent, the fastest rate since 2004, and significantly stronger than 2005’s relatively weak outturn of 1.8 per cent. Such a healthy expansion was impressive considering that uncertainty caused by the credit crisis hit global financial markets hard in the second half of the year. Financial and business services gave a robust performance, in spite of the tougher environment, and was once again fundamental to economic growth. The sector expanded by 8 per cent in 2007, posting its fourth consecutive year of real growth in excess of 5 per cent.
For years consumers have been eager to spend, and when income growth was insufficient to satisfy their appetite, the lure of low interest rates and lax borrowing criteria made credit too attractive for many to resist. In spite of the credit market gloom in the second half of the year, household final consumption continued to increase reasonably robustly in 2007. In real terms consumption rose by 3.1 per cent, significantly higher than growth of 1.3 per cent in disposable incomes.
CPI annual inflation, the Government’s target measure, was 2.5 per cent in February, up from 2.2 per cent in January. Rising gas and electricity prices exerted upward pressure. Surprisingly, the largest downward contribution came from food and non-alcoholic beverages.
With inflation moving away from the all important 2 per cent target, the Bank of England’s Monetary Policy Committee (MPC) had a difficult decision to make at its April meeting. With financial market disruption posing a significant downside risk to the strength of economic growth, the MPC ruled this threat was sufficiently pertinent to outweigh concerns about above-target inflation in the short term. The MPC voted to reduce interested by 0.25 percentage points to 5 per cent.
In the three months to January 2008 the unemployment rate marginally decreased to 5.3 per cent. The rate declined gradually throughout 2007 from a peak of 5.7 per cent in January. Prospects remain reasonably strong for employment and little change is expected in the unemployment rate this year.
2007’s strong growth is unlikely to continue in 2008. The impact of the US sub-prime lending crisis will ripple far from its source. The impact of global financial institutions necessarily writing off billions of dollars worth of assets has to be felt. Jobs are likely to be shed and confidence hit. The risky lending practises of a few have had consequences for many and it may take quite some time for confidence to be restored in wholesale money markets. With banks reluctant to lend to each other, and increasingly so to households, credit availability and accessibility as we know it may be no more.
Key macroeconomic indicators in the United Kingdom to 2010 (Annual percentage change) 2004 2005 2006 2007 2008 2009 2010 GDP 3.3 1.8 2.9 3.1 1.5 1.5 2.3 Household consumption 3.5 1.5 1.9 3.1 1.4 1.3 1.9 Government consumption 3.2 2.7 1.9 1.9 1.5 1.1 1.0 Unemployment rate 1.4 1.5 1.7 1.6 1.6 1.7 1.9 Inflation 1.3 2.0 2.3 2.3 2.6 1.8 2.0 Source: Office for National Statistics, Experian Business Strategies.
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The scale of bad debt provision to date has been substantial, but there are fears that worse could be yet to come and economic growth is expected to be severely constrained in the short term as a result. Expansion of 1.5 per cent in GDP is forecast for both 2008 and 2009, a level not seen since the recession of the early 1990s. Over the medium term prospects are improved. GB’s relative competitiveness should drive an upswing in exports and domestic demand should pick up cautiously. GDP growth is forecast to strengthen to 2.3 per cent in 2010.
Consumer confidence, and hence, household final consumption, is expected to be a further casualty of the troubled credit markets. Annual growth in household final consumption regularly exceeded annual increases in disposable incomes over the past five years, but the sharp rise in lenders’ aversion to risk should end this. Housing equity withdrawal, another popular source of credit during the recent housing market boom, should also prove more difficult to come by in the current climate, with the housing market teetering on the edge of a potential crash in the eyes of newly prudent lenders.
A forecast moderation in the rate of growth in household final consumption is predicated on supply constraints rather than a contraction in demand per se. The compensatory upswing in unsecured lending in the second half of the year, when the flow of secured lending was abruptly restricted, suggests consumers are reluctance to willingly curb their consumption habits. More modest growth in household consumption is forecast to marginally outstrip income growth once more in 2008 before the relativity between the two is restored.
The future direction of the housing market is a hotly debated topic. Pessimists suggest the worst crash since the early 1990s is on the horizon, but in the absence of a significant trigger, such a large increase in unemployment or a further hike in interest rates, a correction on that scale is difficult to envisage. True the market has been booming for much of this decade, prices have been rising at an unsustainable level and some have been guilty of lending irresponsibly. But interest rates are still low by historical standards and all things considered the UK economy is fundamentally stable. Prices in a couple of micro-markets within the wider market are at risk of a sharper correction but overall our forecasts suggest relatively modest falls in the short-term, followed by a much longer period of moderate annual growth.
Inflation is unlikely to be reined into line with the government’s target this year. Rising energy costs will continue to exert upward pressure on prices, but in addition the higher cost of basic foodstuffs will be felt by consumers in their pockets.
Balancing the need to stimulate the economy without adding to inflationary pressures will prove challenging in 2008. A further cut in interest rates is likely before the year ends to 4.75 per cent. In 2009 and 2010 rates are expected to stabilise at 4.5 per cent.
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3 Housing Market
Financial turbulence continues to play havoc with the UK residential property market nearly a year after the sub-prime lending problems in the US first surfaced. Lenders’ willingness to lend has been severely dented by the troubles and offers of six times borrowers salaries are no more. In fact their aversion to risk is now so strong that some lenders are refusing to accept new mortgage clients. The upshot of this reaction is uncertainty. Some wanting to move home are choosing to wait and see how far prices fall before taking the plunge. Others are constrained by their lack of ability to refinance in the current climate, or in the case of first time buyers to secure finance at all given that many lenders now require a sizeable deposit. In addition, the buy-to-let market has taken a hit. Ultimately this has ramifications for housebuilders. Several have issued profit warnings, cut jobs and scaled back starts estimates for the current year. They are reluctant to embark on risky new developments when buyer activity is slowing rapidly.
Prospects are better for residential renovation, although growth in output will be moderate at best. Weaker growth in consumer spending implies investment in home improvements will lessen. However, the current problems in the housing market may deter some from moving altogether and instead encourage expansion or redevelopment of their existing home.
Residential new work
First half on first half of 2007, private housing construction output continued to record real growth. Even then, however, slower housing market conditions were widely anticipated as high price-to- income ratios priced a growing number of first time buyers out of the market and more subdued prospects for capital gains dampened demand from buy-to-let investors. In the second half of 2007, private housing output contracted by 3 per cent and for 2007 as a whole was marginally down on 2006.
Orders provide greater insight into the impact of financial market turmoil on house builders. In the first half of 2007 orders declined by 2 per cent, in line with a ‘soft-landing’ projection. The second half, however, saw orders plummet by 10 per cent. Over the year as a whole orders declined by 6 per cent to €11.5bn, in 2000 prices. Private housing orders continued to decline in the first quarer of 2008, and the weakest quarterly outturn since the fourth quarter of 2000 was recorded.
House price inflation has slowed sharply in recent months. The most timely indicators are the surveys of their new mortgage clients the Halifax and Nationwide conduct. In the first quarter of 2008 the Halifax reported that average house prices climbed by 1.2 per cent on the same quarter a year ago, with the Nationwide recording a marginally stronger annual increase of 2.2 per cent over the same period. More comprehensive is the government’s mix-adjusted house price index which, as it is based on data from the Land Registry, includes all property transactions and allows for variation in price movements across the housing mix. Currently the DCLG’s mix-adjusted house prise index is only available until the final quarter of 2007 when annual house price inflation was just shy of 10 per cent. Average house prices in the UK are around €260,000.
Approvals for secured lending have been down on a year ago for the past three quarters. In the final quarter of the year 242,000 approvals were granted, some 35 per cent lower than in the final quarter of 2006. The value of these approvals totalled €112.6bn, 20 per cent less than in the same quarter a year ago.
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Housing market conditions are likely to deteriorate in 2008. House prices are forecast to fall in 2008 and 2009, but in its totality, a decline of 5 per cent is very small given recent increases. A period of moderate annual growth in house prices is expected to follow modest falls in the short-term as average earnings rise and affordability pressures subside. First-time buyers once priced out of the market will begin to enter once more, but lenders will ensure it is in a controlled way.
New build rates are likely to be more severely affected than forecast falls in the market would suggest. Private housing output is predicted to fall by 10 per cent in 2008 and by a further 5 per cent in 2009. A return to growth is expected in 2010.
A minor fall in private housing output had no effect on public activity in 2007 despite closer delivery links between the sectors. Public housing output recorded double-digit growth for the second consecutive year, just enough to compensate for declining output in the private housebuilding sector. With exeptionally high house price-to-income ratios and expensive rents in the private sector the need for publicly funded options, both for rent and intermediate home ownership, is great.
Public housing orders growth slowed to 6 per cent in 2007. However, this followed a 30 per cent step change in 2006. Orders have been rising for the past five years, but the rate of growth in the four- quarter moving total slowed sharply in the second half of 2007.
The Housing Corporation’s National Affordable Housing Programme will invest €12.3bn over the 2008- 11 period in England. Its previous investment programme of €5.7bn for 2006-08 is funding 84,000 homes; 49,000 of which are for affordable rent, and 35,000 are for sale through the Government’s HomeBuy initiatives.
Housing Corporation grant is only one source of funding available to Housing Associations. Significant sums of private finance are also used to fund public house building. Housing Associations’ delivery plans may, therefore, be affected by bank’s stricter lending criteria. Over €45.3bn of private finance has already been secured by Associations, with an extra €17.5bn hoped to be acquired over the next three years, topping the €12.3bn of Housing Corporation funding that is available over the same period. With the cash flow problems at Ujima Housing Association still fresh in lenders’ minds, securing finance privately will be no easy task for Associations. Their asset values stand to take a hit if house prices fall.
Section 106 planning obligations usually ensure that private developments include a social and/or affordable housing element. With demand in the private market easing, the social housing requirement, which in some regions can extend to 50 per cent of a residential build, may offer developers the security they need to keep on building in uncertain times. This holds true in regions such as Greater London, where public and private units sit beside each other with reasonable ease. Elsewhere in the country the affordable housing obligations quite possibly deter private buyers. Developers in these regions are less likely to view affordable housing as a security net.
Anecdotally, there is also potential for initially private units at the planning stage, to be adopted as social if developers fear they may struggle to sell private units. That is of course if such a move is consistent with a Housing Association’s objectives.
North of the border in Scotland, a new shared equity scheme has been announced to help more first time buyers realise their home ownership aspirations. LIFT – Low-cost Initiative for First Time Buyers
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– may replace Homestake, the current low cost home ownership scheme if consultation proves favourable.
Affordable housing, incorporating shared-ownership schemes and social rent, is now often built by the private sector as part of the planning obligations they are required to fulfil. If the activity of private house builders were to slow in line with market conditions, this could have a serious impact on the success of this source of affordable housing supply. House builders are accountable to their shareholders and maximising shareholder value is their priority, so helping the government achieve its somewhat ambitious targets is at best of secondary importance to them.
We continue to forecast robust output growth for the public housing sector. Output is expected to rise robustly throughout the forecast period as heightened Housing Corporation funding really starts to make a difference. However, linkages between the housing sectors makes the public one vulnerable to a slowdown in private housebuilding. While a slowdown is likely in the private sector it is unlikely to be sufficiently sharp to impact on the public one this time.
A further downside risk comes from the turmoil in the financial markets. If this impairs Housing Association’s ability to raise finance privately, development plans could be in jeopardy.
Residential renovation
Residential renovation output declined year-on-year between 2005 and 2007, rather surprising given the strength of consumer confidence and a government commitment to renovate the country’s stock of social housing. In reality consumers were reluctant to increase spend on their homes and the government’s Decent Homes initiative has had an underwhelming impact. Residential renovation output totalled €49.3bn in 2007 and was marginally down on 2006.
Public housing renovation output declined by 3 per cent in 2007 and accounted for 35 per cent of total residential renovation. Output in this sector has fallen for three consecutive years, somewhat counter-intuitively given the government’s Decent Homes initiative, to bring the social housing stock up to a determined standard, should be in full swing as the 2010 deadline approaches.
By 2010 the DCLG expects 95 per cent of all social housing to meet a decent standard. To be classified as ‘decent’ a home should be warm, weatherproof and have reasonably modern facilities. Extended deadlines beyond 2010 are being negotiated with some social landlords where it is necessary to achieve better value for money or higher standards of housing.
The Welsh Housing Quality Standard has similar objectives to the English Decent Homes initiative. The Standard states that homes should be in a good state of repair, be adequately heated, fuel efficient and well insulated, and contain up-to-date kitchens and bathrooms. Social landlords in Wales are required to comply with the Standard by 2012.
An additional 69,005 social homes were brought up to the Decent Homes Standard in the 2007/08 financial year. So far the government claims to have reduced the number of non-decent social homes by 1m and increased the proportion of private sector vulnerable households in decent homes to 65 per cent. By 2010 local authorities and housing associations will have spent over €58.5bn on housing.
Work on the Scottish Executive’s Scottish Housing Quality Standard, which was announced in 2004, is still to reach its peak. Local authorities and other Registered Social Landlords (RSLs) have until 2015
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to meet the Standard but according to the Executive there is much to do. The 2004/05 Scottish House Condition Survey suggests that a significant proportion of the country’s housing stock falls short of the minimum standard. Approximately 69 per cent of dwellings failed the SHQS in 2004/05, with the majority failing on the energy efficiency criterion. This is an improvement of the figures of 71 per cent in 2003/04 and 77 per cent in 2002.
Declining output for the past three years in the public housing renovation sector is surprising given that such large sums are being invested in improving the public housing stock in England, Scotland and Wales. This indicates that some English local authorities still have a lot to do if they are to stand any hope of meeting the 2010 Decent Homes deadline. Output is forecast to increase by 3 per cent this year and by a further 5 per cent in 2009, before stabilising in 2010.
Two years of declining output came to an end in 2007 in the private housing renovation sector. The recovery was far from spectacular, with output climbing by just 1 per cent. However, at least it marked a turnaround after two years of decline. Relative to new work activity, the renovation sector as a whole has generally been subdued in recent years. Private housing renovation output has shown real growth of 14 per cent since 2000 but output in new work sectors increased by an average of 22 per cent over the same period.
While much of the funding for the government’s Decent Homes initiative will be sourced publicly it does have a PFI element and PFI delivery should have an increasing role to play as the 2010 deadline for the scheme nears.
Draft guidance to help local authorities exercise new powers and carry out duties to take action on poor quality private housing was recently published for consultation by the Scottish Government. The measures make owners’ responsibility for repair and maintenance clear and introduce new powers for local authorities to provide a wider range of assistance to owners, such as information and advice, as well as loans and grants where needed.
With tougher conditions ahead for consumers, non-essential renovation may be postponed or scaled back. Considering that output declined in 2005 and 2006, we do not expect the effect to be large, but a further 2 per cent fall is forecast for this year. Modest increases of 1 per cent and 2 per cent are forecast for 2009 and 2010. The risks, however, are firmly on the downside.
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4 Non-residential Market
Since the Vienna report, economic conditions in the UK have deteriorated. Non-residential construction has so far avoided a decline but its future prospects have been seriously dented. With offices markets in turmoil and a more fianancially cautious consumer sector, private non-residential construction will face challenging conditions in the near term. For the public sector it is a different story. A committment to deliver facilities for the Olympic Games by 2012 and the early waves of the government’s ambitious Building Schools for the Future programme means that public sector construction work will go some way towards compensating for a contraction in private activity.
In 2007 total non-residential construction was worth €101.1bn, 4.4 per cent higher than in 2006. New work output growth of 5.1 per cent was marginally stronger than a 3 per cent expansion in renovation output, but considering that new work accounts for 57 per cent of total it’s robustness helped push the sector’s overall growth rate upwards.
Non-residential new work
The credit crunch is likely to have a double impact on private non-residential construction. Tighter credit markets may threaten some schemes and lower consumer confidence, and moreover spending growth, may encourage retailers and entertainment firms to rethink, or postpone, planned investment. A €730m retail scheme in Portsmouth recently returned to the drawing board to be scaled back in light of recent developments. Schemes currently at the planning stage are most at risk.
Education was the non-residential sector’s third largest component in 2007, accounting for 20 per cent of total new non-residential output. Worth €13.4bn during the year, however, education output was down by around 7.5 per cent on the previous year. Orders suggest better prospects are on the horizon for education construction. A very strong first quarter in 2008 followed 10 per cent growth in orders in 2007. In the first quarter they were up by 28 per cent year-on-year.
The government’s Building Schools for the Future scheme is a large-scale capital investment programme that plans to transform every secondary school in England. However, the programme has suffered early teething problems and recently, the Department for Children, Schools and Families (DCSF) announced it intends to comprehensively review the programme and to issue a revised timetable early next year. Schools to be prioritised from 2009 include those that can be located on the same site as other community facilities, including healthcare, schools in areas of sustainable development and schools in areas of major social regeneration. DCSF intervention comes after BSF attracted heavy criticism for slow delivery, with only 12 out of 100 projects originally scheduled completed by the end of the financial year.
Output in the health sub-sector recovered in 2007 after two years of decline. Health output rose by 2.2 per cent to €5.7bn in 2007. Orders levels in the sub-sector were very buoyant in 2006 when the UK’s largest health Private Finance Initiative to redevelop St Barts and the Royal London Hospital in the capital was let. A decline followed in 2007 but they recovered strongly in the first quarter of 2008. The size of individual contracts in this sector means its orders series is particularly prone to fluctuation.
In the Comprehensive Spending Review (CSR) the government announced that the NHS’s budget will rise by around 4 per cent per annum in real terms, a lower rate of increase compared to that lavished on the sector in the previous CSR in 2004. Much of this increase will be used to fund the day-to-day running of the Service, rather than be invested in capital.
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The trend towards the PFI delivery of new hospital facilities is likely to continue but the pipeline has been squeezed. A high value of schemes, yet to reach the financial close, included in the August 2006 update do not feature on the November 2007 one. The €1.1bn project for Leicester Hospitals NHS Trust, which has been omitted from the list of projects, is a good example. These schemes amount to €2.3bn. Moreover, the reported value of some pre-financial close schemes fell considerably. Particularly noteworthy is the fall from €1.3m to €366m for the East and North Hertfordshire NHS Trust PFI scheme and the €402m reduction in the value of the Royal Liverpool and Broadgreen University Hospitals NHS Trust. Only one new scheme, a €409m project for the West Hertfordshire Hospitals NHS Trust has been announced in the interim. Between November 2007 and March 2008 the €877m project for the Leeds Teaching Hospitals NHS Trust was scrapped.
In the past two years the industrial and storage sub-sectors performed similarly. Prior to 2006, however, storage was the main driver of industrial construction growth. Several factors collectively helped including the growing popularity of internet shopping, several retailers opting to consolidate their distribution networks, not to mention healthy growth in international trade.
King Sturge’s latest UK Industrial & Distribution Floorspace Today reports that across Great Britain available industrial floorspace increased marginally between June 2007 and December 2007. Although this represents the fifth consecutive six-month period of rising available floorspace, the rise was more modest than the 4.5 per cent increase recorded for the first half of 2007. Available newly constructed floorspace increased by 7.4 per cent in the six months to December 2007. Speculative development under construction across Great Britain also decreased since their last survey, with 14 per cent less floorspace under development than six months ago.
New office building output recorded a double-digit growth for the second consecutive year in 2007. Offices output rose by 13 per cent, both in 2006 and 2007 to reach €17.1bn, a level just short of new commercial output, the single largest new non-residential sector. New work orders climbed strongly in 2006 and 2007 but slumped in the first quarter of 2008. Quarter-on-quarter they were down by 7 per cent but year-on-year they trailed by 14 per cent.
Jobs will almost certainly be shed in the city’s financial institutions this year. Occupiers are postponing plans to relocate and attracting pre-lets is difficult. At present there is little appetite for funding speculative development, and indeed, little will among developers to embark on such risky ventures. In short, offices schemes in the planning stages without an agreed finance package or a significant proportion of pre-lets are in jeopardy.
Property agents report that conditions are deteriorating in the capital’s offices markets. CBRE reports that the occupational market started to show evidence of the impact of the sub-prime crisis in the final quarter of 2007. Yields are rising in central London and with rents holding up reasonably well, this suggests that capital values are falling.
The commercial sector posted a strong outturn in 2007. Output ended the year 7.5 per cent higher than it started it at €17.5bn. New commercial orders rose by 12 per cent in 2007 but as with the offices sub-sector, they were considerably down in the first quarter of 2008. Quarter-on-quarter they were down by 12 per cent, year-on-year the fall was slightly steeper at 15 per cent.
The latest survey from the Royal Institute of Chartered Surveyors (RICS) isn’t an optimistic read. Surveyors reported that business demand for commercial property fell in the fourth quarter of 2007. The number of surveyors reporting a decline in office demand moved into negative territory for the first
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On a brighter note the government will invest an estimated €5.3bn in constructing the Olympic and Paralympic Games venues over the forecast period. Further funding will also be awarded in the next spending review. Of course preparation for the Games spans well beyond the actual sporting venues themselves. In addition there will be indirectly related private commercial leisure work which the Games will generate; hoteliers and restaurateurs spring to mind. Renovation will certainly increase, but whether a two week event will be enough drive a new work legacy remains to be seen.
Even before construction work on the main venues gets underway, budgeted costs are already looking conservative. The cost of the four permanent venues on the Olympic Park site has topped the €1.4bn mark. At the outset the cost of delivering the aquatics centre, for example, was estimated at €110m. Recently the contract to deliver this facility was let for a value of more than €440m. The original bid document contained some outrageously low cost estimates and while more realistic costs have now been agreed, there will be little room for further escalation.
The miscellaneous sub-sector covers a heterogeneous selection of public and private buildings ranging from libraries and places of worship to police stations, courts and defence establishments. Miscellaneous output was worth around €4bn in 2007 some 25 per cent higher than in 2006.
The 2004 Spending Review announced that the Ministry of Defence’s capital budget is set to rise by 9 per cent in 2007/08, following a 10 per cent increase in 2006/07. In nominal terms, a marginal 1 per cent uplift is forecast for 2008/09 but in real terms this suggests a decline. Over the period as a whole the nominal budget will rise by 21 per cent.
Defence Estates work continues on the €1.6bn Project SLAM programme, but as this programme spans 10 years its effect on output in any particular year is expected to be relatively small and can be funded via the PFI route.
Non-residential renovation
The majority of non-residential renovation work is undertaken by the private sector. Non-residential renovation output was worth €33.9bn in 2007, 3 per cent higher than in 2007. The outlook is for further modest growth in renovation activity as work accelerates in the private sector and postponed public investment in public facilities is eventually undertaken.
Public non-residential renovation output did not pick up in the first three quarters of 2007 from the low level reported in the final quarter of 2006. Thus in the first nine months of last year, output totalled €6.4bn in constant 2000 prices, a 13 per cent fall on the same period of 2006. For 2007 as a whole, output is likely to have declined significantly, for the second consecutive year from its most recent peak in 2006.
Figures published by the Department of Health in November suggest that the budgetary problems of the NHS have largely passed at present, with a forecast surplus for the 2007/08 financial year of €2.6bn, compared with an €800m deficit in 2005/06. This suggests that NHS Trusts have been keeping a very tight rein on expenditure, which may it part go to explain the overall fall in activity in the sector in 2007. Looking forward, this level of surplus may lead to some easing of constraints going
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forward and the likelihood that some routine and cyclical maintenance which had been postponed will now be re-scheduled. This argument is further reinforced by the fact that it is only possible to postpone this type of work for so long before it becomes essential.
According to the latest schools funding settlement, total revenue schools funding should increase to €56bn in 2008/09, €58bn in 2009/10, and €61bn in 2010/11, representing an average year-on-year growth of 2 per cent in real terms. However, in terms of construction activity, with the focus so strong on new build and refurbishment through the Building Schools for the Future programme, it is likely that spending on renovation will at best remain flat.
The level of private non-residential renovation output was remarkably stable over the three years to 2006 and since 2002 had remained within the €16bn-€18bn range in 2000 prices, leading to the possibility that the sector had reached a natural ‘ceiling’ in terms of activity. Repair and maintenance on non-residential buildings, in particular shops and offices, are the main drivers of this sector.
Retailers and the big corporates are currently suffering from consumer retrenchment in the case of the former, and falls in asset values in the case of the latter. For retailers, the less buoyant outlook for the economy as a whole and for consumer expenditure in particular may mean that they cut back on expansion plans and major refurbishments, but in a more competitive environment, they may need to boost repair and maintenance expenditure to entice customers through their doors to retain market share.
In contrast, the evidence is that corporates are still very much focussed on the new build market as far as offices are concerned, with the announcement that the Shard of Glass as now secured funding despite the tighter credit regime now in place. Thus, their inclination may be to squeeze routine and cyclical maintenance expenditure in the short term to help enhance balance sheets.
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5 Civil Engineering Market
The civil engineering sector is set to be the industry’s brightest to 2010. A robust outlook for this year is based on expansion in the rail and harbours sub-sectors. Work will accelerate on the East London Line and the redevelopment of both Birmingham New Street and Reading stations should provide a boost to output. Beyond 2008 work should commence on upgrading the national grid and on several large coal-fired power stations. Strong real growth in output is forecast throughout the forecast period.
The large size of some infrastructure contracts means the sector’s orders series is particularly prone to sharp fluctuation. Output streams from these contracts are of course much smoother.
Total civil engineering activity by sector
Roads remained civil engineering’s second largest sub-sector in 2007 despite losing a further 6 per cent of its value. Individual roads projects can have a large construction value and hence roads orders statistics are prone to sizeable fluctuations as these schemes are reported. New work roads orders climbed by 43 per cent in 2007 to €2.4bn, and rose by a further 10 per cent in the first quarter of 2008. New orders statistics are only available for new work activity, renovation orders are not available.
Such a robust rise in roads orders last year followed a very weak 2006. The Highways Agency’s 2008- 2009 Business Plan states that a raft of schemes that were previously being considered as part of the Targeted Programme of Improvements for conventional widening, will now examine hard shoulder running solutions as an alternative. The Plan indicates that work is likely to complete on several schemes currently under construction in this financial year but that relatively few new schemes should progress to the construction stage.
Railways output recovered reasonably strongly in 2007 after four consecutive years of decline. An 8.8 per cent increase in 2007 raised output to €4bn, in current prices. New work orders in the sub-sector rose by 30 per cent in 2007 and continued on an upward path in the first quarter of 2008. Orders were 21 per cent higher in the first quarter of 2007 than in the first quarter of 2006.
Contracts totalling €1.5bn will be available this year on the €23.4bn Crossrail project. The largest is a project delivery partner responsible for the central tunnel section of the programme – which runs from Paddington in the West to Stratford and Custom House in the east – and the associated civils, systems and stations. Preliminary construction work should commence next year. In addition the €8.1bn Thameslink modernisation programme has parliamentary approval and the first phase of the scheme should be delivered in time for the Olympic Games.
‘Other transport’ comprises of work on airports and supporting infrastructure and harbours. Other transport output has been falling for two consecutive years. In 2007 the rate of decline slowed to just 1 per cent taking the sub-sector’s value to €2.5bn.
The contract to build the first two phases of the Heathrow East terminal has been awarded. Work should commence next year but early indications suggest the terminal is unlikely to be open in time for the 2012 Games, as was originally planned.
Final approval has been given for the €2.2bn Shellhaven project, although the harbours element of this scheme may only amount to €360m. Work is expected to start in 2009. Over the shorter term a 2008 start is likely for harbours schemes at Harwich, Felixstowe and Hull and work on these schemes
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should be sufficient to take up the slack from slowing activity on the gas storage terminals at Milford Haven and the Isle of Grain.
Relative to the other civil engineering sub-sectors telecommunications is very small. Worth an estimated €791m in 2007, telecommunications output was down by more than 30 per cent from its 2006 level.
Energy and water works output totalled €10.4bn in 2007, 2.2 per cent higher than in 2006. New work orders suggest that stronger prospects are on the horizon. In 2007 water orders climbed by 87 per cent to €1.4bn and sewerage ones rose by 57 per cent to €880m. The increase in electricity orders was subdued in comparison at 24 per cent. They climbed to €1.2bn. Orders in the gas sub-sector fared less well, declining by a little over 50 per cent.
The heavy rains in the summer of 2007 caused severe flooding to many parts of the Midlands and Yorkshire, and this has raised concerns about the ability of sewer systems to cope with such large volumes of water. In addition, the contamination of the Mythe Water Treatment Works, with the resultant loss of drinking water supplies, has increased the debate about the location and security of some treatment plants. Further investment may be necessary to strengthen defences.
In September 2007, Ofwat published its 2006/07 report on the financial performance of water and sewerage companies in England and Wales. In aggregate, gross capital investment by companies in England and Wales was €6.4bn compared to €5.1bn in 2005/06, both in 2006/07 prices. However, over the first two years of the current review period companies’ expenditure was over €1.4bn behind expectations with much of this underspend being accounted for by four companies. These firms have now increased their capital programmes.
Civil engineering renovation
DBERR statistics include civil engineering renovation expenditure within non-residential renovation spending and therefore official civil engineering renovation statistics do not exist. Thus figures quoted in this section are best estimates based on the reported spending plans of the major players in the market, including the Highways Agency and Network Rail. The main drivers of the civil engineering renovation sector are believed to be the roads and rail sub-sectors.
Little changed between Network Rail’s 2006 and 2007 Business Plans as far as maintenance of rail infrastructure is concerned. Maintenance output was estimated at €1.7bn in 2006/07 and is projected to fall to €1.5bn in 2008/09, a decline of nearly 12 per cent in real terms. Network Rail has now published its strategic investment plan for the five years from April 2009 to March 2014, which proposes a fall in maintenance expenditure from just under €8.6bn in the 2004-2009 period to just over €7bn. This suggests annual average expenditure of around €1.4bn, well down on the current level.
In the water and sewerage sub-sector, infrastructure renewals expenditure is increasing in the short term. Renewals work, is forecast to account for 15.3 per cent of total investment in 2007/08 rising to 18.8 per cent by 2009/10. However, water and sewerage companies have been under spending on the first two years of the AMP4, thus expenditure on renewals work may continue to rise to 2010 rather than peaking in the 2007/08 financial year as previously believed.
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In the roads sub-sector, local authority current expenditure on highways and transport has been rising in recent years, at least in current price terms, and the outturn for 2007/08 is expected to be €8.2bn, 5 per cent up on the previous financial year. However, local authorities are likely to be under increasing financial constraint going forward – for 2008/09 the average Council Tax increase is expected to be 4 per cent, and this level of increase will still entail some cuts in services. Thus local authority spending on roads may be under pressure going forward, and this is likely to be exacerbated in terms of public non-residential renovation output by the increasing use of PFI credits for highways maintenance.
Almost €1.9bn of other PFI highways maintenance and streetlighting contracts are in the pipeline comprising €880m to fund highways maintenance schemes, including proposals from Hounslow, Sheffield and York councils, and €1.4bn for streetlighting projects. These schemes have been delayed due to the government having to adopt new International Reporting Standards (IRSs). Under current financial rules, most PFI schemes are off balance sheet, however, under IRS, due to be adopted by Treasury in 2008, most PFI schemes would have to be shown on government departments’ balance sheets.
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APPENDIX – DEFINITIONS
Table 1 • Population: mid-year estimates of the number of people in the UK • Households: Department for Communities and Local Government (DCLG) estimates (historic data revised by the ODPM) • Unemployed and unemployment rate: final year estimates of the UK claimant count, not ILO rates • Inflation: Consumer Price Index (CPI) is now the UK government’s target measure – replacing the previous measure, the Retail Price Index Excluding Mortgage Repayments (RPIX)
Table 2 Construction output includes: • Official output data from the Office for National Statistics (formerly published by the Department of Business, Enterprise and Regulatory Reform), plus the following:- o estimates of professional services o construction by other sectors (e.g. retailers using own workforce) o DIY/undeclared construction.
Table 3 • Housing stock: DCLG’s end of year estimate
Table 4a • Education buildings: Public and private schools, colleges, and universities • Health: Hospitals (public, private and PFI) including medical schools, clinics, welfare centres, adult training centres and nursing homes • Industrial: Factories and buildings for the purpose of industrial production or processing, oil refineries, pipelines and terminals, concrete fixed leg oil production platforms (not rigs); private steel work, all new coal mine construction such as sinking shafts, tunnelling etc • Storage: Warehouses and wholesale depots • Offices: Office buildings, banks, local and central government offices, including town halls • Commercial: All buildings for retail distribution such as shops, department stores, retail markets etc, municipal shopping developments, theatres, restaurants, swimming baths, caravan sites at holiday resorts, buildings at sports grounds, stadiums, racecourses, public houses and youth hostels • Agricultural: All buildings and work on farms, horticultural establishments • Miscellaneous: All work not clearly covered by any other heading, such as fire stations, police stations, prisons, civil defence work, council depots, museums, libraries and churches
Table 4b • Other transport: air terminals, runways, hangars, reception halls, radar installations and all works and buildings directly connected with harbours, wharves, docks, jetties, canals, waterways, sea walls, embankments and water defences
Table 5 • There has been some re-estimation of historic data by the Office of National Statistics (ONS)
Extra • Sterling/Euro exchange rate applied in all tables is the annual average rate for 2007 as quoted by the Bank of England
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Country/Pays/Land: United Kingdom Table 1
EUROCONSTRUCT
Main demographic and economic indicators Principaux indicateurs démographiques et économiques Wichtige demographische und ökonomische Indikatoren
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Population ('000s) Population 59 911 60 288 60 646 61 040 61 477 61 923 62 374 Bevölkerung
Households ('000s) Ménages 24 556 24 818 25 080 25 333 25 586 25 839 26 092 Haushalte
Unemployed ('000s) Chômeurs 853 862 945 863 819 981 1 135 Arbeitslose
Unemployment rate (%) Taux de chômage 2.7 2.7 2.9 2.8 2.6 3.0 3.5 Arbeitslosenquote
Change of GDP Variation du PIB 3.3 1.8 2.9 3.0 1.8 1.5 2.2 Veränderung des BIP (% change in real terms)
Consumer prices (% change) Prix à la consommation 1.3 2.1 2.3 2.3 2.7 2.5 2.8 Verbraucherpreise
Construction prices (% change) 1) Prix de la construction 7.0 5.1 3.2 4.7 5.8 3.5 2.5 Baupreise
Short term interest rate 2) Taux d' intérêt à court terme 4.4 4.7 4.6 5.5 4.8 4.5 4.5 Kurzfristiger Zinssatz
Long term interest rate 3) Taux d' intérêt à long terme 4.6 4.6 4.8 5.6 4.9 4.5 4.6 Langfristiger Zinssatz
1) Refers to new construction only 2) 3-month interbank rate (or equivalent) 3) 10-year government bonds (or equivalent)
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Country/Pays/Land: United Kingdom Table 2
EUROCONSTRUCT
Construction by type Production par type d'ouvrage Bauproduktion nach Sparten
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Residential construction New 41 273 13.8 2.5 4.4 2.0 -7.4 -2.0 3.8
Logement Renovation 49 265 3.6 -2.5 -3.1 -0.7 -0.2 2.4 1.3
Wohnungsbau Total 90 538 7.6 -0.4 0.1 0.5 -3.5 0.5 2.4
Non-residential construction New 67 264 8.1 -1.6 7.5 5.1 -0.1 -1.0 -1.2
Bâtiments non résidentiels Renovation 33 871 -3.7 1.6 -2.0 3.0 1.5 1.8 2.0
übriger Hochbau Total 101 135 3.6 -0.5 4.1 4.4 0.4 -0.1 -0.1
Building New 108 537 10.2 0.0 6.3 3.9 -2.9 -1.4 0.6
Bâtiment Renovation 83 136 0.7 -0.9 -2.7 0.8 0.5 2.2 1.6
Hochbau Total 191 673 5.6 -0.4 2.1 2.5 -1.4 0.2 1.0
Civil engineering New 14 111 -13.1 -8.9 -7.5 1.1 10.3 11.8 5.6
Génie civil Renovation 10 196 -3.8 3.5 -4.7 -3.9 0.8 1.4 2.0
Tiefbau Total 24 307 -9.7 -4.0 -6.3 -1.1 6.3 7.7 4.3
TOTAL CONSTRUCTION OUTPUT 215 980 3.3 -0.9 1.1 2.1 -0.5 1.1 1.5
2007 Forecasts Outlook mill. tons 2004 2005 2006 2007 2008 2009 2010
Domestic cement consumption Consommation intérieure de ciment 11.40 1.9 -1.4 1.5 1.0 0.0 -1.0 0.5 Inländischer Zementverbrauch
1) At 2007 prices, excluding taxes. 1 euro = 0.684 GBP
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Country/Pays/Land: United Kingdom Table 3
EUROCONSTRUCT
Residential construction Construction de logements Wohnbau
Thousands dwellings
Forecast Outlook
2004 2005 2006 2007 2008 2009 2010
Building permits 1+2 family dwellings Logements autorisés Individuel Baugenehmigungen Familienhäuser
Flats Collectif Mehrfamilienhäuser
TOTAL 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Housing starts 1+2 family dwellings Logements commencés Individuel 140.0 124.0 116.0 110.0 104.0 103.0 107.0 Baubeginne Familienhäuser
Flats Collectif 73.0 88.0 100.0 95.0 91.0 92.0 98.0 Mehrfamilienhäuser
TOTAL 213.0 212.0 216.0 205.0 195.0 195.0 205.0
Housing completions 1+2 family dwellings Logements terminés Individuel 123.0 112.0 103.0 119.0 103.0 102.0 105.0 Baufertigstellungen Familienhäuser
Flats Collectif 65.0 80.0 91.0 99.0 92.0 92.0 96.0 Mehrfamilienhäuser
TOTAL 188.0 192.0 194.0 218.0 195.0 194.0 201.0
Housing stock Logements existants 25 301 25 497 25 710 26 022 26 317 26 611 26 912 Wohnungsbestand
thereof second homes dont résid. secondaires davon Zweitwohnungen
thereof vacancies dont inoccupé davon leerstehend
Home ownership rate 1) Taux de propriétaires occupants 70.2 70.5 70.7 70.8 70.9 71.1 71.2 Wohnungseigentumsquote
1) Cf. Appendix to the individual country report
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Country/Pays/Land: United Kingdom Table 4a
EUROCONSTRUCT
New non-residential construction (public and private) Construction neuve non résidentielle (publique et privée) Neuer Nichtwohnbau (öffentlich und privat)
Volume % change in real terms 1) m2 mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Buildings for education Bâtiments de l'éducation et de la recherche 13 435 10.9 2.7 14.1 -7.5 6.2 9.2 3.5 Gebäude des Bildungswesens
Buildings for health Bâtiments de santé 5 701 37.6 -14.8 -5.9 2.2 3.6 -1.0 -0.9 Gebäude des Gesundheitswesens
Industrial buildings Bâtiments industriels 4 863 3.6 -8.3 10.6 2.4 -9.8 -3.2 -2.1 Industriegebäude
Storage buildings Bâtiments de stockage 4 364 20.1 24.6 10.4 3.8 -6.0 -3.0 2.0 Lagergebäude
Office buildings Bureaux 17 085 -3.8 6.4 12.6 13.0 -0.5 -9.5 -8.9 Bürogebäude
Commercial buildings Commerces 17 465 8.4 -4.9 0.8 7.5 -2.4 -1.0 0.4 Geschäftsgebäude
Agricultural buildings Bâtiments agricoles 483 -5.9 -10.2 12.9 2.6 -1.5 0.2 0.1 Landwirtschaftsgebäude
Miscellaneous Autres 3 868 -1.1 -16.9 10.5 25.3 4.6 2.9 1.2 Sonstiges
Total 67 264 8.1 -1.6 7.5 5.1 -0.1 -1.0 -1.2 Insgesamt
1) At 2007 prices, excluding taxes. 1 euro = 0.684 GBP
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Country/Pays/Land: United Kingdom Table 4b
EUROCONSTRUCT
Total civil engineering Ensemble du génie civil Tiefbau insgesamt
Volume % change in real terms 1) mill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Transport infrastructure Roads Infrastructures de transport Réseau routier 6 599 -9.0 -10.8 -10.9 -5.9 1.2 5.9 3.6 Verkehrsinfrastruktur Straßen
Railways Voies ferrées 4 049 -15.4 -15.3 -1.5 8.8 15.7 5.9 8.6 Bahnanlagen
Other transport Autres réseaux 2 463 -14.7 11.3 -11.0 -0.5 23.7 17.8 3.5 Übrige Verkehrsinfrastruktur
TOTAL 13 111 -11.8 -8.6 -8.5 -0.7 9.9 8.4 5.2
Telecommunications Télécommunications 791 -14.0 14.1 -19.6 -32.1 -3.6 25.2 18.4 Telekommunikation
Energy and water works Réseaux d'énergie et d'eau 10 404 -5.6 0.7 -1.4 2.2 2.6 5.4 1.8 Energie- und Wasserversorgung
Other Autres Sonstiges
Total 24 306 -9.7 -4.0 -6.3 -1.0 6.3 7.7 4.3
1) At 2007 prices, excluding taxes. 1 euro = 0.684 GBP
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Country/Pays/Land: United Kingdom Table 5
EUROCONSTRUCT
Gross domestic product Produit intérieur brut Bruttoinlandprodukt
Volume % change in real terms 1) bill. euro Forecast Outlook
2007 2004 2005 2006 2007 2008 2009 2010
Privat consumption Consommation privée 1 225.6 3.5 1.5 1.9 3.0 1.6 1.4 2.1 Privater Verbrauch
Public consumption Consommation publique 438.9 3.2 2.7 1.7 1.9 0.8 1.1 1.0 Staatsverbrauch
Gross domestic fixed capital formation Formation brute de capital fixe Anlageinvestitionen
Total 335.4 5.9 1.5 7.6 6.2 1.6 1.4 2.5
of which construction
Stocks (contribution as % of GDP) Variations de stocks 96.6 Vorratsveränderung
Exports Exportations 525.3 4.9 8.2 10.7 -5.3 3.1 1.6 4.0 Exporte
Imports Importations 597.2 6.6 7.1 9.8 -2.9 2.3 0.4 3.2 Importe
GDP PIB 2 024.6 3.3 1.8 2.9 3.0 1.8 1.5 2.2 BIP
Standard National Accounts, gross figures 1) At 2007 prices. 1 euro = 0.684 GBP
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MEMBER INSTITUTES
65th EUROCONSTRUCT Conference Rome, June 2008
MEMBER INSTITUTES
The Leading Provider of Economic Analysis and
Economic Policy Consulting in Austria
WIFO analyses national and international economic trends and supplies short- to medium-term economic forecasts. Together with our studies on European integration, competitiveness and location of industries and services, these trends and forecasts provide the basis for economic policies and corporate strategies.
Our activities increasingly include commissioned research and consulting for domestic and international decision-making bodies, the European Commission, OECD, major business and financial institutions.
Modern empirical methods incorporating the most current data available and knowledge of the institutional and political structures - these are the factors that guarantee the quality of our work. The use of international networks as well as our independent and non-partisan approach gives particular weight to our findings.
WIFO is organised as an association, with membership open to organisations and individuals. Contributions by economic policy institutions provide the foundation for basic research and access to the combined research resources of a pool of about 100 highly qualified staff. Our cooperation with sponsors and members is based on the principles of partnership, project orientation and interactive collaboration.
As a member of ERECO (European Economic Research and Advisory Consortium), WIFO has partner institutes in Birmingham, Bologna, Cambridge, Madrid, Munich, Paris and Rotterdam.
Main Research Fields Regional and Sector Analyses Macroeconomics Agriculture Perspectives of the Welfare State Industry, innovation and telecommunications Reforms of the Public Sector Construction Globalisation Transport, Energy Sustainable Development Banking Knowledge-Based Economy Tourism, Trade and commerce Private and public services
Austrian Institute of Economic Research Arsenal Objekt 20, A-1103 Vienna
EUROCONSTRUCT contact: Margarete Czerny, Monika Dusek E-Mail: [email protected], [email protected] Tel: (43 1) 798 2601-225 Fax: (43 1) 798 93 86
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MEMBER INSTITUTES
AQUIEC-VKEBI
ASSOCIATION POUR LA QUALITÉ DES INDICATEURS ÉCONOMIQUES DE LA CONSTRUCTION VERENIGING VOOR KWALITEITSVOLLE ECONOMISCHE BOUWINDICATOREN (ASSOCIATION FOR THE QUALITY OF THE ECONOMIC INDICATORS OF THE CONSTRUCTION INDUSTRY)
Activities
The AQUIEC is active in each of the fields that make it possible to improve the economic information relating to the construction sector.
As a general rule, it operates as a Forum, in which the experts coordinate the initiatives relating to the construction statistics: drawing up of statistics, quality control and analysis (of the current and forecast economic situation) and in which they exchange information that can prove useful for the objective achievement of these analyses.
As far as the prospects are concerned, it also operates as a Scientific Council responsible for: − defining the hypotheses selected for the drawing up of the « construction prospects »: macro- economic hypotheses and others (national insurance contributions, tax, policies likely to influence the construction industry, etc.) − defining the working method, for checking the pertinence of the macro-econometric model that translates the selected hypotheses into « construction prospects » and for advising its managers on the improvements to be made to them; − evaluating, in terms of coherence and probability, the prospects drawn up by the Construction Confederation (currently the only one able to carry out this work in Belgium) on the basis of the framework that it has defined (hypotheses and method); − validating (after a possible correction) the prospects drawn up in this manner.
Status
The AQUIEC, Association for the Quality of the Economic Indicators of the Construction Industry, is an association of experts whose areas of expertise cover the economic and legislative environment that determines the development of the construction industry, as well as the specific characteristics of its various sub-sectors.
Organisation
The AQUIEC operates according to the same principle as the « Institut des Comptes Nationaux » (an official organisation that draws up the national accounts in Belgium), which means that it is a structure made up of a group of specialists who define a working framework, delegate the practical work, control and validate this work.
The experts of the AQUIEC form a pluridisciplinary team that includes economists, jurists and specialists in tax and social matters. Most of them are members of the highest authorities that oversee their areas of expertise: Central Economic Council, Supreme Statistical Council, Economic Club, Supreme Financial Council, Supreme Employment Council, etc.
AQUIEC-VKEBI, 34-42 rue du Lombard 1000 Bruxelles Tel 32 2 545.57.40 Fax 32 2 545.59.09 Email : [email protected]
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MEMBER INSTITUTES
ÚRS PRAHA, a.s. engineering & consulting
[email protected] www.urspraha.cz
ÚRS PRAHA, a.s., was established in 1992 as the successor of Institute of Rationalisation in the Construction Industry. Main activities of the company are services in the area of cost estimation in the construction industry. Further activities are analysis of the construction industry and prognosis of the future development, research in the field of regional development and housing problems; all for both private and public sectors. Headquarter is located in Prague, branch offices are in Brno, Hradec Králové, Ostrava, Plzeň and České Budějovice.
The activities of ÚRS PRAHA extended abroad the Czech Republic long time ago. The company is member of various international non-government associations interested in monitoring the state and trends of European and world construction industry (EUROCONSTRUCT, EDIBUILD, ICIS, etc.). ÚRS PRAHA is registered as consulting organisation for PHARE programme in Brussels and also prepares data for FIEC on behalf of the Czech Republic.
ÚRS PRAHA has a certificate of the Quality Control System CSN ISO 9001 for engineering and consulting activities in the construction industry as well as for studies in the field of regional development and for SW and database development and delivery. There is regular assessment of the company rating Baa2.cz by MOODY´S CENTRAL EUROPE RATING.
Pricing system for constructions and construction works • the company is traditional creator of the methods and databases for cost estimation of the construction works, periodically updated data are published in printed and electronic forms
Real estate, buildings and enterprises valuation • the company is expert institute for evaluation of real-estate, buildings and enterprises price, its services are used by various clients including banks, insurance companies and courts, clients are both domestic and foreign
Sector analysis, development studies, strategies, TOP ranking lists, marketing studies • statistics, analysis and conception of construction development • economical analysis and development studies for construction companies • TOP ranking lists of construction companies and construction materials manufacturers
Classifications and categorisations • traditional cooperation at the creation of classification systems of the construction products related to SKP (Standard Classification of Production) • categorisation of the products and services according to assessment of VAT, property depreciation, repairs and technical improvements
Regional development and housing policy • studies of population, settlement and housing stock in regions and selected towns at the Czech Republic territory • processing of housing policy conceptions for towns and regions of the Czech Republic (analysis, prognosis) • maintaining of territorial identification registry and pattern of basic settlement units
Courses and seminaries • the company organises the seminars and courses for quantity surveyors and cost estimators
Euroconstruct contact: Jan Blahoňovský | +420 549 133 435 | [email protected]
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MEMBER INSTITUTES
The Copenhagen Institute for Futures Studies
Future-based innovation
www.cifs.dk
The Copenhagen Institute for Futures Studies is an independent research organisation, founded 1970. It functions as consultant and source of inspiration to corporations, government bodies, and other elements of society, globally. The CIFS creates visions of the future, tailor-made to the need of clients in relation to corporate development, product development, etc., supported by a staff of 25, and it runs training programmes related to corporate work within trends, uncertainties and innovation for the future.
The range of products and services is large, ranging from presentations to tailor-made studies in fields like strategic development, product development, scenario building, and futures awareness in general. Tailor- made studies are based on a dialogue with the client, combining the specific knowledge of the client with the methods as well as the broad perspective of the CIFS.
Specific to the construction sector, the institute runs programmes on The Home and Family of the Future, The Office of the Future, and Creating Long-term Value in Construction, besides the EUROCONSTRUCT activities and programmes covering a wide range of Transportation issues.
Other fields of study include the future of work, of organisations and the value chain, of the information economy and the transformations it brings to western culture ("the dream society"), of growing emphasis on expression (“creative man”), of trends in financial services, retail, marketing, consumption, leisure and lifestyles, of values, politics, and media, of e-business and of physical products - Designing for the Future. The CIFS does tailor-made innovation support for corporations within product development, overall strategy and organisation development.
The CIFS offers a comprehensive membership programme. The membership base of about 160 organisations include leading corporations, government ministries, and a diverse grouping of public and private organisations from Western Europe. International memberships are highly tailor-made to the needs of the client. Working languages include English, German, French, Danish, Norwegian, and Swedish.
he Copenhagen Institute for Futures Studies Nr. Farimagsgade 65 DK-1364 Copenhagen K - Denmark Tel (+45) 33 11 71 76 - Fax (+45) 33 32 77 66 [email protected] - www.cifs.dk
Euroconstruct contact: Anders Bjerre, senior manager: [email protected]
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MEMBER INSTITUTES
VTT Technical Research Centre of Finland (VTT) is the largest R&D institute in the Nordic countries. VTT’s expertise covers all industry sectors. VTT is a government, non profit, independent and impartial organization. VTT’s turnover is 240 Meur of which 2/3 is based on contract research and - projects. VTT has subsidiaries in Brussels, Silicon Valley, St. Petersburg and Shanghai.
VTT AS A FORESIGHT PARTNER PROVIDES AN ACCESS TO WIDE ARRAY OF EXPERTISE • VTT's tailored foresight reports and consultancy support decision and policy making process in budgeting, strategic planning, investment decisions and new business concepts • VTT's expert organisation offers access to leading-edge expertise in different industries. • VTT roadmap experts have extensive experience in the coordination of participatory processes and the facilitation of international workshops. • VTT knowledge solutions scan and analyse the latest business and technology advances. VTT's Knowledge Solutions has access to diverse global expertise data bases and other reliable information sources. • VTT's networks and research collaborators offer further possibilities for innovations.
VTT's activities in fields of business and process management in building and construction are: • analyses and prognoses of business environment: business cycles, market outlooks, scenarios • business and technology strategy consulting • development of new business and service concepts • customer needs, productivity, prices, costs and quality, value chains and networking • energy efficiency, ICT applications and renovation concepts are our main themes in 2008
VTT Real Estate and Construction works intensively in the building market and demand forecast sector in close contact with contractors, material producers, trade, authorities and industry organisations.
Foresight work will be continuously done for almost all important sectors, products and materials in building and construction. On base of the geo-economic location and long co-operation, the construction sector development in Russia and in the whole Baltic RIM area is more important as our working area. We are improving our networks, forecasting methods, databases, tools and reporting concerning especially Moscow, St. Petersburg and the Baltic Countries. We have also close co- operation with some members of the AsiaConstruct network.
CONTACT PERSONS Mr. Pekka Pajakkala, Vice President ([email protected]), Mr. Erkki Lehtinen, Chief Research Scientist ([email protected]) Ms. Liisa Jaakkonen, Data System Designer ([email protected])
VTT tecHnical research centre of finland Tekniikankatu 1, Tampere P.O. Box 1300, FIN–02044 VTT, Finland Tel. + 358 20 722 111 Fax + 358 20 722 3497 [email protected] www.vtt.fi Business ID 0244679-4
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MEMBER INSTITUTES
Access to unlimited information leads to a muddled vision of today’s world and a confused picture of what the future holds.
However, in order to make the right decisions and manage economic risks, decision-makers need key information regarding future economic developments.
For forty years, BIPE, a leading European provider of forward-looking economic analyses and consulting services, has provided executives with relevant advice to guide their actions.
BIPE’s actions include : • Business strategic advice: market product positionning, pricing strategy, new products and services development, marketing strategy • Forecasting and foresight activities • Competitive analysis • Assistance in elaborating, defining and assessing public policies; regulatory economics; regional economic development.
By providing them with forward-looking guidance on their environment, BIPE helps businesses to: • anticipate and respond to market disturbances; • reinforce their competitive position; • base the company’s budget on realistic assumptions; • prepare their marketing strategy with a better understanding of their customers and their growth potential; • elaborate and/or support the definition and the implementation of strategic projects, including investment, employment and training aspects; • understand relationships between companies within a given sector and/or cluster and the way these relationships must evolve; • gauge the consequences of regulatory or fiscal changes on the company and/or sectors.
In addition, BIPE helps public authorities to: • understand the roles of the different actors and the trends thereof (for example, what is the future dominant organisational model in a sector, or the likely response of businesses to regulatory or other proposed changes); • anticipate short, medium and long-term market trends and identify the factors underlying these changes; • interact with the private sector, understand the needs of businesses and develop jointly suitable strategies; • define what regulatory or fiscal changes are necessary and measure their consequences; • develop economic regulatory instruments, pilot and evaluate public actions in the economy.
BIPE’s analytical capacity is based on the specialisation of its teams in key sectors of the economy and the permanent monitoring of major social changes. BIPE combines an in-depth expertise in a large number of sectors with the analysis of key themes which influence their future.
Six recurring themes in BIPE’s analyses are: • the evolution of sociological and demographic characteristics on consumer behaviour and the labour market; • cross-sector links and the knock-on effects between sectors; • the information society and the impact of new technologies and e-commerce on the economy, the organisation of companies and consumers’ behaviour; • the impact of public policies on the economy and on society and the changing role of policy makers;
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• the new forms of economic regulation: organisation of regulation, tools and impacts on market players; • the local dimension of economic development: attracting business to a specific region; location strategy; new methods of governance, co-operation and exchanges; sustainable development.
BIPE’s unique capability is to optimise the interaction between different approaches, to coordinate the skills of people from varied backgrounds and marry the views of economists with those of other specialists BIPE’s international presence BIPE participates to a number of professional international networks including: • AIECE (Association of European Conjectures Institutes); • ERECO (European Economic Research and Advisory Consortium); • Euroconstruct; • Stratorg, a top-management consulting company present in Europe, China and Russia. • The Competitiveness Institute (TCI), a European research institute for cluster practitioners based in Barcelona. • Eurostrategies, for telecom and media; • Euro-Asia Convergence, a network of partners provding assistance to European companies investing in Asia
BIPE has a quality certification from the OPQCM in the fields of strategy and corporate policy, marketing and commercial and internationalisation of businesses BIPE 11/13 rue René Jacques 92138 Issy-les-Moulineaux Cedex France Tél : + 33 (0)1 70 37 23 23 – fax : + 33 (0)1 70 37 23 00 – e-mail : [email protected] - www.bipe.com
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MEMBER INSTITUTES
ifo Institut Ifo Institute for für Wirtschaftsforschung Economic Research an der Universität München at the University of Munich
Field of Activities The Ifo Institute for Economic Research is one of the six major German economic research institutes. It examines short-term developments in the overall economy and in individual sectors as well as longer term tendencies and structural changes of the German and European economy. The institute regularly conducts short-term forecasts, medium-term business cycle perspectives and long-term growth scenarios, both for the economy as the whole and for individual sectors and industries (e.g. construction industry with sub-sectors, types of work and categories of buildings). In its various business surveys the institute gathers and analyses data from more than 7,000 German firms monthly. The Ifo Institute publishes since more than 50 years the main survey findings, e.g. the well known Ifo Business Climate. Since 1981, the Ifo Institute has conducted its World Economic Survey (WES) amongst more than 1,100 business leaders and economists in about 90 countries. Every quarter, these experts assess the present and the prospective economic situation in their countries. Special attention is given to the early detection of emerging economic problems. The institute also analyses current and projected economic policy measures and puts forward its own economic policy recommendations.
Setting-up and Status The Ifo Institute was founded in 1949 in Munich as a non-profit, independent research organisation and has the legal status of a registered society. Since 2002 there is an institutionally link to the University of Munich as basis for a strong co-operation. The Ifo Institute has almost 550 personnel and institutional members, mainly enterprises, associations, foundations, interest groups and political parties.
Organisation Since 1999, the Ifo Institute is structured in the following eight research and service divisions: Business Cycle Analyses and Financial Markets; Public Finance; Social Policy and Labour Markets; Human Capital and Innovation (with Research Unit Construction and Real Estate); Industry Branch Research; Environment, Regions, Transportation; International Institutional Comparisons; Business Surveys.
Resources With more than 160 staff members, the Ifo Institute covers the whole spectrum of economic activity. Almost 60 percent of the Institute’s funds are provided by the government, according to the general agreement on joint financial support of research in Germany. The remaining 40 percent of the funds are mainly raised through contract research, multi client studies, conference fees and foundation grants. The research contracts are primarily awarded by federal and state ministries, international organisations and the EU Commission, business associations and private companies. Membership fees and the sale of the institute’s various publications contribute also to the funding of the organisation.
ifo Institut für Wirtschaftsforschung e.V. an der Ludwig-Maximilians-Universität München Ifo Institute for Economic Research at the University of Munich Box 86 04 60, D-81631 MUNICH, Germany, Tel.: ++49-89-9224-1383; Fax: ++49-89-9224-2383; e-mail: [email protected]
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BUILDECON EAST EUROPE AND TURKEY
MANAGEMENT PERSONNEL OF BUILDECON HAVE PARTICIPATED AS HUNGARIAN PARTNERS IN EUROCONSTRUCT’S OPERATIONS SINCE 1990, TARGETING HUNGARY AND EASTERN EUROPE
SINCE 2001, BUILDECON HAS BEEN PUBLISHING CONSTRUCTION MARKET REPORTS ON EAST EUROPE: RUSSIA, ROMANIA, UKRAINE, TURKEY, BULGARIA, CROATIA, SERBIA
AMONG OUR PARNERS WE PROUDLY WELCOME FIRMS LIKE ALUKÖNIGSTAHL, CHR, DOKA, GRABOPLAST, GROUPESCHNEIDER, HENKEL, HOCHTIEF, LINDAB, MERRILL LYNCH, OTP BANK, SKANSKA, SHELL, VOLVO, WIENERBERGER
COME AND VISIT US WWW.BUILDECON.COM
CONTACT: ANNA GASPAR; [email protected] A: CSERESZNYE U 54, 1112 BUDAPEST, HUNGARY; P/F: +36 1 249 3191; M: +36 30 241 0342; E: [email protected]
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providing high quality research and advice to clients since 1981
DKM Economic Consultants, 6 Grand Canal Wharf, South Dock Road, Ringsend,
Dublin 4, IRELAND
Tel: +353 1 6670372 e mail: [email protected] Fax: +353 1 6144499 www.dkm.ie
DKM Economic Consultants is one of the longest-established economic research firms in Ireland. The firm was founded in 1981 as part of Davy Stockbrokers, and was bought out by its management team in March 2006.
Over the past two-and-a-half decades DKM has built up unparalleled expertise across a wide range of areas in applied economics and economic forecasting. The firm offers a range of economic consulting services including data collection, analysis and economic forecasting across national, regional and sectoral levels; impact analysis; cost benefit analysis and project evaluation.. DKM staff work closely with clients to determine what indicators are most relevant to their business and helps them with business planning by forecasting the economic environment in which future business activity will take place.
Our Main Areas of Expertise
* Construction and Housing * Transport
* Energy * Markets and Competition
* The Environment * Macroeconomic Environment, Demographics and Forecasting * Socio-economic, Regional and Local Development.
We Can Provide
• Project Appraisal and Cost Benefit Analysis • Market Analysis, Competition Studies and Demand Forecasting • Regulatory, Fiscal and Economic Impact Analysis • Socio-economic and Regional Development Studies • Regional and National Demographic Forecasts • Expert Witness Services • Budget Submissions and Position Papers • Environmental Economic Studies • Corporate Strategy/Business Planning Studies
Our Clients
The firm’s clients include many of the largest companies in Ireland. In addition it has acted as economic consultants to many Government Departments, Local Authorities and State Agencies, and
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the EU Commission. Its personnel have been members of and advisors to many State boards and councils, including the Industrial Development Authority, the National Competitiveness Council, and regularly act as expert witnesses in legal cases dealing with complex economic issues. DKM has been the Irish member of Euroconstruct (www.euroconstruct.org) since 1993.
Our Experience in Housing and Construction DKM has extensive experience of the Irish housing and construction sector and a track record in economic forecasting for that sector. The firm has acted as consultants to the Department of the Environment, Heritage and Local Government over the past decade, responsible for (i) the preparation of the official estimates of national and regional construction output, (ii) the completion of an assessment the medium term outlook for construction and employment and (iii) examining the challenges facing the industry over the medium term. More recently, the firm has been engaged to prepare the quarterly statistical series, Construction Indicators, which tracks levels of activity and statistical trends in the construction sector. DKM’s vast knowledge of the construction sector leaves it uniquely placed to provide insight and added value to public and private sector decision-makers.
Research Projects on Housing and Construction The firm has completed projects for a number of private companies and financial institutions operating in the housing and construction sector including studies which examined:
The Implementation of the Part V Provisions for Social and Affordable Housing in the Planning and Development Act 2000.
The prospects for some of the key concerns surrounding mortgage finance and housing affordability.
The Outlook for Domestic Mortgage Indemnity in the Republic of Ireland.
Developments in the Economy of Dublin including demographic, settlement and housing trends in the Greater Dublin Area.
The Prospects for Construction Materials in the Period to 2015.
The Future Supply and Demand for Construction Professionals 2002-2015.
Annual Construction Industry Review and Outlook, available at http://www.environ.ie/en/PublicationsDocuments/FileDownLoad,15353,en.pdf
Construction Indicators, available at http://www.environ.ie/en/Publications/StatisticsandRegularPublications/Constructio nIndustryStatistics/
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CRESME RICERCHE SPA
CRESME is a non-profit association created in 1962 in favour of promotion and information on construction industry and territory transformations. Its purpose is to carry out researches and studies and to favour meetings between public and private operators. Due to numerous and complex requests, the CRESME Research Centre (joint-stock company controlled by the Cresme Association) was created in 1982.
CRESME carries out surveys and analyses regarding: aspects of production and market in the constructions field; territorial structures and transformations, with relative economic, urban and social implications; administration in public bodies, also by means of feasibility studies of definite solutions and an active participation to their management; training of professional profiles within the framework of territorial-transformation and facility- management processes.
CRESME is internally specialised in: statistical, economic, urban, juridical and sociological aspects. These allow interaction between different subject-matters of major interest to the Centre. All this is facilitated by the extent and variety of the association (over 150 share holders representing the whole constructions field) and of interlocutors that normally refer to the CRESME Ricerche S.p.a. During its 40 years of activities, CRESME has acquired and developed both a scientific and cultural experience. This guarantees an accurate and correct supply of information, evolution of methods and instruments of research. A constant updating of this resource is made possible by means of two strategic bearings, which regulate the Centre's activity: a permanent observation of complexities and changes in both the construction industry and the territorial transformations; the development of scientific and cultural activities where CRESME acts as a connection link between different operators, experiences and subject-matters which are implied in processes of territorial transformations.
Research studies by thematic area and information systems represent the methods and tools across the whole CRESME research activity.
The CRESME activities are mostly addressed to the following fields of action: Environment and sustainability Structural analysis Territorial analysis Assistance to Public Administrations Current trend and forecast Facility management Training Strategic marketing Feasibility studies
CRESME has traditionally provided assistance and support especially to local administrations and autonomous associations acting as a coordinator.
CRESME RICERCHE SPA Via Fogliano, 15 - 00199 Rome – Italy - Tel. ++39068543623 – Fax ++39068415795 Euroconstruct contact: Antonella Stemperini - E-mail [email protected] - www.cresme.it
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AIMS
The EIB foundation aims at fostering the knowledge of economic and social questions that are related to, or that are of importance for the Dutch construction industry in an independent and scientific way.
EIB work comprises: - scientific research, especially in the area of the construction process and the building markets; - preparation of reports on scientific research, both on own initiative and in response to outside demand.
STATUS
Independent, non-profit making foundation.
ORGANISATION
The governing body of EIB consists of representatives of the employers’ organisation and the trade unions in the construction industry and of clients, and is presided by an independent chairman. The main responsibility of the governing body is to safeguard the interests of the Institute and the achievement of its objectives, but without interfering in the scientific research itself. The scientific quality of the institute’s research work is ensured by a scientific committee.
STAFF
The EIB has three research departments. The first concentrates on the construction market and housing, the second studies the construction firms and the construction labour market. The third department has both a supporting statistical and a research function. The staff mainly consists of economists, statisticians and sociologists and comprises around 25 people.
FINANCIAL RESOURCES
The institute is partly financed by contributions from the Education and Development fund for the construction industry. Other resources come from funds for special projects and contract research. A relevant share of these commissions originates from the Dutch government.
Economisch Instituut voor de Bouwnijverheid Postbus 58248, 1040 HE Amsterdam Telephone: (++31) 20 583 1900 Telefax: (++31) 20 583 1999 E-mail: [email protected] Internet: http://www.eib.nl
Euroconstruct contact: Oebele Vries E-mail: [email protected]
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Prognosesenteret was founded in 1978, as an independent consultancy focusing on market research within the Nordic building and construction markets. Today we work as a cross-border Nordic company. Prognosesenteret AS is Norway’s representative in Euroconstruct and Prognoscentret AB represents Sweden.
With more than 25 years of experience, a consulting team consisting of economists, business analysts, engineers and anthropologist, we are the leading Nordic company in our field. We are offering regular research services along with individual clients’ projects, as well as the unique “Building Materials Barometer”, where we are covering the market of 600 different building materials.
We are offering a wide spectre of services for companies within or related to the Nordic building and construction market. Based on a customised web-solution, we are able to offer a month to month analysis of the economic outlook for the Nordic area (per country), as well as markets trends with respect to the monthly building and construction activity in each country. By using our frequently updated database (which contains data from 1981 and forwards), and regular market analysis, we update our forecasts twice a year. These forecasts are including:
• The market for new residential building activity • The market for new non-residential building activity • The market for maintenance of residential building activity • The market for maintenance of non-residential building activity
All of the mentioned analysis and forecasts are available for Sweden, Norway, Denmark and Finland. Furthermore, they are divided into several building types, such as industrial buildings, commercial buildings, hotel buildings, detached houses, semi-detached houses and row houses etc.
As a part of our full-service package, we also do analysis on the consumer behaviour related to various building markets. This analysis is built on question schemes to more than 18 000 households in Norway, Sweden and Denmark, in order to identify trends within the DIY market.
Further on, Prognoscentret AB is offering a unique service, giving detailed data on the consumption of construction materials and services in the Nordic region. This service is called “Building Materials Barometer”, and is a databank containing more than 600 products and services. The database is updated yearly, based on registration of end-use consumption.
Beside all these services, we carry out ad-hoc analysis within the same areas and countries. At present more than 1 000 customers are using our services on a regular basis. With our unique consulting team, we can handle any research task within the Nordic building and construction market.
PROGNOSCENTRET AB PROGNOSESENTERET AS Saltmätargatan 5 Sjølyst Plass 4 SE-113 57 STOCKHOLM NO-0278 OSLO SWEDEN NORWAY Phone: +46 8 440 93 60 Phone: +47 24 11 58 80 E-mail: [email protected] E-mail: [email protected] Web: www.prognoscentret.se Web: www. prognosesenteret.no Contact person: Bengt Henricson Contact person: Björn-Erik Öye
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POLISH CONSTRUCTION RESEARCH & FORECASTING PL 00-519 Warszawa, ul. Wspólna 37/39 l.24 Phone: +48 22 628 88 37 Fax: +48 22 783 38 57, +48 22 629 03 85 E-mail: [email protected] .pl; [email protected]
PAB-Polish Construction Research & Forecasting
Managing Director: Mr.Mariusz Sochacki PAB - POLISH CONSTRUCTION RESEARCH & FORECASTING is a private scientific and research institute specialising in economic analysis of the construction industry. PAB was established in 2000 by specialists with more than 25 years of experience in activity within the construction industry.
Basic aims : - Permanent scientific research on the field of investment and building processes, the construction industry and building market, - Preparation and issuing of reports on scientific research initiated by PAB itself as well as on orders from firms and different Polish and foreign organisations.
Activity concentrates on: - Industry forecasting: short, medium and long-term construction and investment forecasts, - Workload surveys: permanent surveys of construction activity by branches and regions, - Economic analysis: research and reports focused on the construction industry network, - Statistics: preparing database and performing data researches and analyses - Monitoring: real and permanent processes of searching for changes creation of the construction industry situation , - Construction market research: market capacity, its diversification and opportunities for entering.
PAB supplies top professional research and services on individual orders in the range of: - Analysis of demand, supply and competition on construction and building materials market - Cost and price analysis on construction market and building materials as well - Construction and tendering procedure advisory services, - Research on competition level in the construction and building materials market, - Promotion of small and medium sized firms, i.e. producers and contractors
Monographs – reports - Construction Monitoring: general and specific reports on status and changes in construction activity - Business conditions surveys of construction: analyses of tendencies and development trends – short term prognoses - Rankings of construction companies TOP 400 Polish Contractors - Polish Construction – Key Figures
Journals - newsletters for contractors and investors - Prognozy Rozwoju Budownictwa -Prognosis of Construction Development - Polish Construction Surveys - Polish Building Materials Industry Surveys - Polish Construction Market Review.
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Aims ITIC – Instituto Técnico para a Indústria da Construção (Technical Institute for the Construction Industry) offers a wide range of services, such as the development of both technical and scientific activities in the Construction Industry field in order to improve economic analysis, technological innovation and the management and productivity of construction firms.
Status ITIC is a private and non-profit institute. Its members are different agents involved in the Portuguese Construction Industry, such as universities, professional bodies, and construction firms and materials producers.
Organisation ITIC structure relies on three main departments: Economic and Management Studies; Quality Methodologies; Training.
Staff ITIC’s activities are carried out by a multi-disciplinary team, including economists, engineers and legal advisors.
Funding ITIC is partially financed by its members. However, the major part of its funds is raised through contract fees with private firms and public bodies.
Activities ITIC undertakes technical and economic studies within the Construction sector. Our activities are set to meet the needs of construction firms through technical support to reinforce management, productivity and quality patterns and therefore issue economical and technical reports, and ensure the implementation of Quality Systems and Methodologies. We produce estimates and forecasts for the Construction industry based on macroeconomic analysis and field work. ITIC’ specialists base their work on accurate and proven methodologies. ITIC also aims to establish and reinforce technical and scientific relationships between Portuguese and foreign entities within the Construction industry. ITIC organizes national and international conferences, seminars, workshops and lectures. ITIC is prepared to provide a wide range of: Economic and statistical analysis; Construction Industry forecasting; Construction Market analysis.
ITIC – Instituto Técnico para a Indústria da Construção Rua Duque de Palmela, 20 . 1250-098 Lisboa - Portugal Tel: + 351 21 351 58 81 Fax: +351 21 351 58 89 e-mail: [email protected]
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ÚEOS - Komercia, a.s., Ružová dolina 27 (vchod Mliekárenská ul.), 824 69 Bratislava 26, Slovak Republic Tel.: 00421/2/58100510; 58100526, 58100531 Fax: 00421/2/58100500 E-mail: [email protected]; web-site: www.ueos.sk
PROFILE OF THE COMPANY
ÚEOS - Komercia, a.s. (Joint-stock company) is a private research and consultancy company, established in 1992 by transformation of former Ústav ekonomiky a organizácie stavebníctva, Bratislava (Institute of Building Economics and Organisation) founded in 1963.
At present, ÚEOS - Komercia, a.s. has 28 employees. Research, advisory and consultancy services are performed by approx. 20 experts. In addition we have been working with a circle of external co-operators, university experts and other specialists, who participate on solutions of important tasks and projects.
Basic fields of company activities are as follows:
o applied economical research and development, o business and economic consulting, o monitoring and field survey, o solving of problems of construction market, the reviving, forming of sectoral, regional politics of construction, international comparisons; habitation and housing construction, regional development, etc., o marketing research of construction market, o preparation of legislative standards in sphere of housing and public works, o evaluation of property and real estate, o public procurement, o engineering activity – supply activity in construction, o technical assistance – EU funds, o production and development of economic and calculation software, o organisation of training courses, seminars and further other special undertakings, o Commercial, intermediate and publishing activity.
ÚEOS - Komercia, a.s. solves scientific-technological projects and state projects, elaborates analytic, comparative and prognostic studies and further outputs, focused on development of selected areas of economy of Slovakia, inclusive creation of purpose oriented information systems and providing of statistic documents and indicators. The company also participates on creation of laws and other legislative standards; elaborates financial analysis and business plans of companies; elaborates restructuring projects of the companies; elaborates studies, associated with strategic development of the companies.
ÚEOS - Komercia, a.s. also executes evaluation of property and real estates in various processes and credit - awarding; deals with problems of public procurement and with creation of classification system of sorting of building production; elaborates professional publications and statistic materials concerning creation of branch economies.
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Wellington 19 E-08018 Barcelona Spain tel. +34 933 09 34 04 fax +34 933 00 48 52 e-mail: [email protected] http://www.itec.es
The Catalonia Institute of Construction Technology, ITeC, is an independent non-profitmaking organisation that carries out its work in the area of operations intended to further the progress of Construction.
ITeC is structured into Areas, Research Programme and Services. The Constructive Process Area works on the creation of information, methodology and tools (software), which are applicable to the execution and management of each constructive process phase.
The Quality Area promotes, evaluates and endorses quality. Activities include ensuring quality in companies, the evaluation of technical specifications and product certification. This area includes activities related to Economic Construction Analysis.
Maintenance and Rehabilitation Area produces information, methodology and tools (software), for the planning and management of maintenance and for rehabilitation analysis and intervention.
The Research Programme is the infrastructure for research projects development. The following research lines are open:
• Environment and Construction • Construction and New Requirements • Existing Construction
The ITeC staff is made up of a multidisciplinary team of 100 persons.
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KOF Swiss Economic Institute ETH Zurich WEH D 4 Weinbergstrasse 35 8092 Zurich, Switzerland Phone +41 44 632 42 39 Fax +41 44 632 12 18 www.kof.ethz.ch [email protected]
KOF SWISS ECONOMIC INSTITUTE AT THE SWISS FEDERAL INSTITUTE OF TECHNOLOGY ZURICH (ETH)
Field of activities KOF analyses the development of the Swiss economy from a shorter-term perspective (economic analyses and forecasts) against the backdrop of longer-term developmental trends (growth and structural change). The research projects, products and services provided by the KOF cover a broad spectrum of topics.
Regular surveys (in the form of business, investment and innovation tendency surveys) guarantee an up-to-date, comprehensive information system for the short- and medium-term analysis of the overall economy, for individual branches of industry, for the construction sector and for cantonal/regional studies. The main activities of the KOF (analysis and prognostics of the Swiss economy, search for leading indicators, research on political economic questions) are therefore based on the business tendency survey results. Constant research based on modern empirical methods (econometric models for the overall economy and for separate branches of industry, time series analyses) assures that quality is maintained in the analysis and forecasting of cyclical developments and structural change.
At an international level, the institute works together with authoritative organisations like the OECD and the IMF. KOF is an active member of various international academic and research associations (CIRET, AIECE, Euroconstruct). Since 2000, the CIRET office has been run at KOF.
Status The Swiss Institute for Business Cycle Research is an institute of the Swiss Federal Institute of Technology (ETH), and as such an independent body.
Organisation KOF currently employs more than 30 researchers. Some of them also lecture at the ETH and at the Zurich University. The institute is structured in the following three research divisions: Business Cycle Research; International Economics; Structural Change.
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Construction Forecasting and Research, Experian’s Business Strategies Division, Nightingale House, 65 Curzon Street, London W1J 8PE. Telephone: +44 (0)20 7355 8201 Fax: +44 (0)20 7355 8277 E-mail: [email protected]. Web Site: www.business-strategies.co.uk
Construction Forecasting & Research (CFR) has for more than a decade focused on economic analysis of the construction and related industries. CFR is now a part of Experian’s Business Strategies Division, one of the UK's leading economic consultancies.
CFR works with clients in the private and public sectors, providing a better understanding of the industry in the context of the wider economic environment. We have a thorough and detailed knowledge of the factors that influence the various markets, types of work in the sector and its operational aspects. Our major strength lies in the location and analysis of construction related information to support clients’ need for insight on past trends and forecasts of future developments. We have a portfolio of well-known and respected publications, including the industry-standard national construction forecasts and the ‘Foresight’ regional forecasts. We also collaborate with our fellow Euroconstruct members to produce compatible forecasts for nineteen European countries on a six monthly basis. Our survey unit carries out a detailed monthly state of trade of survey in the UK for the European Commission.
Our work falls into the following categories: Industry forecasting: short, medium and long-term construction forecasts, on a national and broad regional basis. Workload surveys: regular surveys of construction activity, professional services, and industry structure. Market research: the use and provision of all relevant information to help clients assess market size, structure, competition and opportunities for entry or diversification. Economic analysis: research and reports on any aspects or sectors of the construction industry chain. Statistics: data search, analysis and advice on the use and relevance to clients of macro economic and construction industry statistics. Corporate research: company finance, profitability and future outlook. International comparisons: specifically of European construction markets. Seminars: presentations and lectures relating to any of the above areas.
Experian provides strategic support to organisations around the world. It helps its clients target, acquire, manage and develop profitable customer relationships. It does this by combining its advanced decision support and outsourcing services with information on consumers, businesses, motor vehicles and property. Experian works with more than 40,000 clients across diverse industries, including financial services, telecommunications, healthcare, insurance, retail and catalogue, automotive, manufacturing, leisure, utilities, property, e-commerce and government. Millions of consumers rely on Experian's consumer credit services to meet their financial management needs. Experian is a subsidiary of GUS plc and has headquarters in Nottingham, UK, and Costa Mesa, California. It has a 175-year history and unbroken sales growth over the past 23 years. Its 13,000 people support clients in more than sixty countries. Annual sales exceed £1.2 billion.
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© Euroconstruct June 2008 • All rights reserved • € 940 http://www.wifo.ac.at/wwa/jsp/index.jsp?fid=23923&id=32760&typeid=8&display_mode=2