Construction: significant rise of new residential projects
Dutch Real Estate Predictions 2016
The construction industry has been hit hard since the peak of the market in early 2008. Over the last years, activity in many sectors has fallen to the lowest levels on record, prompting fierce competition for the contracts that have been available in the market. Part of the response to these conditions has been innovation in delivery models and material technologies, but the general upshot has been significant downward pressure on margins as contractors compete hard for work at the same time as labor and materials costs have continued to rise.
February 4, 2016
Excpected growth in construction investment
However, the European construction market has turned the corner. According to Deloitte’s ‘the European Power of Construction’ report, the total revenue of the 50 biggest listed European construction companies grew by 1% to €293,404 million in 2014. Furthermore, according to the European Economic Forecast (EEF) published by the European Commission, construction investment is expected to rise by 2.1% and 3.5% in 2015 and 2016 respectively. The EIB (Economisch Instituut Bouw) predicts a 2.7% and 4.4% YoY growth for the Dutch construction sector in 2015 and 2016 respectively, which can be attributed to a significant rise of new residential projects.
Despite the expected growth in construction investment, it is expected that for the 50 biggest construction companies the market volume in the domestic market will be insufficient, which requires internationalization and diversification strategies. Although construction companies are able to realize higher margins on activities in their home market, Deloitte’s ‘the European Power of Construction’ report shows that the proportions of sales outside their own borders has grown by 8.0% to 51.9% of their total revenue in 2014’. It is expected that this share will grow further.
Contractors are becoming more selective
With construction activity now growing and expected to increase further as economic conditions improve, contractors are becoming more selective about which jobs they take on and the price at which they commit to deliver. We expect that this will soon translate into a sharp upward shift in the overall construction cost index as margins return to a more ‘normal’ and sustainable level. This will be seen first in the early stage construction processes such as demolition, groundwork and concrete trades, as well as in the smaller, complex jobs that are less attractive to contract. It will also be multi-speed depending on sector and geography, with the hot markets seeing prices rising earlier.
Also, the innovation in processes and materials that have been pursued during the last five years will continue to deliver shorter construction periods at reduced costs. Following the sharp correction we expect for 2016 it is likely that the market will return to a more normalized period of costs price inflation.
Dutch Real Estate Predictions 2016
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- Omni-channel: transforming the retail landscape
- Asian investors raise their stakes in Dutch real estate
- Construction: significant rise of new residential project
- Logistics: technology is redefining the retail supply chain
- Changing legislation creates opportunities in healthcare
- Real estate steps up as a key tool in the battle for talent
- Blockchain: the next game changer in real estate?