Fresh funding from the EU, during a new funding period, is expected to be the key driver behind the Central European construction growth from 2017 onwards. Moreover, the mortgage market continues to offer low interest rates, and house prices are attractive for a larger number of consumers. This prompted developers to launch a number of residential developments in 2015.
Despite the fact that civil engineering construction had a weak start to the year, PMR expect that 2016, as a whole, will see a continued rise in output, mostly on the back of an upturn in road construction and power construction.
In non-residential segment, given strong data on building permits, the sector should grow by 3-4 percent in 2016 and 2017. A growing interest on the part of international investors who still perceive Polish real properties as an excellent investment is great news for the commercial construction industry.
When it comes to residential construction, despite the thriving segments of real property development and individual construction, Poland’s housing policies still place the country near the bottom of the European league. These circumstances mean that there is still a considerable potential for the development of residential construction in Poland.
The new EU funding programme is expected to give the Czech road construction a fresh impetus. However, state funding for road construction for 2016 fell, and this jeopardised a number of planned road construction projects. Moreover, in 2016 the budget for railway infrastructure construction will be substantially reduced, because of the general budget cuts prompted by the need to reduce the state budget deficit.
When it comes to non-residential construction, the year 2015 brought the first marked recovery, as the floor area of building permits increased by almost one-third. The increase is expected by developers to be fuelled mostly by industrial and warehouse construction, as a number of fresh investments and commitments from strong developers were announced in 2015.
Overall, Czech construction output is, therefore, expected to grow at a slow pace in the next five years and to exceed the CZK 500bn (€18.5bn) threshold only after 2020.
After six years of decline, the year 2015 brought 20% recovery for the Slovak construction industry. The growth was driven mainly by civil engineering construction, and transport infrastructure construction in particular. However, after substantial growth in 2015, the Slovak engineering market will undergo a double-figure reduction in 2016, mostly because of the shift between the old and the new EU budgets and the very high comparative base. Private investment will partly offset this deterioration and become the key fuel for gross fixed capital formation, to a great extent via foreign direct investment, such as the Jaguar Land Rover plant in Nitra, on which construction is scheduled to commence in 2016.
In total, Slovakia is expected to receive almost €4bn for transport infrastructure investments for the period 2014-2020, in comparison with €3.2bn for the previous period, of which some €1.7bn is to be spent on road construction projects. The EU allocated funding will allow the construction of around 130 km of motorways and expressways.
Moreover, industrial and logistics construction is expected to give non-residential construction a strong boost in the coming years. The former Slovak government and its successor have expressed willingness to support investments in this area in their attempt to entice companies to launch operations in Slovakia.
After a weaker 2016 (a transitory stage between the old and the new EU budget) civil engineering construction on the Hungarian market will continue to grow from 2017 onwards. However, the rate of growth is expected to slow significantly in comparison with 2013-2014.
Despite all of these signs of recovery, Hungary is threatened by an unstable political situation and numerous controversies associated with the way in which the government spends public funds on infrastructure projects. Moreover, the on-going ban on the construction of large shopping malls is limiting investments in this area. As a result, no major retail facility projects were unveiled in 2014-2015. Most of the output in the retail construction arena is accounted for by small developments in small towns.
The absorption rate for EU 2007-2013 funds has improved from 15% at the end of 2012 to 66 percent in 2016. The encouraging trend is expected to accelerate in the 2014-2020 programming period, mostly because of diminishing corruption and the more investment-focused programmes of Romanian politicians.
In the 2014-2020 programming period, Romania is due to have access to €5.1bn of EU funds for the development of its transport infrastructure, of which about €3.2bn is to be spent on the implementation of road infrastructure construction projects. Most of this amount is to be channelled toward motorway construction projects. Moreover, low wages and a well-educated labour force will likely attract more foreign investment not only in industry, but also in business services, in particular SSC/BPO.
A strong influx of EU funds from the 2014-2020 budget, along with an improvement in the absorption rate, will increase public investment. However, in the wake of the expected slowdown of public investment in 2016, EU funds should fuel general government investment to a greater extent from 2017-2018 onwards. A total of €5.6bn is to be invested in constructing 597 km of motorways and 914 km of expressways by 2020. Most of the priority motorway projects are part of the European Corridors 4, 7, 8 and 9.
In non-residential construction, limited demand and the scarcity of developments in the pipeline suggest that the retail segment will lag behind the other parts of the non-residential construction market in the next few years. Unlike the retail sector, industrial and warehouse construction is far more promising. Pharmaceutical companies, companies from the automotive industry and companies producing electrical equipment had the largest impact on new developments. Although pre-crisis levels will not be achieved by 2020, non-residential construction’s overall trend should bring stable growth in output in 2016-2020.
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