As indicated by the results of PMR’s latest report, entitled “Construction sector in Baltic states 2015: Estonia, Latvia, Lithuania. Development forecasts for 2015-2021”, with an average construction growth rate of 10.8 percent between 2011 and 2014, Lithuania’s construction output performed slightly less well than its Estonian counterpart, where an average annual growth rate of 11.4 percent was recorded, but marginally better than in that of Latvia, where the construction sector expanded by 10.5 percent year on year during the period 2011-2014.
As indicated by PMR, Lithuanian construction output rose by 16.7 percent in 2014, the third most substantial increase among the EU countries. Furthermore, the healthy performance recorded in the country in 2014 follows a robust increase of 11.3 percent achieved a year before.
In the last few years the Latvian construction industry has also continued to improve, though at a more moderate pace than in 2011-2012. Last year, Latvian construction output grew by “only” about 8 percent in year on year terms, after a nearly 7 percent recorded a year earlier and a few years with growth rates of at least 12 percent. In contrast, Estonian construction output has exhibited a negative rate of growth in 2014, with a 1.7 percent reduction last year, after a rate of growth of 3.2 percent observed in 2013. It is worthy of note that the negative result recorded in Estonia in 2014 has largely reflected the very high base effect established between 2011 and 2013, when Estonian construction output rose by 26 percent year on year in 2011 and, again, by almost 18 percent in 2012.
According to PMR, the key factors which recently contributed to the upsurge in construction activity in the Baltics included an improvement in economic growth, with the GDP growth rate in all three countries exceeding the 2 percent threshold in 2014, with the economy expanding by 3.0 percent in Lithuania, 2.9 percent in Estonia and 2.8 percent in Latvia. Even more substantial GDP growth rates were recorded a year before: +3.5 percent in Lithuania and +3.0 percent in Latvia.
As indicated by PMR, the major driver behind the on-going steady upward trend in construction activity in the Baltics has been the revival of residential construction activity in all three countries. The region’s improving macroeconomic conditions, mirrored by a more dynamic increase in individual purchasing power and the burgeoning financial and property markets, have been primarily responsible for the robust recovery of the residential construction market in the last few years.
In Lithuania, the region’s largest country, which is responsible for between 35 percent and 40 percent of the construction output in the region every year, the total floor area of new residential buildings for which building permits were granted rose by almost 19 percent year on year in 2013, following a 24.5 percent rise in 2012. In Latvia and Estonia, this indicator improved by 13.3 percent and 10.7 percent respectively in 2013. The remarkable increases in the total floor area of new residential buildings for which building permits were granted in 2012 and 2013 have provided substantial support for the region’s construction industry in the last few years, as a large proportion of the work carried out in accordance with these permits also took place in 2014 and 2015.
However, in Latvia the total residential space associated with building permits granted last year was 27 percent short of the figure recorded in 2013, whereas in Lithuania the contraction was less dramatic: only 7.4 percent. The slowdown primarily reflected the negative external economic shock from developments in Russia. This year, the residential market in the region is also expected to be overshadowed by the fallout from the economic turbulence in Russia, which constrains residential construction activity, particularly in Latvia. In contrast, Estonian residential construction has been less vulnerable to the economic turmoil in Russia. The floor area of new residential buildings for which building permits were granted in Estonia last year was 16.4 percent in excess of the 2013 result and almost 29 percent more than the figure recorded in 2012.
The total floor space of residences listed in official records in Lithuania in 2014 rose by 27 percent year on year to 909,900 sqm. In Estonia, almost 17 percent more residential space was commissioned in 2014 than the amount a year earlier, whereas in Latvia the expansion rate exceeded 13 percent. It is worthy of note that 2014’s housing completion results reflected the best performances in five years in all three countries. According to PMR, in Lithuania, however, the amount of space activated in 2014 is still 22 percent less than the result set in 2008, with the gaps for Latvia and Estonia being even worse: 58 percent and 36 percent, respectively.
In the first three quarters of 2015, the level of willingness of individuals in the Baltics to carry out home improvements or to purchase or build a home has risen visibly, according to a quarterly Eurostat consumer survey. The improving investment climate is particularly evident with regard to purchasing or building a home, whereas the disposition to carry out home improvements has looked less obvious during recent quarters. However, these levels are significantly lower than the 2006-2007 period, when many Estonians, Lithuanians and Latvians found it advantageous to own a new home or repair existing properties. In the first quarter of 2015, the level of enthusiasm of Lithuanians with regard to purchasing or building a home was at its strongest since Q1 2008, and the same applies to Estonians since Q3 2008. A slightly different trend was noticed in Latvia, where the level of willingness of individuals to purchase or build a home surpassed even the 2007 peak levels in mid-2014, but since then it has been steadily declining.