EECFA 2025 Winter Construction Forecast

Posted on by efalucskai

EECFA released its 2025 Winter construction forecast on 12 December. Check out a sample report and place your order on eecfa.com. For discount, please contact us.

Southeast European construction markets

“Bulgaria’s total construction output is forecasted to increase by 3% on average for 2026-2027” – says Yasen Georgiev at Economic Policy Institute (EPI), EECFA’s Bulgarian research institute. He adds that this is to follow estimates for a similar performance of almost 3% in 2025. The sectoral background, however, shows, a nuanced picture – cooling of residential construction, positive news from non-residential and a robust performance of civil engineering. The latter will benefit from investments which will be backed by the absorption of EU funds through the Recovery and Resilience Plan (RRP) and classical operational programmes, both with implementation deadlines in 2026 and 2027. At the same time, Bulgaria’s economy is to expand by 2.4% on average in 2026-2027 – a period continuously shaped also by the Euro adoption on 1 January 2026.

Michael Glazer (SEE Regional Advisors) and Tatjana Halapija (Nada Projekt), EECFA’s Croatian members, think that declining dwelling sales in Croatia have, paradoxically, failed to stop the growth in the value of Croatian residential output, because increases in the price per square meter of those dwellings that do get sold have more than compensated for the lower number of square meters bought. “But how long this can continue is unclear” – they add. “The policies that the Croatian government is implementing in order to ease the country’s housing crisis are confusing the residential picture still more, since a number of those policies have contradictory effects on output. As to non-residential building construction, output growth during the period covered by the current forecast will depend greatly on the sector, with some likely to continue to benefit from catch-up growth and EU support for a bit longer and others moving toward a steady state or even a decline. In civil engineering, EU funds continue to play the dominant role in financing construction of all sorts. Sports facility construction is experiencing a boom, but given the speed with which such projects are completed, the effect on output will be relatively brief. Renewable energy construction should be growing rapidly, but regulators’ hostility toward the sector are holding it back.”

“Romania’s economy is entering a challenging period as the recently implemented measures to reduce the national account deficit begin to take effect” – reports Dr. Sebastian Sipos-Gug, EECFA’s Romanian researcher at Ebuild. “While most forecasters do not anticipate a recession, economic growth is expected to remain subdued over the next two years. Inflation is the highest in the EU, boosted in 2025 by increases in sales taxes. As a result, consumer prices are rising at a pace that is forecasted to outstrip wage growth, leading to a decline in real incomes in both 2025 and 2026. Government spending is also facing cuts, thus both private and public consumption are predicted to decline, with a chilling effect on most construction activity types. There is also the challenge of the massive level of public investment required by civil engineering projects that have started since 2023, which will be difficult to sustain under the austerity and the mounting pressure of losing even more EU funding. On the brighter side, both the economy at large and the labour market are expected to be quite resilient. By 2027, assuming the deficit reaches manageable levels, the effects of contractionary policies should fade out, inflation could ease, and interest rates could come down. This means that demand for construction would rebound and with it, construction activity.”

Dejan Krajinović, EECFA’s Serbian researcher (Beobuild) says that “Serbia’s overall construction output sank into a negative territory in 2025, primarily owing to the weaker performance in civil engineering. This year recorded growth in building construction, but the substantial consolidation in civil engineering dragged totals in red. The completion of major road, railway and energy projects contributed mostly, but delayed construction starts played a role as well. Residential construction is stable and is on historical levels, while non-residential construction is booming led by the hosting of the EXPO 2027 in Belgrade. Investments into commercial, hotel and office buildings are all spurred by the event, with the purposely built EXPO 2027 complex consisting of numerous venues being the single largest investment in non-residential. Improving financial conditions and sustained demand still support relatively high construction activity, but a lot of global political and economic uncertainties are dimming future prospects.”

Dr. Aleš Pustovrh at Bogatin, EECFA Slovenia, says that Slovenia’s construction sector is holding steady at EUR 6bn, though growth has cooled. Residential buildings remain the anchor, with output expected to show only a slight dip in 2025, helped by strong employment, rising wages and cheaper mortgages. Property transactions rebounded in early 2025, reversing last year’s slump, while prices continue to climb amid land shortages and slow permitting. Public housing programmes are ambitious, but private developers are concentrating on Ljubljana and coastal towns. Non-residential construction is mixed: offices are recovering slowly, retail stays subdued, but industrial and warehousing thrive on export demand and automation while health and education remain at very high levels. Civil engineering and public works lean on EU-backed projects and are anticipated to reach historically high levels by 2026. 

Eastern European construction markets

Andrey Vakulenko at Macon, EECFA’s Russian research institute notes that “the high key rate and the overall economic slowdown are constraining the Russian construction industry with negative trends expected for the current year and over the next two years. An easing of monetary policy, which has already begun, could help normalize the situation, but a positive effect is not expected until 2027. The main drag on construction output will likely be the residential subsector where high rates and revised government demand support principles are reducing activity among both buyers and developers. Negative trends will also likely persist in most non-residential segments due to declining growth rates of budget financing, a general decrease in business activity and a slowdown in consumption. The overall descending dynamics in the construction market may somewhat be mitigated by stable growth in civil engineering driven by export projects in energy and transport, but this growth is not predicted to be enough to keep the construction market in a positive zone”.

Prof. Ali Türel, EECFA’s Turkish researcher, reports that “the major effect of inflation-curb policies in Türkiye is the decline in disposable income and in the purchasing power of wage earners and pensioners. The moderate to lower-income population is unlikely to save enough equity for buying a home when rents have also become unaffordable for many. Ironically, housing sales have been increasing at a much higher rate than the growth of households. This can be attributed to the typical trend in Türkiye, where, during inflation, people expect a higher real return on their financial assets from real estate investments compared to alternative investment options. The reconstruction of earthquake-damaged buildings and infrastructure also contributed to the high rate of growth in building starts and completions from Q2 2025 onward, leading to the highest rates of change in the construction sector’s contribution to GDP compared to other sectors. Our latest forecast indicates that total construction output in Türkiye may reach 6.4 trillion TL in 2027 (EUR 180 billion), all at 2024 prices.”

According to Prof. Sergii Zapototskyi of Uvecon, EECFA Ukraine, despite the war and high risks, Ukraine’s construction industry remains one of the key drivers of economic recovery in 2025. The RDNA4 (the latest Rapid Damage and Needs Assessment Report) estimates Ukraine’s reconstruction needs for the next decade to be USD 486-524 billion, creating long-term demand for residential, non-residential and civil engineering construction works. Major challenges persist, including the uncertainty regarding the duration of the war, especially in frontline regions, labour shortages, bureaucratic barriers in the urban planning legislation, and logistical constraints due to the relocation of production facilities, and often, shortages in building materials. At the same time, the industry is demonstrating resilience: developers are diversifying supply chains, stabilizing procurement schedules, and increasing activity in the Central and Western regions. Demand for housing, intensive infrastructure restoration, and international investment from the EBRD, EIB, and other partners continue to support positive dynamics. The sector’s development prospects for 2026-2027 will largely depend on the security situation and the effectiveness of state recovery programs.

EXPO 2027 boosts Serbian non-residential construction

Posted on by efalucskai

Written by Dejan Krajinović, Beobuild Core d.o.o., EECFA Serbia

Overall construction output in Serbia is expected to decline this year, primarily due to the slowdown in civil engineering as several major road and railway projects were completed last year. By contrast, non-residential construction has entered a new growth cycle driven by investments connected to the hosting of EXPO 2027 in Belgrade. The event will be held in a purpose-built exhibition complex in the outskirts of the city, covering around 80 hectares. Alongside the construction of this complex, numerous public and private investments are indirectly tied to the event, including new hotels, accommodation, leisure, and commercial projects, as well as the reconstruction of museums, cultural heritage sites, and public spaces.

Aerial photo of the construction site of the EXPO 2027 complex – Photo: beobuild.rs

The EXPO 2027 complex itself is a vast construction site, comprising approximately 230,000 sqm of exhibition pavilions, multifunctional venues, congress and conference halls, as well as office and retail space. In addition, a residential complex with around 1,500 units is being built to house participating delegations. The exhibition will run for 93 days, from 15 May to 15 August 2027, featuring around 130 countries and hundreds of events spanning sports, science, culture, and innovation. Total investment could exceed EUR 2.5 billion, with EUR 1.5 billion allocated for the EXPO complex and a further EUR 1 billion for accompanying facilities and infrastructure. This project has been the key driver of growth in non-residential construction and is expected to sustain activity in the sector in the coming years.

The broader development zone around the EXPO 2027 complex extends far beyond the exhibition center itself. While the core site covers 80 hectares, total development area exceeds 200 hectares. It will include the new National Stadium complex, a center for aquatic sports, a theme park, recreation facilities, and hotels. The National Stadium alone is a EUR 600 million project, designed with 52,000 permanent seats and the capacity to expand by an additional 8,000. Construction began in early 2024 and, despite delays, it is expected to be completed in time for 2027. Other sporting and leisure facilities are also planned for delivery ahead of the event, though it remains uncertain whether all projects will meet the deadline.

Several other public and private developments across Belgrade are linked to the exhibition, including the reconstruction and expansion of museum facilities: a new Natural History Museum building, the relocation of the Nikola Tesla Museum, the renovation of the Aeronautical Museum, and the modernization of the City of Belgrade Museum, among others. The private sector is likewise preparing for the anticipated rise in visitors, with investments in accommodation accelerating. Notable projects under construction include new hotels under the Intercontinental and Ritz-Carlton brands, alongside numerous smaller ventures.

However, the high level of spending on the EXPO 2027 has placed considerable strain on the state budget. To maintain fiscal deficits at around 3% of GDP, funds have been reallocated from other public projects. This has been most evident in infrastructure development and civil engineering, where shifting priorities have led to significant delays on major planned projects. As a result, civil engineering output is contracting faster than expected in 2025, with negative implications for growth in 2026 as well. On the other hand, long-term economic benefits of hosting EXPO 2027 remain uncertain.

After the event concludes, the EXPO 2027 complex will be repurposed as the new Belgrade Fair Complex. The current fairgrounds in central Belgrade, built in the 1950s, are planned for redevelopment once operations move to the new site. This ensures that the EXPO facilities will continue to be used in the years ahead, supporting the economic rationale for the project. Moreover, new transport infrastructure, including a railway link to the city center, river dock facilities, and expanded commercial developments, should further enhance the attractiveness of the location for private investment.

Forecast up to 2027 for the Serbian non-residential market and for the rest of construction subsegments is available in the 2025 Summer EECFA Forecast Report Serbia. To order it or to request a sample report, please contact us.

EECFA 2025 Summer Construction Forecast

Posted on by efalucskai

EECFA released its 2025 Summer construction forecast on 23 June. See a sample report and place your order on eecfa.com. To get discounts, you may contact us.

Southeast European construction markets up to 2027

According to Yasen Georgiev at Economic Policy Institute (EPI), EECFA’s Bulgarian research institute, total construction output in Bulgaria is anticipated to grow by 3% on average for 2025-2027 with a stronger growth in the middle of the period when the absorption of operational programmes and the implementation of the Recovery and Resilience Plan are to gain momentum. According to the sectoral breakdown, residential construction is expected to be the subsector with the weakest performance, while non-residential construction and particularly civil engineering are predicted to see stronger growth figures. Against this backdrop, the country’s economy is set to register a slower-than-expected growth in 2025 and 2026. In parallel, it is awaited to benefit from the effects from the full Schengen area membership effective from the beginning of 2025 and from the euro adoption expected on 1 January 2026.

Michael Glazer (SEE Regional Advisors) and Tatjana Halapija (Nada Projekt), EECFA’s Croatian members think that Croatia’s construction as a whole continues vibrant due to the combination of continuing transitioning-economy catch-up growth and large inflows of EU money. Both are beginning to diminish, however, and that will affect all construction segments, some more strongly and more quickly than others. In building construction several sectors have seen the end or are close to seeing the end of catch-up growth. Others, particularly those that benefit most from EU finance, are still going strong. Civil engineering continues to profit greatly from EU funding, and because of the poor initial condition of Croatia’s infrastructure after independence, much catch-up construction remains to be done. Certain government policies will have a great influence on specific building and civil engineering sectors. Those policies include the housing policies embodied in Croatia’s new National Housing Policy Plan until 2030, the new tax on real estate and the country’s renewable energy permitting and electrical grid hook-up fee rules.

‘Romania’s macroeconomic outlook remains positive, but more reserved as the political instability and fiscal uncertainty have done little to improve growth opportunities’ – says Dr. Sebastian Sipos-Gug, EECFA’s Romanian researcher at Ebuild. At the same time, he adds, the country has the largest government deficit in the EU, which will dampen public investment capabilities. All these will make it harder to finance public works and could negatively impact civil engineering. This is doubly worrying as this subsector countered the decline in other construction segments in 2024, and thus the outlook for total construction remains negative in 2025 and 2026 in real terms. Not all is gloom and doom, however. As inflation and interest rates come down, and employment indicators remain strong, private consumption could boost demand for residential and non-residential construction.

‘In 2025 Serbia’s construction is making new gains in building construction, while civil engineering has entered a period of consolidation after the strong expansion during 2023 and 2024′ – believes Dejan Krajinović, EECFA’s Serbian researcher at Beobuild. Building construction is supported by both public and private investments, boosted by the hosting of the EXPO 2027 in Belgrade. Non-residential construction is the main beneficiary of this event, particularly commercial, office and hotel segments, while residential construction is also keeping historically high volumes. Some delays are seen in civil engineering, but the overall performance is still strong with a long list of planned projects in all major subsegments. Domestic demand is still relatively strong, but economic growth and the level of investments are being muffled this year by uncertainties in the global markets, particularly the weak EU economy, international trade issues and the ongoing wars in Ukraine and the Middle East.

‘Total construction output in Slovenia is expected to decrease from the historic high of EUR 5,5 billion reached in 2023. In both 2024 and 2025, it could contract but remain above EUR 5 billion annually’ – as per the opinion of Dr. Aleš Pustovrh at Bogatin, EECFA’s Slovenian member institute. He predicts the sector to return to growth in 2026 and 2027, mostly on the back of a healthy growth in residential construction buoyed by decreasing mortgage rates. On the other hand, civil engineering is prognosticated to shrink significantly in 2024 and 2025 due to some large projects nearing completion, like the new railroad connecting Port Koper. Both non-residential and civil engineering depend to a large degree on public financing that was widely available in the post-Covid period but will become much less available in 2025-2027. Especially if the overall economic activity continues to slow down. This deceleration and more foreign labourers have also caused lower construction cost growth, but other challenges persist such as the additional bureaucratic burdens (changed permitting process, increase in tax, ongoing discussion on changes to short-term rental legislation, among others) and many external risks in the global economic and political environment. 

Eastern European construction markets up to 2027

‘In the forecast horizon, the construction sector of Russia will be under pressure from a range of macroeconomic factors, the main one being the high key rate, which will negatively affect the pace and volume of construction projects’ – according to Andrey Vakulenko at MACON, EECFA’s Russian research institute. The tight monetary policy and the reduced availability of mortgages will likely slow down housing construction, on the one hand. On the other, the high cost of project financing, the general cooling of the economy as well as reduced consumption and business activity will likely shrink the volume of investment in non-residential construction. However, these trends can partly be offset by high volumes of government financing of priority infrastructure and energy projects, which can support civil engineering and ensure near-zero growth in total construction market in 2025-2027.

Prof. Ali Türel, EECFA’s Turkish researcher says that Türkiye has been trying to control high inflation by raising the base rate and managing exchange rate increases through market instruments by the Central Bank and maintaining wage growth at zero or negative rates. This created financing difficulties for industries and businesses, reduced demand for basic consumer goods, and led to affordability problems for mortgage credits. Big declines in building starts and completions in Q1 2025 may also be related to these measures. Yet, the Central Bank’s inflation target for 2025 remains high at 24%. Positive real changes in housing prices relative to building construction costs encourage house building, while their negative real change compared to inflation may be the leading factor in the increase of home sales through equity financing when mortgage credits are not affordable for most households. Rebuilding the quake-damaged 870 thousand units requires about EUR 100 billion and these expenditures have been the primary factor of the large national deficits in recent years.

‘This year, in spite of the continuing war and the economic instability in the country, Ukraine’s construction industry shows signs of recovery and growth on the back of successful programs financing both the construction of new facilities and the reconstruction and restoration of infrastructure in eastern and southern regions’ – according to Prof. Sergii Zapototskyi at Uvecon, EECFA Ukraine. The World Bank estimates that reconstruction would require USD 486 billion. On the negative side for the sector are bureaucratic barriers in the urban planning legislation, shortage of workers caused by mobilization, shortage and high cost of building materials, and logistical difficulties. On the positive side for the sector is demand for housing and the need to restore damaged infrastructure. The near-term future of the industry depends on the level of security, the effectiveness of restoration programs and the volume of international investments.

EECFA 2024 Winter Construction Forecast

Posted on by efalucskai

EECFA released its 2024 Winter construction forecast on 16 December. Check out a sample report and purchase any of the 8 reports or the package of 8 reports at eecfa.com. For discounts, contact us.

Southeast European construction markets

Total construction output in Bulgaria is forecasted to grow by an average of 3.3% in 2024-2026, which is slightly above real GDP growth projections for the same period. The subsector breakdown shows that residential construction is expected to lose momentum, but this is likely to be compensated by a more dynamic performance of non-residential construction and civil engineering. In parallel, general economic activity in Bulgaria in the forecast period is to be influenced by the effects from the full membership in the Schengen area from 2025 onward and the prospects for the country to introduce the euro on 1 January 2026.

Croatian building construction presents a varied picture across subsectors, with anticipated output growth ranging from significantly positive to somewhat negative. Civil engineering is more uniformly positive, but certain sectors show the effects of the completion and commencement of large projects. Both building and civil engineering output growth will be strongly influenced by new government laws and regulations, the consequences of which, while likely to be large, are difficult to predict for both the short and medium terms. These include the new National Housing Policy Plan until 2030, the new tax on real estate and measures to balance the playing field between different types of tourism accommodations.

Despite the rise in investment, Romania will likely continue to see a stifled growth in construction in real terms due to costs remaining high. Stubborn inflation and the slightly disappointing macroeconomic performance combined with increased wages and still high interest rates create a less appealing environment for investors in building construction. On the bright side, high income and importsare indicative of strong demand for consumption and could translate to demand for construction. While infrastructure did well, the current political turmoil and uncertainty could hobble performance going forwards. Even assuming deficit remains high but stable, as the EC expects, it would continue to raise public debt and make financing further projects more politically difficult. As some downside factors could improve by then, construction growth is forecasted to return to positive in 2026.

Serbia’s construction is likely to have closed another strong year led by civil engineering, but non-residential also entered a new growth cycle with positive outlook boosted by public investments and the hosting of the EXPO 2027 in Belgrade. The construction of commercial, office and hotel buildings are all set to grow in the coming period, followed by education and health. Residential construction is already on historically high levels with a relatively stable performance. In civil engineering, road and railway construction continues unabated, breaking new record volumes on the way, but other segments also have an impressive project pipeline. The economy is set to expand by 4% in 2024 and 2025 on the back of strong consumption and high investment, so construction outputs may sustain formidable levels up to 2026.

Slovenia’s construction sector is expected to maintain post-pandemic levels with annual output consistently exceeding EUR 5 billion up to 2026 against the EUR 3 billion pre-pandemic. Public financing has been a key driver with national budget expenditure up from EUR 10 billion in 2019 to over EUR 15 billion in 2024, though there will be spending limits in 2025-2026. Civil engineering in the forecast period will be supported by major infrastructure projects. Residential construction is set to drop slightly first in 2024 before rebounding by 2026 driven by lower mortgage rates. Non-residential construction is forecast to grow steadily but remain dependant on the availability of public financing. Other challenges remain such as labour shortages, permit backlogs and high costs, but construction cost growth is set to stabilize at under 3% annually.

Eastern European construction markets

In 2024, the Russian construction industry fared better than previously expected driven by the high pace of project implementation and the massive budget support in civil engineering and non-residential construction. It could even offset the negative impacts of the decline in housing construction caused by the end of the mass preferential mortgage program. However, this positive momentum is expected to gradually fade owing to the tight monetary policy of the Central Bank and several other internal and external factors that are slowing down the economy in general and the construction industry in particular. In 2025-2026, the record budget expenditures planned within the framework of new national projects and other measures of state financing will likely maintain construction market volumes in Russia in the positive territory, but with minimal growth.

In Türkiye, increased interest rates and the Central Bank’s policy to reduce the depreciation of the national currency to curb inflation has not yet produced the intended outcomes. And high interest rates are blamed for shrinking industrial output and decelerated trade growth. The interest rate and the Central Bank’s policies had two major effects on the construction sector: big negative real rates of change in construction costs and housing prices. Housing sales are growing as real prices drop and rely on equity financing since mortgage loans have become unaffordable at high interest rates. Building permits in most segments decreased in Q3 2024, while completions had a positive trend. The government’s legal obligation to rebuild the earthquake-damaged 350 thousand buildings with 870 thousand independent units has been the main factor in huge budget deficits that impede the Government from providing sufficient funds for civil engineering projects.

As a consequence of the war ongoing for over 1000 days, Ukraine’s construction market is facing economic difficulties, limited resources, huge losses in buildings, hike in building material prices, lack of skilled workers and limited access to financing, topped with the unpredictability of government decisions and the instability of property rights. The destroyed homes of more than 1.5 million families create a huge demand. Non-residential construction also focuses on the restoration of destroyed buildings and the construction of new ones in safer central and western regions. Civil engineering is also boosted by the renovation of bridges, roads, railways, pipelines, communication and power lines. The ‘Unified portfolio of public investment projects’ recently approved by the government includes 750 big reconstruction projects on roughly UAH 2.36 trillion, while the state budget also has UAH 256.1 billion for public projects in 2025. First, the EUR 50 billion under the EU’s Ukraine Facility are to be used. Financing is also planned through international financial organizations and foreign governments. The priority is energy, transport, utility and public buildings such as schools.

EECFA 2024 Summer Construction Forecast

Posted on by efalucskai

EECFA, our construction forecasting cooperation in Eastern European countries, released its 2024 Summer construction forecast on 25 June. View a sample report and buy any of the 8 reports or the package at eecfa.com. For discounts, contact us.

The expansion phase was over in 2023 in SEE as a whole, but the current contraction is not foreseen to last as long as the latest one after 2008. By 2026 this region could return to around its previous peak. The EE region as a whole is expanding, and we are still optimistic all the way on the horizon.

A closer look reveals that only Romania, the largest market, is behind the overall setback of the SEE region. Here the previous peak is not expected to be reached soon. Elsewhere in the region further expansion is our current view. Serbia’s trajectory is a bit different, but the market could stay at a high level despite the drop next year. Recovery in Türkiye is forecast to be so strong that it could well counterbalance a shrinking Russia. Ukraine is coming back from a very low level, hence the relatively good growth figures.

Southeast European construction outlook up to 2026

Bulgaria’s economy is set to grow by almost 2% in 2024 and 3% in 2025, while the country is heading to a eurozone membership, most likely in 2026. In parallel, construction output is forecasted to decline year on year in 2024-2026 due to expected drop in residential construction and heterogeneous, yet positive performance of the non-residential one. Civil engineering bears a potential for an accelerated growth if EU funds’ absorption bounces back and public investments in infrastructure speed up. 

Croatian civil engineering is moving into even higher gear now, especially with the recent update to the TEN-T Network, which greatly benefited Croatia. Accordingly, output in most civil engineering sectors will rise. Building output presents a more mixed picture, with some sectors having reached or come close to peak output, while others are thriving.

The outlook for Romania’s construction sector remains negative this year. Inflation is shrinking, but more slowly than desired, keeping interest rates relatively high for longer and impacting financing costs. Also, the switch between the EU programming periods, combined with still high construction costs and an election year, will mean lower efficiency in starting and implementing long-term projects. Because the macroeconomic outlook is good and if the other issues are resolved, by 2026 construction might start growing again.

Serbia is expecting to see more stabilization in the construction sector this year, with both building construction and civil engineering estimated to stay in the black. The latter is very close to recording a consecutive double-digit growth in 2024. The economy is picking up, interest rates are slowly receding, so there is confidence that construction can sustain high output levels. Demand stays relatively strong, while stable prices are to keep investments high this year.

Slovenian construction is forecasted to surpass its record 2023 output this year and continue its growth trajectory into 2025, exceeding EUR 6 billion for the first time. Major civil engineering projects will likely drive this growth, bolstered by flood reconstruction efforts. Public investment in housing is planned but is contingent on future public funding availability that will also impact non-residential construction. The industry faces workforce shortages, but increased immigration and declining construction costs are expected to mitigate these issues, supporting further growth.

Eastern European construction markets of EECFA up to 2026

In Russia, the increase in people’s solvency, the restoration of business activity and dynamic economic development ensured growth in construction output last year, but recovery trends are slowing down owing to both external restrictions and internal negative factors. The residential and civil engineering construction subsectors remain key for the industry, but their dynamics depend on the level of government participation and the volume of allocated budget funds. Even though negative trend is forecasted for the residential subsector in the coming years, the drop in overall construction output in 2024-2026 is not predicted to be significant as the market will be supported by the construction of export infrastructure projects.

Türkiye’s economy has been greatly affected by last year’s earthquakes that caused great human and material casualties, requiring the rebuilding of destroyed homes, workplaces, and infrastructure. The government’s costly obligations coincide with a return to conventional economic policies that require austerity. Massive reconstruction spendings have caused huge budget deficits and civil engineering is worst affected by this. Increased interest rates have created affordability problems for bank loans, mostly mortgage ones, so home purchases rely mostly on equity financing and serve as a hedge against inflation. Home permits in Q1 2024 rose due to permits issued in earthquake-hit regions. This, and the private sector’s returning appetite in most commercial building segments, aligns with the expected high GDP growth.

Ukraine is making great progress in overcoming the consequences of the full-scale invasion, showing economic growth. The issue of reconstruction is acute, though. The main problems in the market are rising prices and shortage of building materials, growing costs of logistics and a shortage of skilled labour. In energy the immediate restoration of energy generation facilities is required to provide stable electricity. State and international programs for the restoration and construction of housing will likely contribute to the revival of the construction market. In the coming years, the future of the market, more than ever, will depend on three things: results on the battlefield; Ukraine’s subjectivity in the international arena; and the ability to protect its interests against Russian diplomacy. 

Gulf real estate investors expanding in CEE region

Posted on by efalucskai

An opinion of Dejan Krajinović, Beobuild Core d.o.o., EECFA Serbia

The news that Budapest is entering an investment partnership with the Abu Dhabi based property developer Eagle Hills echoed in the Serbian media since the company has been building a similar project in Belgrade for 11 years now. Their ambition to expand in the regional market has been pronounced in recent years with ongoing initiatives in Albania and Croatia as well. Although Belgrade was the maiden project in Europe for the developer, all projects seem to be arranged in the same way. They are particularly interested in large-scale multi-billion redevelopment projects with bilateral government agreements assuring state support and exclusive market position.

Belgrade Waterfront project with St. Regis Tower, photo by Beobuild

Abandoned railway site put into new use

Just like Budapest, Belgrade had a vast redevelopment area on a former train station covering some 100 hectares of exclusive riverfront property. The area was abandoned by the Serbian Railways after the completion of the new railway node, so it was largely unused, except for some storage and distribution facilities that remained. The Serbian government already had close relationship with the UAE, so negotiations began with Mohamed Alabbar, founder of Emaar Properties. To have a powerful investor taking on the entire redevelopment sounded perfect, the government was on board, and soon the initial deal was signed valued at EUR 3.5 billion, including the construction of around 1 million sqm of multi-purpose facilities. Belgrade Waterfront project was thus born: a core cluster of residential and commercial high-rises on the banks of the Sava River.

Dubious from the start

Controversies included the lack of transparency, broken procedures, redacted contracts and no public or professional debate. The governmental measure to suspend legal procedures for the project by adopting ‘lex specialis’ proclaimed it to be a project of national interest, enabling mandatory land expropriation and suspending tender procedures where procurements are impossible to control. The government was behind the project in full force, ready to remove obstacles for its smooth realization. So, the monumental project left public domain and the country’s legal framework, leading to dissent and public protests for months. The government decided to force realization, which created division in the capital city, fueling a long-lasting political conflict. More than 10 years later, various public organizations and activist groups are still fighting to stop the expansion of the project and are seeking legal conclusion.

Big-league urban renewal project

The initial phase of the project is now largely completed, but in the meantime, Eagle Hills acquired two more plots in Belgrade (50 hectares combined). The commercial success of the initial phase includes around 8000 residential units sold, so UAE investors are here to stay. And why wouldn’t they? Land may be acquired without competition; urban planning rules don’t have to be respected; and there’s massive municipal assistance on infrastructure. Such a large-scale urban renewal project requires enormous financial commitment for new infrastructure from the municipal government: hundreds of kilometers of new piping, dozens of kilometers of new boulevards, energy infrastructure, not to mention the related public transport investments and other indirect expenses. It can also affect the development of existing and older neighborhoods, their need for improved infrastructure since the city budget needs to commit resources in the long term to this new project. Additionally, these massive projects encompass a major share of commercial function (hotels, shopping centers, offices and other related facilities), which can affect commercial investments in other parts of the city. A project of this size creates a new center that can relocate activities and impact demand for both space and services in other locations.

Belgrade Waterfront project, photo by Beobuild

Without having to pay the initial cost of land, Eagle Hills is in a competitive advantage to other investors. Their initial investment appears to have been relatively small, and through the years the project development was mainly funded by reinvested profit from residential sales. In that sense, the bombastic titles of the influx of massive billions are a bit deceiving; however, it will create a new construction hotspot in the city that will stimulate local economy for years to come. It is still unknown how much they invested in Belgrade so far, but it certainly surpassed the initial value of the contract. And if announced expansion plans materialize in Belgrade, the initial figure of EUR 3.5 billion could easily double in the coming years. The speed of its development can depend on market conditions and demand, but if commercially successful as Eagle Hill’s Belgrade Waterfront, the Budapest project will certainly expand as well, particularly if state and municipal governments are ready to fully accommodate the process.

The experience of Belgrade with the Waterfront project has been altogether nightmarish, though. It became a political divide, represents a dubious legal precedent, and created local resentment that still lingers. Many Belgrade citizens cannot consider it positive for valid reasons, so it may remain politically and legally contested for years to come. Although Belgrade Waterfront achieved a relative market success, when a commercial project creates long lasting negative social and political consequences, its benefits diminish. Let’s hope Budapest will do better than Belgrade.

EECFA 2023 Winter Construction Forecast

Posted on by efalucskai

EECFA, which celebrates its 10th anniversary this year, released its 2023 winter construction forecast on 15 December 2023. The new reports can be purchased, and a sample report can be viewed at eecfa.com.

No clear direction in the Southeast European region of EECFA; 2024 is foreseen to experience a decline, but a comeback is our current scenario for 2025. Expansion is projected to prevail all the way until the end of the forecast horizon in the East European region.

Romania is expected to contribute most negatively to the shrinkage of the SEE region in 2024. The rest of our countries is forecast to perform better. Bulgaria, Croatia and Serbia could end up at higher level in 2025 than what was experienced in 2023. Upswing in Türkiye is envisaged to pull the EE region up and we still believe that shrinkage in Russia is about to come. Not a particularly strong, but recovery is projected in Ukraine.

Construction outlook up to 2025 in Southeast Europe

Bulgaria’s economy is expected to lose momentum in 2023 that will translate to a lower, yet positive growth in 2024. Against this backdrop, construction output is to follow this trend with heterogeneous performance on segment level. While in the forecast period till 2025 civil engineering and non-residential construction will likely contribute with positive growth figures, after several strong years, residential construction is predicted to witness a new normal with negligible annual growth rates from 2024 onwards if any.

Croatia’s construction output will continue to grow, rapidly in 2023 and less robustly in 2024 and 2025. Civil Engineering construction is poised to become the brightest star in the country’s construction firmament with Buildings showing considerable sector to sector variation, but overall not performing as strongly as in the past.

Romania’s construction is expected to shrink in 2023 in real terms. Economic growth is slowing down under sticky inflation and high financing costs. Further slowdown might come in 2024 as multiple elections, political pressure to lower budget deficit, high social spending and the transition to the new EU programming period would make it challenging to focus on public projects. The outlook doesn’t look better on the private investment side with tight labour market and sluggish consumption growth expected for 2024. By 2025, return to growth is postulated as most of these obstacles may dissipate. 

During 2023, Serbia has been performing better than initially expected with the economy picking up in the second half of the year and construction outputs registering another record high. While the construction of buildings is consolidating in a moderate manner, civil engineering surged with a double-digit growth rate. The easing of inflationary pressures is also helping market stabilization, while high interest rates remain a major impediment for growth in short-term. 

Slovenia’s construction industry in late 2023 faces economic challenges exacerbated by unprecedented floods in August, causing EUR 10 billion in damages. Despite workforce shortages leading to increased construction costs and inflation, the sector is expected to see a significant rise in output with civil engineering projects, including flood repairs and infrastructure initiatives, driving growth. However, concerns arise over the potential deceleration in growth in 2024 and 2025, mostly in residential and non-residential construction even as reconstruction efforts in civil engineering gain traction.

What to expect in the Eastern European construction markets of EECFA

In Russia, stable government support, a relatively favourable macroeconomic environment, and the general resilience of the industry to external challenges ensured positive dynamics in construction in 2023, making the forecast more optimistic for this year. The industry’s development strategy prioritizes housing construction as well as transport- and energy-related projects. The positive momentum is not predicted to last long, though, and in the 2024-2025 horizon we might observe contraction in construction market volume, mainly due to the expected decline in the residential market which might outweigh the positive dynamics in other subsectors.

Türkiye’s economy has been impacted by two developments with one being the reconstruction of collapsed buildings and infrastructure in recent earthquakes where most tax revenues went, causing large monthly budget deficits. The other one is increasing interest rates. Although the Central Bank increased the base rate from an 8.5 base point level to 40 in six successive months, it couldn’t curb inflation and there are exchange rate rises along with inflation. The construction sector grew at higher rates than the GDP as the national average on the back of building construction in earthquake-hit provinces. Growing interest rates reversed most of the problems caused by the low-interest rate policy, but it also led to an increase in construction cost and hit the affordability of purchasing homes.

Ukraine’s construction market has been struck by the ongoing war. According to official data alone, almost a million flats, tens of thousands of non-residential buildings, thousands of kilometres of roads, railways, bridges and other infrastructural facilities were either destroyed or damaged. The construction industry partially lost its raw material base and production as most metallurgical enterprises located in the south and east were destroyed or occupied. The main construction segments that can predictably develop even during the war are the restoration of damaged housing and social infrastructure, civil engineering, construction and modernization of industrial production.

EECFA 2023 Summer Construction Forecast

Posted on by efalucskai

In Southeast Europe the forecast is mixed across the board. For this year, EECFA expects expansion in all but one of its five small countries’ construction markets (Romania). For next year, Serbia will also likely join by turning into negative territory, while in 2025 Croatia is forecasted to be the only country to register a drop, albeit a modest one.

In the Eastern European region of EECFA, construction forecast up to 2025 is positive for Türkiye and Ukraine, while in Russia it seems gloomy all the way. In Türkiye, the reconstruction after the February quakes is the key driver, while in Ukraine, a lot will depend on how fast and how soon the reconstruction of the damaged stock can be carried out. EECFA has attempted to make its first forecast for Ukrainian construction since the war began.

Construction up to 2025 in Southeast Europe

In Bulgaria, the new coalition government can mitigate the expected economic slowdown in 2023 by speeding the absorption of EU programs and the implementation of Bulgaria’s Recovery and Resilience Plan. Total construction output is estimated to achieve real growth in 2023. Factors in favor of this forecast are the strong tailwind in residential construction, a slight growth in non-residential and expectation for an improved performance in civil engineering.

Neither inflation nor population decline could stop Croatian construction output’s growth in 2022, and 2023 looks likely to follow suit. Figures for some Buildings sectors, e.g., Retail and wholesale and Residential, contain surprises. Performance of certain Civil engineering sectors was unexpectedly strong due to events that may be one-off or instead portend a trend.

High construction cost is a major factor behind the expected downturn in Romanian construction this year and next, but the market should recover by 2025. EU funding from the 2013-2020 programs has a spending deadline of 31 December 2023, and with the new 2021-2027 programs still in early phases of implementation, a gap is expected in output while the switch takes place. Also, 2024 is a quadruple election year for Romania (local, parliamentary, presidential, European parliament), bringing new challenges for construction as power transition can bring new priorities and strategies.  

Serbia is feeling the consequences of the economic slowdown in the European Union, but so far it seems it will avoid recession in the short term. Construction outputs are also showing a mixed picture with building construction suffering contraction in volumes, while civil engineering will likely break new record highs in 2023. And even though there is a lot of uncertainty, the high level of investments is still maintaining positive economic growth and strong employment figures. 

The Slovenian construction industry continues to exhibit resilience amidst a thriving economy. While challenges such as inflation and higher interest rates pose hurdles for the residential construction subsector, non-residential and civil engineering are benefiting from increased public investment. By capitalizing on these opportunities, the industry is well-positioned to contribute to the country’s ongoing economic growth and development.

Outlook in the Eastern European construction markets of EECFA

Last year the Russian economy showed relatively high resilience to the negative effects of sanctions. One growth point was construction that showed much better-than-expected dynamics. Russia’s ‘Turn to the East’ notion in the new external political-economic conditions requires intensive construction of infrastructure objects, which fueled growth in construction in 2022. Going forward, the market will likely show decline driven by negative trends in residential and some downturn in civil engineering on the back of a high base in 2022.

After the elections held on 14 and 28 May 2023 in Türkiye, the value of Lira has been falling, creating financing difficulties for contracted construction projects using imported materials. In Q1, the economy accelerated annually owing to strong domestic demand and low interest rates, while construction continued to regain senses. The two earthquakes in February in 11 provinces caused massive human casualties and damages to over 300 000 buildings and infrastructural facilities. As the Government must restore buildings and infrastructure, growth in construction will speed up in the years to come.

If hostilities end in 2023 and Ukraine’s territorial integrity is preserved, post-war reconstruction will cost several hundreds of billions of US dollars according to various recovery plans. About 3 million Ukrainians saw their homes destroyed and about a third of the infrastructure is damaged. The war caused widespread damage to the construction sector and full recovery is only expected after the war ends. Now there is a partial construction of destroyed or damaged residential, non-residential, and critical infrastructure facilities in relatively safe areas with the help of compensation programs at state and local levels and mortgage programs. A key challenge though is the acute shortage of building materials (glass, cement, asbestos, and gypsum, among others). Resumption in construction will improve the country’s post-war economy, provide jobs, increase the production of materials and open new enterprises.

The EECFA 2023 Summer Construction Forecast Reports up to 2025 have been released and can be purchased on eecfa.com where a sample report can also be viewed.

April briefing on Serbia

Posted on by efalucskai

Written by Dejan Krajinović, Beobuild Core d.o.o., EECFA Serbia

High inflation and rising interest rates seem to have bitten in overall consumption. And although Serbia is likely to avoid recession in the short run, its real GDP growth is estimated to be a moderate 2%-4% this year and next with a downside risk being the looming recession in the EU. The rental housing market has been supported by the Russian and Ukrainian citizens settling down in Serbia, keeping rent rates high. Housing construction is still strong and although the volumes in building construction are already consolidating, big infrastructure projects could sustain civil engineering on all-high levels in mid-term.

Property market developments

Macroeconomic conditions in Serbia have been under significant stress for a while now, and continuously strong inflation has already produced a major drop in overall consumption. The real estate market was expected to start cooling down in 2022, but instead, there was another record year in both volume and the number of transactions. Unlike real estate markets in a number of European countries, where under the influence of interest rates there was a considerable slowdown and drop in prices, the level of real estate prices in Serbia recorded a strong growth during 2022. With lot of uncertainty on the horizon, home permits have already started pulling back in 2023, but this is still not visible in property prices. Demand stayed stronger than supply, and monetary policies of the ECB and the National Bank of Serbia have had little effect on the market so far. 

Photo – Beobuild Core d.o.o.

During the last twelve months the National Bank of Serbia significantly tightened its monetary policy by increasing reference interest rates from 1.5% to 6%, as of April 2023. Since inflation in Serbia is in large part imported through energy and food costs, rising interest rates could start suffocating the economy, so the National Bank will have to consider diversifying its means of fighting the inflation. At the same time, Euro-indexed home loans also reached similar interest rate levels of around 6% in Q1 2023. While the total number of transactions grew in 2022, the share of mortgages decreased from 13% in 2021 to just 11% of all property transactions in 2022. Home market has a bit higher exposure to loans, making some 20% of all transactions supported by mortgages, but interest rate hikes barely affected overall numbers. During the Q1 2023 similar trends continued, where prices continued to grow and the scale of transactions only fell slightly in number, but not in value.

Beside strong tourism figures, there has been some 200.000 residence and working permits issued for citizens of Russia and Ukraine since the conflict started – an unexpected support for the home market and accommodation. In March 2023, 10.000 residence permits and 5.000 working permits were issued: a monthly record so far. The newly arrived have certainly been felt in the renting part of the market as monthly rents hit the roof during H2 2022. The situation stabilized during Q1 2023, but the small renting capacity will keep prices high for the time being. Those who decide to stay and build a life in Serbia will eventually enter the buyer market, and the majority is highly educated and employed.

Expectations in economy and construction

Although employment still stands strong in Serbia, as in many other European countries, it will inevitably feel the economic shift and face challenges in due course. Particularly if current international conditions and trading relations stay severe or even worsen in the coming period. So far, it seems that Serbia will most probably avoid recession in short term, but real GDP growth will relatively be weak, ranging between 2%-4% in 2023 and 2024. Employment continued to grow in 2022 and Q1 2023, so the situation is still stable, but new challenges could emerge in H2 2023 and later in 2024. The worsening economic situation and looming recession in the EU is the main risk for the Serbian economy, as the EU is an important source of investments and a prime export destination.   

In order to mitigate the expected lower investment activity of the private sector, the Serbian government will certainly push for the realization of public investments. The ongoing campaign of large-scale infrastructure projects should continue in most civil engineering segments, including roads, railroads and utilities, so this should sustain civil construction on record levels in mid-term. The construction of buildings and its volume will be challenged far more, but the good news is that FDI inflow to real estate continues to be very strong in segments like industrial and storage, office or residential. The volumes in building construction are already consolidating, but the picture is still mixed in different segments. The residential market is still not showing weakness and construction activity here remains strong. Also, the Serbian market has very low vacancies in commercial and office segments as a healthy parameter and strong foundation in the current economic environment.

At the moment there are still significant risks related to the scenarios of a prolonged and escalating economic crisis, but there is still hope the worst can be avoided.

Forecast for the Serbian construction market is available in the EECFA Forecast Report. EECFA conducts research on the construction markets of 8 Eastern-European countries. For orders and sample report, go to eecfa.com.

EECFA 2022 Winter Construction Forecast

Posted on by janosgaspar

EECFA’s 2022 Winter Construction Forecast Report was released on 5 December. Full reports can be purchased. Discounts and sample reports: info@eecfa.com. EECFA (Eastern European Construction Forecasting Association) conducts research on the construction markets of 8 Eastern-European countries.

Yet another downward revision characterizes the forecast for both regions. Southeast Europe could see shrinkage on the horizon. This, however, comes after a great period of construction in between 2016 and 2021, so the market is foreseen to come down from a peak level. In this respect, the 3% decline until 2024 is no drama, in EECFA’s view. The drama is in East Europe where the peak was reached in 2018 and the market was around 10% below that peak level even before the Ukraine war began. Since then, EECFA has paused issuing forecasts in Ukraine and a status report has been prepared. Without Ukraine, the region is expected to reach its bottom in 2023.

In Southeast Europe, almost all countries have been revised downward. Three out of them, however, could see expansion until 2024. The foreseen contraction in Romania and Serbia pulls down the region to negative. Romania is quite pessimistic; the market could shrink by almost 10% by 2024. Serbia is expected to witness a sizeable drop, too, before growth returns in 2024. As the region saw much construction in 2016-2021, the market will likely decline from the peak, making the 3% drop on the forecast horizon not-so-drastic.

Bulgaria:

  • Under the projected economic slowdown, construction will increasingly be affected by the ongoing political instability that is likely to undermine reforms within the Recovery and Resilience Plan, and delay implementation of the EU’s operational programmes.
  • Тotal construction output is estimated to have grown in 2022.
  • For 2023-2024 civil engineering is forecasted to increase at a more accelerated pace.

Croatia:

  • Residential construction output held up in 2022, impervious to war and disease. But it’s likely residential’s rapid growth will over time succumb to rising prices and a falling population.
  • Rail construction output will rise as more rail projects come online. Some new high-cost road projects may yet be undertaken for political reasons.
  • Energy prices will fuel building of oil/gas port facilities, pipelines and storage in 2022-2023, construction that the EU’s green-energy push may quench in favor of renewable energy and power grid projects.

Romania:

  • The Romanian construction market is set to shrink slightly in 2023 and 2024 as internal and external factors conspire to make building materials more costly. 
  • Inflation-induced lower purchasing power and growing mortgage interest rates are making loans more expensive, and few people can afford to buy a home in cash. 
  • On the one hand, Romania could benefit from the current global instability and attract more foreign investment to grow its economy. On the other, increased energy costs translate to higher operating and construction costs and discourage investment. 

Serbia:

  • The challenging economic situation will undoubtedly have negative effects on construction outputs. But how negative is the question of external factors and the coming events.
  • The domestic market is strong, with high public and foreign investments, as well as record employment. The highest economic risk comes from inflation and the expected recession in the EU.
  • The current economic slowdown could deepen the contraction in case of a prolonged crisis.

Slovenia:

  • Slovenia has experienced expansion in construction output on the back of the strong overall economic growth.
  • However, risks for the future include high inflation, large construction cost increases, and overheating economic growth. And increased interest rates will depress residential output in the future.
  • Supply chain constraints might jeopardize the completion of large civil engineering projects.

In East Europe, 2022 could be the 4th consecutive year of drop in Türkiye, and no quick recovery is foreseen on the horizon. We have turned somewhat optimistic in Russia, but only from 2024 on. Without Ukraine, the region will likely hit bottom in 2023. The region reached its peak in 2018 and just before the war in Ukraine started, the market was around 10% below this 2018 level. Owing to the war, Uvecon, the Ukrainian member institute of EECFA, has prepared a status report for the second time instead of the forecast report.

Russia:

  • Direct and indirect effects of sanctions hammered the construction market that declined faster in 2022 than previously expected.
  • Forced acceleration of projects in transport and energy, in response to export and import structure changes due to sanctions, will spur growth in civil engineering.
  • Many targeted programs and national projects will support the construction sector throughout the forecast horizon.

Türkiye:

  • The construction industry has been trying to deal with high inflation that has led to 120% yearly rise in construction cost and 189% increase in housing prices.
  • There has been some deficit between produced and needed home numbers since 2000, augmented by the influx of refugees from Syria and neighbouring countries (3,920 million registered; unknown unregistered).
  • The low-cost housing project of the government as of September is expected to stop the current slump in the construction sector.

Ukraine:

  • Prospects for construction depend on the existing situation on the market as a result of the destruction of residential, non-residential and engineering infrastructure, and the end of hostilities with the possible economic recovery.
  • Total area of damaged or destroyed housing is 74.1 million sqm (7.3% of the total area of Ukraine’s housing stock), a number which, unfortunately, grows every day. Restoring the housing stock will become a key issue for Ukraine after the war ends.
  • Energy infrastructure remains the top priority for recovery, as nearly 40% of the energy system has been destroyed.