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Study: Construction industry in transition

Conclusion of the study: Despite the current decline in order intake, the German construction industry remains resilient. “Not everything is headed south,” states Dr. Sebastian Theopold, the author of the study. “Despite the decline in orders, the industry has significant growth potential in the coming years, driven by high order backlogs, the investment gap in infrastructure construction, and the trend towards energy-efficient renovation.”“

Positive global construction trend

According to MCX, the Munich Strategy Construction Index, the construction industry has shown a slight positive performance in the capital market compared to the overall market DAX since 2018. It has also recovered faster and more significantly from the impact of the COVID-19 pandemic. The construction industry in the United States is growing rapidly, with the index value for the US increasing by 62 percent since March 2020. Meanwhile, the Asian construction industry has experienced a recent decline, falling by over 60 percentage points since February 2021. In Europe, the MCX has shown above-average recovery since its lowest point in September 2022, rising by over 45 percent.

Germany: Housing demand and energy-efficient renovation as drivers

High order backlogs and construction surpluses can compensate for the current decline in order intake. As of early 2022, there was a construction backlog of over 846 thousand apartments, compared to a 24 percent decrease in order intake in non-residential construction in January 2023. This development aligns with the business expectations of companies, with 26 percent of surveyed CEOs expecting a better order situation in the next twelve months, and 67 percent expecting it to remain stable.

The demand for housing continues to drive the industry. Without a significant improvement in construction speed, the undersupply of housing, especially residential units, is expected to exceed one million units by 2030. Additionally, a significant investment deficit in infrastructure has accumulated over the past two decades. The study authors anticipate that investments in civil engineering will increase disproportionately to the gross domestic product to ensure maintenance and meet future needs.

The trend towards energy-efficient renovation can also mitigate the decline in order intake. Of the nearly 22 million existing buildings, 6 percent were constructed before 1979 and no longer meet current requirements. While repair and embellishment projects currently dominate residential renovations at 62.5 percent, measures to improve energy efficiency are projected to drive the renovation business from 2025 onwards, accounting for 25 percent of the renovation market.

Not all segments benefit

According to Munich Strategy, depending on the construction occasion and building type, certain areas of the construction industry will benefit from current developments and experience significant growth, while others will lose importance. Products aimed at increasing energy efficiency are expected to experience a particular boom, while typical building construction products may face temporary declines in demand.

Construction prices remain high

The study authors do not anticipate a decline in construction prices in the coming years. The reasons named include ongoing volatile material prices, salary raises to bridge the supply-demand gap, high demand for construction services, and the government’s renovation plans for German infrastructure.

Employee retention and productivity improvement are top priorities

Employee retention and productivity improvement have become increasingly important differentiating factors for construction industry executives. Labor shortages and limited resources create the pressure to drive automation and digitalization. Over 65 percent of respondents see significant productivity deficits in operational processes such as procurement, logistics, and construction execution. Investment in automation and digitalization is a top priority for nearly half of the CEOs.

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