Non-residential Construction Forecast

While 2023 experienced robust and somewhat unexpected growth, 2024 is anticipated to shift gears with a slight decrease in building volumes across many European countries. However, as we look ahead to 2025, the industry is poised for renewed growth, driven by evolving trends and increased investment in innovation and sustainability. Let’s explore the upcoming industry trends and the key factors influencing these dynamics.

Prognosis and State

Our metrics indicate that 2024 will be a year of adjustments, facing certain pressures after the exceptional growth of 2023. European construction is projected to experience a slowdown, particularly in the UK (-3.8%) and Germany (-2.5%). While not as pronounced across all countries, this decline is largely attributed to decreasing volumes of new builds and other long-term indicators, such as building permits.

Looking ahead to 2025, the industry is expected to recover and see moderate growth as it adapts to ongoing challenges and embraces emerging opportunities. Below, we’ve outlined key trends and factors shaping these dynamics.

Interest Rates

Rising interest rates remain a significant hurdle for the construction industry, impacting the pace of new developments by increasing financing costs. In 2024, funding new projects became more expensive, hindering new builds. However, in 2025, there is optimism for streamlined construction processes and alternative funding opportunities to counteract these pressures.

Material Prices

Although material prices saw a moderate decline, the industry continues to grapple with elevated costs. The disruptions from the global humanitarian crisis (e.g., the Russo-Ukrainian war) have left lingering effects on supply chains. In 2025, gradual stabilization in global markets and enhanced logistical efficiency may help mitigate these challenges further.

Labour Shortage

The persistent labour shortage continues to strain the non-residential construction sector, driving up labour costs. By 2025, targeted efforts to address this gap, such as investments in training and upskilling, could ensure a more robust workforce, enabling the industry to navigate future demands effectively.

Uncertainty About Economic and Political Development

Economic and geopolitical concerns will likely ripple through construction in both 2024 and 2025, causing hesitation to commit to large-scale projects. Inflationary pressures, regulatory changes, and global tensions present ongoing challenges. However, a more stable outlook in 2025, coupled with adaptive strategies, could encourage renewed confidence and investment.

Sustainability Efforts

Despite a decline in sustainability adoption in 2024, driven by higher costs and geopolitical instability, 2025 is expected to bring renewed focus on greener practices. With growing awareness and stricter regulations, sustainability could regain momentum, particularly in heating systems, energy-efficient designs, and the circular economy.

Perspective Shift

The extraordinary growth of 2023 set an unrealistic benchmark, making 2024 appear less impressive by comparison. However, this adjustment represents a return to more sustainable growth patterns. In 2025, the industry is positioned to regain momentum, balancing market demands and long-term goals.

As the European construction sector navigates these evolving dynamics, the road ahead presents both challenges and opportunities. By staying proactive, the industry can capitalize on growth trends in 2025 and beyond.

2025 Coming Up Strong

It’s not all bad news. Research so far suggests an upcoming rebound, with the construction industry again expecting growth in 2025. So compared to 2024, an increase of total production is projected throughout European countries (Netherlands +1% France +2%, Germany +3%, Italy +3.9%, Spain 6.0%), with the exception of the UK (expected to continue a downward trend of another -2%). Here’s what’s driving the upswing.

Fig. 1: projected change in total construction production per country, 2025 compared to 2024.

Affordable Housing

Northern Europe is faced with a unique and pressing shortage of housing. The construction timelines can only be postponed so long before projects are carried through to completion, and 2025 is expected to see a surge in project finalization to address this critical need. By tackling the housing shortage, 2025 could mark a significant step towards a more equitable and inclusive housing market, while serving as a model for other regions facing similar challenges.

Drop in Material and Building Costs

What’s stifling 2024 will most likely loosen its grip come 2025, so the overall costs of construction will be impacted greatly. Lower material and building costs, coupled with a stabilized supply chain, will significantly impact construction budgets.

Interest Rate Drop

An anticipated decrease in interest rates will be a welcome catalyst for new builds and overall housing market activity. Lower borrowing costs will make it more affordable for developers to secure financing for new projects, ultimately leading to an increase in construction starts. Additionally, lower interest rates will incentivize potential homeowners to take out mortgages, boosting demand for newly built properties

Sustainability Uptick

After a noticeable slump in 2024, we expect to see a renewed focus on sustainable construction practices. This means investors are swaying towards projects committed to eco-conscious efforts, energy-efficient technological advancements, boosted by favourable government incentives. Stay tuned for these developments.

Renovation Gaining Momentum

The sector is poised for a renovation wave. This trend could lead to a revitalization of existing structures, fostering a more sustainable and cost-effective approach to non-residential construction in 2025.

Conclusion