Czech Republic logged double-figure growth in building construction in 2017

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Growth in Czech construction output resumed in 2017 following an estimated 9% reduction a year before. In 2014 and 2015, the Czech construction industry started to recover as a result of a number of fresh investments, mostly in the civil engineering subgroup. It is estimated that construction output in the Czech Republic increased in real terms by about 7% year on year in 2014, and this was followed by another spurt of growth, of almost 6%, in 2015. However, the downward trend resumed in 2016. The construction output figure registered in 2016 was approximately 24% less than the figure for 2008, the year before the economic crisis reached the Czech economy. Much of the reduction in 2016 was driven by civil engineering construction, which is estimated to have been diminished by more than 23% year on year. That year, the key factor driving down the civil engineering subgroup was a sharp fall in investment caused by lower disbursement of the EU funds due to the gap between two financing periods. A 5% reduction was also seen in the non-residential subgroup.

It is estimated that investment inflow rebounded in 2017, chiefly in building construction activity, boosting construction output by almost 4% year on year. Residential construction is estimated to have experienced a higher year-on-year increase than that of non-residential construction: 18%, as opposed to 13%.

The growth stopped in 2016 as the investments, particularly in civil engineering constructions, slowed down significantly. All months in 2016 except for December saw declines in construction output. The trend changed in 2017, when a negative year-on-year rate of growth was observed in only three months.

The civil engineering construction, which has traditionally led among the construction segments between 2008 and 2016, lost its leading position in the total construction output in 2017 after a massive decline. The share went down to nearly 36%, a low-record figure in more than ten years. The slow development also in the civil engineering segment has helped mostly non-residential construction to claim a large chunk of the pie, of 42.1%, an unprecedented figure in the past decade. As the civil engineering output is expected to grow again in 2018, the balance on the construction market is likely to revert.

It is estimated that the non-residential subgroup experienced a double-figure rebound in 2017 (+13.3% y-o-y), but that the strong growth was, to a considerable extent, supported by the low base effect, which had occurred in the wake of reductions of 3% and 5% in 2015 and 2016 respectively. Estimates suggest that the 13% rebound in 2017 was mostly achieved thanks to the investments in public buildings as well as in industrial and logistics constructions.

In the Czech Republic, the non-residential construction output is dominated by industrial and warehouse construction, which in 2016 accounted for almost 43% of the total output in this segment. Investment in the construction of public buildings tumbled in 2016, mostly because of the reduction in support from the EU funds and the government’s burgeoning predisposition toward a tight fiscal policy. Construction output generated in this subgroup fell short of that of office construction for the first time in many years. The share of construction output involving office buildings, as a proportion of total non-residential construction rose from approximately 14% in 2011 to 16-17% in recent years.

In recent years, the Czech construction sector has been markedly fuelled by accelerating residential construction activity. The first real sign of recovery in building completions came in 2015, when over 25,100 units were completed throughout the country, an annual increase of almost 5%. Further growths were recorded in 2016 and 2017. The number of completed dwellings in the country increased by nearly 9% year on year in 2016, with another 3% expansion being achieved in 2017. Still, the estimated number of homes completed in 2017 fell 32% short of the high record of 41,649 achieved in 2007.

The number of residential building permits has increased markedly in 2017, which indicates that this market is likely to grow in 2018, at least, as developers will try to keep up with the swelling demand for flats. It is estimated that building permits for construction of new dwellings with total floor area of about 3.65 million m² were issued throughout the country in 2017, which is 19% more than the value permitted a year before. Furthermore, with the household incomes increasing steadily and mortgage interest rates hovering around record low levels, individuals’ intention to purchase a flat also has improved significantly since the first quarter of 2015, with the last quarter of 2017 experiencing the best figure since 2001, at least.

 


More information on this topic is presented in the PMR report:
Construction sector in Czech Republic 2018. Market analysis and development forecasts for 2018-2023