Forecast for the Construction Sector

Transcription

1 Forecast for the Construction Sector September 2016

2 F 2017F Forecast for the Construction Sector Page 2/8 Introduction This update of the economic analysis focuses on 2016 and Compared to the analysis from February, the employment has increased more than expected. In particular, employment has exceeded expectations within construction of new buildings. One of the main reasons is that the significant delay in the construction statistics has caused revision in years that were considered finished, while we also expect a later upward revision of the national accounts. The forecast in brief The economic setting for this edition of the economic analysis is more positive than it has been in previous years. We have emerged from the crisis and increasing growth is expected in the coming years. Meanwhile, the housing market is picking up the pace, which is essential to the activity in the construction industry. At the same time, we are seeing the employment increasing, and as such, the unemployment is decreasing while we see increases to real wages. It is widely accepted that the construction industry is dependent on the economic activity in general, and as such, the improved conditions to the economy are having a positive impact on construction activity. Thus, we expect further progress in the last quarter of 2016 as well as in The increase in the construction of new dwellings is partly due to the improvement in the housing market. Furthermore, an additional 8,200 smaller dwellings will be built for refugees in the end of 2016, in 2017, and in This gives a good foundation for kicking off the construction industry. This will lead to 22,500 new dwellings in 2017, which is the first year since 2007 to break the 20,000 mark. On the other hand, there might be uncertainty in the housing market on the long term due to a new assessment system to be introduced and possible restructuring of property taxes. The improvement in the housing market also has great significance for the repair and maintenance market, which will be continuing its improvement in coming years. Certainly, the activity stemming from the new green subsidy scheme Boligjobordning, which continues in 2016 and 2017, is falling. Meanwhile, the renovation of social housing is also falling from its very high level that peaked in The level is still high by historical standards, though. The general economic improvement in society coupled with rising house prices and an extremely low level of interest rates means that overall, we are expecting continued improvement in repair and maintenance. The picture is grimmer when it comes to investments in civil engineering. Here investments in state roads are falling considerably and the decline in construction will not be offset by new activity in other areas. There will be no noteworthy activity expected from the Fehmarnbelt tunnel and Storstrøms Bridge. Activity in the construction industry is found in all areas of Denmark, but within each region, the activity is concentrated in the larger cities. The increased activity means that within certain professional groups and geographical areas of Denmark, finding qualified skilled labour can be a challenge. This challenge becomes present in the long term, despite the construction sector being one of the sectors that take in the most apprentices per skilled worker. Employment We expect the employment in the construction sector to increase by 5,000 this year, adding up to a total of 160,500 employed workers, white collars and master craftsmen in the industry. Table 2 on the last page shows employment divided into main areas. Since 2013, employment has increased somewhat in the construction industry. While on one hand, a few more homes have been built, there has also been considerable activity in the market for repair and maintenance and the market for civil engineering. At the same time, there may also have been a tendency to exercise labour hoarding, which means holding on to your best employees even though you might not have work for them at all times. You hold on to them because you expect to need them in the future. Figure 1: Employment in the construction sector, , 1,000 employees Total employment Average

3 F Forecast for the Construction Sector Page 3/8 In 2017, we expect that employment will rise by 4,500 persons. This increase is carried primarily by new construction and the market for repair and maintenance. Employment in civil engineering is expected to decline by 500 persons. In 2014 and 2015, the increase in residential construction was primarily driven by private new homes, while the increase in 2016 and 2017 is driven by social housing. See also Table 3. New Construction New construction hit bottom in 2014 with 5.1 million square meters of new construction. In 2015, we estimate this to have increased to 5.3 million square meters. With further rises in 2016 to 5.7 million squares meters and 6.0 million in 2017 (see Figure 2). It is especially the construction of housing, which is rising in 2016 and 2017, but there are also increases in manufacturing and administration buildings. We also expect that more public buildings will be built. This can be seen in greater detail in Table 4. Figure 2: Commenced construction , million square metres floor space Gross floorspace (sq.m) Average of the period Just as with our assessment of the number of newly built square metres we also estimate of the final number of new homes on the quite uncertain figures from the BBR register. Figure 3: Number of commenced housing Private Housing If we zoom in on the private residential construction, we have seen an improvement in this market in the recent years. Both housing prices, the number of trades and the storage times of houses have gone in the right direction, which spurs the demand for new construction. Especially big cities have a growing housing market, but the positive trend is about to spread throughout the country. The construction statistics are continually being updated with rather large revisions using data from the so-called BBR register. In this progress, we make our own estimates of the final level based on the BBR-data. Therefore our figures are not comparable with the figures from Statistics Denmark. The same applies to the number of new dwellings. Residential Construction Residential construction has been increasing since 2013, when it hit a level of 11,500 homes. Since then it is expected to increase to 16,700 homes in 2015 and to 19,500 in In 2017, we expect to exceed 20,000 homes for the first time since the financial crisis, as we estimate 22,500 new homes to be built in These are relatively large increases, but compared to our estimate of the annual housing needs of 20,000 new homes (in addition to replacement construction), it is not a fierce improvement. Especially from 2013 to 2014, we have seen an increase in the number of new dwellings in multi-family houses, from 3,500 in 2013 to 6,400 in When comparing the reports for the first half of 2015 and the first half of 2016, there has been a large increase in the number of commenced dwellings. Therefore, we expect for the whole year 2016 that there will be commenced 1,400 units than I In 2017, we expect 8,300 private new dwellings in multifamily houses. Similarly, we expect growing activity in single-family and townhouse construction. Here, the number of new dwellings will increase by a total of 800 and 700 homes from 2014 to 2017, respectively, meaning that we will end up at 4,600 single-family houses and 2,600 double-, town- and chain houses. Social Housing Construction From virtually standstill in social housing from 2014 to 2015, the social housing is increasing in 2016 and even

4 Forecast for the Construction Sector Page 4/8 more in 2017, particularly due to the need of social housing for refugees. In May 2016, Danish municipalities were granted extra funds to construct a maximum of 10,000 homes, but at the time of writing the expected amount is 8,200 homes. Commercial Construction Commercial construction has been reduced to a shadow of its former self during the financial crisis, and it has not been able to regain the previous level. In 2015, we estimated that almost 2 million square metres of commercial building was commenced less than a third of the level in Non-residential construction consists mainly of 1) factories and workshops, 2) administration, commerce and warehouses as well as 3) farm buildings, and all three types of buildings have experienced a significant decline. See Table 4 for the detailed figures. For agriculture we expect a slight increase from 2015 to 2017, and as such we are expecting to reach a level of 0.78 million square metres in It is primarily driven by the general growth in the economy, but there is a risk element in Brexit, as UK is a very important market for Danish farmers. For factories and workshops we expect a relatively large increase from 2015 to 2017, totalling 0.04 million square metres, meaning that we will hit 0.34 million square metres in The improvement is based on the rise of the industrial production index, the great revenue situation, the increase in capacity utilization as well as the decrease in unused facilities. At the same time, a pent-up demand for investment is expected since the level of investment has been very low in recent years. On the other hand, a structural movement towards less production in Denmark is on the way due to globalization. For administrative buildings, we expect a 0.05 million m 2 increase from 2015 to Again, this is based on the decreasing number of unused m 2 during the recent years, which has made new construction more attractive. At the same time, especially the service sector with industries such as knowledge services, information and communication are the driving forces of the improvement in the Danish economy, which in turn generates a higher demand for construction. Construction of Public Institutions Through the crisis years, the construction of public buildings has helped keeping the new construction stable, which has held a steady level of million m 2. Until 2017 the new construction is expected to increase to 0.5 million m 2, which is due to the construction of new hospitals. Repair and Maintenance The market for repair and maintenance has been a light in the dark in recent years. It has been driven partly by large investments in renovation of social housing, partly by the old subsidy scheme Boligjobordningen which has helped creating activity in the private market was the last year where you could use Boligjobordningen in a wide range of construction projects. In 2016 and 2017, the scheme has been narrowed down to targeting energy improvements. This means that the activity generated by Boligjobordningen is decreasing. This decrease is offset by the fact that the housing market has continued to improve. More trades are taking place, and trades are often followed by renovation. Furthermore, housing prices are rising in many areas of Denmark, which means increasing equity. Coupled with an extreme low interest rate this allows house owners to start renovation projects in their homes. In recent years, there has been very high activity in the renovation of social housing, peaking in 2014 with almost 8 billion DKK. Since then, activity in the renovation of the social sector has decreased, resulting in an estimated activity level of 4.2 billion DKK in 2016 and 3.4 billion DKK in This represents a big drop, but from a historical perspective, it is still a rather high level. Renovation of commercial buildings is expected to increase slightly in both 2016 and 2017 due to the expected growth in the economy in general and the decline in the number of unused square meters for commercial use. Overall, we expect employment growth in repair and maintenance in both 2016 and Civil Engineering After several years of intense activity in the civil engineering market, we expected a decline in years to come. Especially the road- and rail infrastructure is experiencing a downturn, due to sharp falls in the investment by the Danish Road Directorate from 2015 to 2016 and again in 2017, as seen in Table 1. The investments in the Metro in Copenhagen are still large, but moving in a downward direction. Following the agreement from March concerning the Fehmarnbelt tunnel, the associated landworks have been launched. This is work regarding the train services from Ringsted to Nykøbing Falster, where earthworks and bridge work already have begun in Although Danish Parliament recently

5 Forecast for the Construction Sector Page 5/8 agreed to advance commencement of the new Storstrøms Bridge, no activity from this is expected in this forecast. In the energy sector, investments are increasing in 2016, while a lesser decline is expected in 2017 driven by a decrease in Energinet.dk. Likewise, investments are falling in the environmental sector in 2016, while there is expected to be just about status quo in Table 1: Selected civil engineering projects, , million. DKK, 2016-prices F 2017F Heat supply 3,400 4,800 4,950 5,150 Energinet.dk 2,400 2,350 3,700 3,300 Total energy 5,800 7,150 8,650 8,450 Danish Road Directorate: Civil engineering 3,700 5,150 2,900 2,200 Municipalities: Construction of roads 3,900 4,050 3,500 3,400 Total construction of roads 7,600 9,200 6,400 5,600 Municipal ports Banedanmark 5,150 6,150 5,400 5,750 Metro Cityring 4,550 4,200 3,100 2,450 Fehmarn landworks Total traffic 17,700 19,950 15,550 14,450 Coastal protection Sewage treatment plants 6,050 6,950 6,500 6,500 Water supply 1,650 1,900 1,750 1,800 Total environment 7,800 9,000 8,400 8,450 Land Supply / Site development 1,150 1,300 1,450 1,350 Leisure areas Total land supply and leisure 1,300 1,450 1,650 1,500 Selected civil engineering projects in total 32,650 37,550 34,250 32,800 Danish Road Directorate: Operating and winter services Maintenance of municipal roads 5,050 5,000 5,100 4,950 Total operating and maintenance cost 5,800 5,750 5,900 5,750 Source: Statistics Denmark, Ministry of Finance, the Danish Competition and Consumer Authority, the Danish District Heating Association and the Danish Construction Association

6 Forecast for the Construction Sector Page 6/8 Key figures Table 2: Employed in the construction sector, F 2017 F New buildings and extensions 51,100 36,100 30,100 33,500 33,000 33,100 33,200 35,600 38,000 40,500 Repair and maintenance 62,500 58,400 53,900 55,200 54,300 55,000 58,600 59,200 61,000 62,500 Civil engineering 20,500 19,900 18,000 19,100 19,300 18,100 17,700 19,300 20,000 19,500 Other occupation 7,000 5,800 4,800 4,400 3,800 4,200 5,000 6,000 6,500 6,500 Clerical work 26,800 25,400 24,100 23,600 23,300 23,700 24,600 25,500 25,500 26,000 Not at work* 13,400 13,200 12,300 10,000 10,900 10,200 9,200 9,700 9,500 10,000 Employed in total 181, , , , , , , , , ,000 * Not at work because of bad weather, holiday, illness, instruction etc. Table 3: Number of commenced housing S 2016F 2017S Detached houses 6,900 3,800 4,900 4,500 3,700 3,800 3,800 4,300 4,500 4,600 Terraced houses 3,100 1,300 2,500 2,700 2,700 2,000 2,600 3,100 3,500 4,000 Multi-dwelling houses 7,100 5,100 8,200 9,600 7,800 5,700 9,100 9,300 11,500 13,900 Houses in total 17,100 10,200 15,600 16,900 14,200 11,500 15,500 16,700 19,500 22,500 Hereof: Social housing 2,100 2,500 5,200 8,800 6,200 3,000 3,400 3,500 4,500 7,000 Private houses 15,000 7,700 10,400 8,100 8,000 8,500 12,100 13,200 15,000 15,500 Table 4: Commenced new buildings, , 1000 square metres S 2016S 2017S Dwellings 2,680 1,660 2,200 2,290 1,900 1,570 1,950 2,170 2,400 2,580 Production Administration 1,960 1, Other buildings Agriculture 1,930 1, ,150 1,060 1, Commercial in total 5,120 3,010 2,530 2,710 2,460 2,450 2,050 1,930 2,000 2,070 Culture and institutions Other buildings 1, Hereof: Weekend cottages Garages, carports and outhouses New buildings in total 9,240 6,000 6,070 6,230 5,450 5,290 5,120 5,310 5,720 6,000

7 Forecast for the Construction Sector Page 7/8 Table 5: Production value in the construction sector, , billion DKK S 2017S Current prices Houses New construction Prof. major repairs Houses in total Commercial New construction Prof. major repairs Commercial in total Public buildings New construction Prof. major repairs Public buildings in total New construction in total Prof. major repairs in total Prof. building investments in total Prof. minor repairs Prof. building activity in total Civil engineering New civil engineering Repair of civil engineering Civil engineering in total Prof. construction activity in total Do-it-yourself and black labour Other production (including export) Construction activity in total Fixed prices, 1 st quarter 2016 Prof. construction activity in total Construction activity in total

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