German construction: What’s next for the industry?

Written by LetsBuild

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Solid growth

Germany is the financial powerhouse of Europe and construction is probably its most significant driver of growth. During 2017, the German building sector experienced a calendar-adjusted expansion of 2.5%.
This is the highest rate since 2011 and it is expected to increase even more in 2018. According to the Ifo Institute for Economic Research, a growth of 2.6% is anticipated for 2018.

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These numbers are of great importance not only to Germany but to Europe, as well. The construction industry has an impact (either direct or indirect) on 42.9 million European workers and it goes without saying that a boost in German construction could be beneficial for the whole continent.

The biggest construction companies in Germany

Is this boost as close as we think? Frankly, it’s hard to tell yet. On the one hand, there are some very promising signs for the future of the industry, such as the expected growth in sales (approx. 4%) and the increased public investment in construction.

On the other hand, there are some points of concern that the building industry will have to address before it’s too late. Digitisation and better housing strategy might be two areas that German construction should work on.

The German construction boom in numbers

When it comes to numbers, 2018 looks like a very good year for German construction. German building firms expect to see their nominal sales grow by 4% during this year. We are talking about the highest percentage since 1995 and it’s probably safe to claim that construction will be the main growth driver for the country’s economy in 2018.

Read more here: 5% growth for German construction in 2017

What is more, the German Construction Federation (ZDB) and the German Construction Industry Federation (HDB), who predicted this significant development, calculated that this 4% increase equals to €117.2 bn. In order to understand the true magnitude of this increase, we should keep in mind that the last time German construction experienced such growth was after the reunification and the financial recovery in Eastern Germany in the mid-90’s.

Top reasons behind the boom

There are many factors which have contributed towards this notable boost of the German building sector. From a general point of view, state investments and low interest rates seem to be the most substantial reasons.

Public infrastructure spending

Germany has adopted an aggressive approach in regards to construction investment. That’s due to the increased spending for roads and bridges. Based on, the German State is intending to spend €32,900Μ on public infrastructure.

This decision is inextricably connected with the substantial increase of the population in Germany. Many people are choosing, at the moment, to pursue a career in the country due to its financial and societal stability.

german construction 2018 - public infrastructure

Extremely low interest rates

The very low interest rates, introduced by the European Central Bank, have transformed the mortgage loan process. At the moment, it is much easier and simpler for people to get a loan than it used to be.

As a result, more and more people find greater value in buying a dwelling than just renting. Furthermore, due to the lack of quality housing options in the market, buying is a great way for people to find affordable homes which are both spacey and in good condition.

Check out also: The 7 samurais of construction

Population boom

During the last five years, Germany has experienced a notable immigration wave. This has resulted in a substantial population boost and an urgent need for more and affordable housing choices.

Better job security

Last but not least, the quality of working life in Germany has improved drastically in the course of the last decade. As a consequence, people feel safer to take the next step and search for a new house.

The other side of the story

The facts described above reveal a positive shift in German construction. Nonetheless, this is only one part of the story. And that’s because prices in construction are also anticipated to increase by 3.5% during 2018. This implies that the sales growth won’t exceed 0.5% in real-terms.

german construction 2018 - hamburg

The major parameters behind these concerning statistics could shortly sum up to the following:

Building wrong

Right now, there is a serious discrepancy between the needs of the house searchers and the type of houses that are constructed in Germany. In simple words, it appears that German construction focuses its efforts on building big and expensive properties meant for sale, while the majority of the country’s population is in need of affordable homes for rent.

This is a critical flaw in the building strategy of the sector and results in the amplification of the current housing shortage problem. Additionally, Heiko Stiepelmann, deputy head of HDB, underlines that the construction sector is not building in an even way across Germany:

‘‘We’re building mainly in concentrated urban areas, and we’re building for people who are moving from the country to urban areas.”

Building expensive

Another very important element that has to be taken into serious consideration has to do with the housing prices. As reported by Reuters, the construction cost of new houses in Germany has reached a 9-year high. According to Heiko Stiepelmann, the raised prices are a natural continuation of the serious demand in the market for new housing options. Moreover, another reason appears to be the increased number of building regulations (eg. fire protection, energy saving etc.).

What’s coming next

By now, it’s apparent that the German building sector is on a critical path. Nevertheless, a great potential for the industry is still there. But an honest and deep strategic shift is required before German construction is ready to get the most out of the opportunities that are coming its way.

Heiko Stiepelmann believes that a strong cultural transformation is a basis on which the future of the German sector should be established.

“We have to admit that what has been the culture in Germany for a long time – that is, taking the time and the resources to build each building differently – that needs to change.”

What Stiepelmann wants to point out is that German construction should start building smarter. But in order to achieve that, a more digitized and by extension more efficient approach is necessary.

Prioritize innovation

The use of digital tools can truly open up the construction process and allow for faster and data-driven decisions. In the German building industry, the biggest advantage of digital solutions (eg. construction software) could be the collection and scientific management of big data.

For instance, predictive analytics can help with the faster analysis of the impact that a new building/road could have on an area. The ability to identify potential risks and patterns depending on the building location could eventually lead to the generation of a construction road-map for certain types of areas or projects. It goes without saying that this could save German construction a good amount of time and resources in similar future projects.

Modular construction

We recently identified modular buildings, as one of the hottest trends in construction for 2018. Germany could be no exception to that. By investing in the industrialized building, the sector could save valuable time and skip some extremely costly and time-consuming steps during the construction process. In the long run, such strategy could have a considerable impact on the housing prices. The less money spent during the building phase, the more affordable housing prices.

‘Buildings can be built in a factory and simply “assembled” on site. This would bring down costs, and therefore make apartments more affordable.’ – Heiko Stiepelmann, deputy head of HDB.

LetsBuild steps in

The year 2018 seems to be both challenging and promising for German construction. With the right plan and a brave investment in innovation, the sector has a unique opportunity to rise above the difficulties and build on its positive momentum. LetsBuild could be a valuable ally in this endeavor.

Through real-time project management, a more transparent and accountable future for German construction could be closer than everybody might think.