Czech construction industry achieved record high figures prior to coronavirus outbreak
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It is estimated that construction activity increased markedly in 2018-2019, overwhelmingly in the building construction subgroup, boosting construction output by an estimated CAGR of about 11% in the last few years. However, a reduction is imminent in 2020, according to forecasts included in the PMR report “Impact of coronavirus epidemic on construction market in the Czech Republic 2020. Scenarios and growth forecasts”.
Czech construction industry growth has been slowing significantly since Q2 2019. Official data indicate that the country’s construction output rose in real terms by almost 3% in 2019, following an increase of more than 9% a year before. Furthermore, the 5.6% increase reported for the first two months of 2020 was not encouraging, as it was achieved on a low base after the almost 2% reduction observed in January-February 2019. In recent quarters, the industry has been dragged down primarily by non-residential construction, whereas residential construction has been at its highest level since 2008.
A noticeable turning point for business confidence in the country’s construction industry was seen in Q1 2018. In the wake of an expected recovery in investment in civil engineering and an acceleration in growth in residential projects, the indicator registered a significant improvement. This positive trend continued in 2018 and 2019, but is about to deteriorate markedly in 2020, impeded, in particular, by a predicted slowdown in residential construction activity, along with difficulties in reducing construction salaries because of a labour shortage, and this will, ultimately, have an adverse effect on profit margins, and contribute to the expected recession in 2020.
PMR suggests that the key factors which recently contributed to the increase in construction activity in the Czech Republic include surging personal income, all-time low mortgage rates, and booming fixed capital investment propelled by record low deposit and interest rates, along with an increase in the amount of EU funds disbursed in accordance with the EU’s 2014-2020 funding programmes.
According to PMR, since 2017 the highest growth rates in construction activity in the country have been recorded in residential construction. Healthy macroeconomic conditions, mirrored by a more rapid increase in individual purchasing power and the record low mortgage interest rates, have been primarily responsible for the robust recovery of the residential construction market in the last few years. In 2019, 36,419 homes were competed around the country, and this is the highest figure since 2010 and 13% short of the all-time high level achieved in 2007.
In 2020, the retail property industry in the Czech Republic is expected to continue to provide negligible support for non-residential construction. Developments on the retail market are likely to remain scarce. The shopping centre market is relatively saturated, and developers have become extremely cautious about further new investments. It is calculated that each of the country’s four largest cities boasts more than 630 m² of shopping centre space per 1,000 residents, and this significantly exceeds the equivalent figures seen in many EU cities. Furthermore, shopping centre construction activity will be also impeded by the modest number of large urban areas.