CONSTRUCTION markets across Europe are poised for a gradual recovery in activity beginning this year, following a two-year slump, Bain & Company has forecast in its new Building Blocks Construction Indicator.
Strengthening growth in activity in the infrastructure sector is projected to combine with a recovery in residential construction in most European countries, as well as a rebound in office development fuelled by demand for more sustainable spaces, Bain’s analysis shows.
The forecast recovery is expected to benefit from a very low starting position, after two years of declining activity, coupled with falling interest rates and inflation. In 2023 and 2024, construction businesses were hit hard by what Bain calls a ‘perfect storm’ of multiple years of high inflation in costs for both labour and materials, alongside material supply constraints, resulting in a slump in construction demand.
Bain expects the worst of these severe headwinds to abate, sparking a ‘slow but steady’ recovery in demand.
The UK construction market is set to be ‘in the vanguard’ of the projected recovery, with strengthening activity expected from early this year. Other markets are expected to contend with a longer period of weakened activity into next year, notably Germany, where particularly acute inflation for the industry has weakened consumer confidence.
The Nordics are expected to see the strongest overall growth in construction activity in the 2025-2027 period, with activity increasing by a compound annual growth rate (CAGR) of between 3% and 5%. In the UK, construction activity is expected to see a CAGR over the same period of 2% to 4%, with rates of 1.5% to 3.5% in France, 1%-3% in Italy, and 0.5% to 2.5% in Germany.
Adrien Bron, partner in Bain & Company’s Infrastructure, Construction and Building Products practice, said, “In the current European construction landscape, talking about growth is almost taboo these days. Yet we see positive prospects for several construction sectors across Europe, developing over the next two to three years, and expect recovery in most construction market segments after the perfect storm the industry experienced over the past two years or more.
“The construction recovery will be fuelled by structural pent-up demand from the protracted period of declining activity as well as structural long-term drivers of demand from continuing urbanisation, requirements for more affordable housing and more sustainable, efficient offices, and the ongoing need for investment in infrastructure renewal and modernisation.”
