ÉVOSZ survey - building construction firms confident of improving their competitiveness

ÉVOSZ conducted a survey of building construction and building construction companies, focusing on their market assessment and expectations, with a predominance of larger companies. Overall, the shrinking job market is prompting more than two thirds of respondents to take measures to improve their competitiveness (such as digitalisation, but also to invest more in their own investments), while the client side is holding back.

Industrial orders pay off better than housing

Regarding the development of net revenues, two thirds of respondents still expect an increase in 2022, but only half of them expect an increase in 2023, with the downward trend being further exacerbated by the negative effects of the inflationary environment. Growth in 2023 is expected mainly from private contractors of industrial buildings and warehouses, as well as from companies building complex industrial facilities. These firms are also the main drivers of profitability in terms of turnover, with a value of over 10%, while residential construction firms are between 0 and 3% (residential clients are holding back).

The market is divided

A quarter of respondents foresee an improvement in their profitability on turnover in 2023. From a labour market point of view, firms that are also exporting and have order books that exceed capacity see a positive trend. The expected change in the labour force is in sync with this: companies that are considering redundancies are those that have indicated low capacity utilisation (see graph above).

More orders expected from the construction industry

Business activity is hampered most by a lack of orders, high inflation and a converging high interest rate environment, and, as has been the case regularly for some years, a shortage of well-trained professionals. The unpredictability of economic regulation, increased competition in a shrinking market, and high administrative burdens are making life difficult for businesses.

Shortages of building materials and products have not been a problem in the last six months, and firms have not experienced such problems; however, the price rise has not spared the building sector. Price rises for some building materials are expected to moderate over the rest of the year, or at least to rise at a rate below inflation. This could also lead to a wait-and-see attitude on the part of customers, which could lead to further delays in orders.

The cost of labour retention is the increased construction cost

To protect the quality of building construction, it is essential to retain a skilled workforce, the most important means of which is to raise wages, but firms typically fail to do so in line with inflation: in 2023, they will increase by an average of only 11%.

The cost of construction is expected to be pushed up by rising wages, changes in energy prices and the removal and dumping of construction waste. The inability of contractors to pass on these price changes to the client will have a significant negative impact on profitability, creating serious tensions in the market.

They rely on government help

The financing of enterprises continues to be mainly supported by leasing structures, internal sources, grants and bank loans to support their operations and financial stability. Fewer borrowings due to high interest rates, the reduction in available funds has spilled over into the sector, and the payment discipline of partners is reported to have deteriorated significantly. In light of this, building construction companies are confident that the government will steer the economy out of the current trough and help the industry by developing demand-side solutions.