German construction sector is growing at a slower pace than in the recent years, Spain continues to improve

The positive developments in Spain continue in Q3 2014 as well. Not only the architects sentiment but also other market indicators show improvements.

France and Italy remain with negative developments. This quarter also the German economy and construction sector show signs of slowing down. These are some of the conclusions of the Q3 2014 European Architectural Barometer report, a quarterly research among 1,600 architects in eight European countries. European architects act as a leading indicator for the construction activities.

The British market keeps on improving, although at a slightly slower pace than expected in previous quarters. One of the reasons for this is that the building permits for both residential and non-residential are stable and some confidence indicators show a slight decrease. Other indicators are showing positive signs, e.g. the sentiment within architectural firms is positive in Q3 2014: a strong order book and turnover development: 43% of the architects have experienced increase in their order book with more than 5% and other 19% with 0-5%. Nevertheless there are also signals that one should be careful about being not too euphoric: the last three quarters clearly show a fair number of architects who expect an empty order book in the next 12 months (app. 40%). Arch-Vision nevertheless predicts a modest growth of the market in 2014 (+3%) which will continue in 2015 (+3%) and 2016 (+2%).

From Q3 2010 onwards there has been a steady positive development among the German architects. In Q3 2014 both the German order book and turnover development were positive again but with small changes in comparison to the results of the previous quarters. 26% of the architects experienced growth in the order book, which is one of the lowest results since the start of the European Architectural Barometer. In Q3 only 4% of the architectural firms expect to see an empty order book in the next 12 months. There are however some indicators which may lead to some concerns: all three confidence indicators (consumer, industrial and construction) have slightly declined, and the GDP growth rate was negative in Q2 (the latest available). Therefore Arch-Vision expects growth figures which are lower than what we expected in the previous quarter: 2014 (+1%), 2015 (+1%) and 2016 (+1%).

The French construction sector is not showing improvement. There are much more French architects experiencing a decreasing order book (more than 40% in the past year) than an increasing order book (approximately 20% each quarter), whereby this quarter the difference is the largest in the recent years. Together with Q1 2013 the drops in the order book and turnover development in Q3 2014 are the biggest since Arch-Vision has started measuring, which shows that the French situation is not improving. Other indicators are also showing more downward trends. Therefore Arch-Vision predicts that the French construction market will decrease in 2014 (-2%) and 2015 (-1%) and will not recover before 2016 (2016: 0%).

What already was predicted in Q1 2014 for Spain, is being confirmed in the following two quarters Q2 and Q3: the ongoing decreasing line has come to a hold; results are positive three quarters in a row as more architects reported an increasing order book (at least more than 30% every quarter) instead of a decreasing order book (not more than 25% every quarter). With every quarter of 2013 the Spanish architects were already showing their positive expectations meaning the bottom had been reached and improvements should follow. Unfortunately the more positive attitude is not completely in line with the development in the building permits. The permits for residential buildings show a stable trend, where the non-residential had a major drop in Q2 2014. Given the latest results Arch-Vision concludes that the development in 2014 (-4%) will be slightly better, however still negative to the one in 2013 (-9%). The next two years will show the road to recovery of the Spanish construction sector (2015: -1% and 2016: 0%).

After some very bad quarters in 2013 Italian architects experienced drops in the order book and turnover development in 2014 as well, although not as bad as in 2013. In comparison to 2013 we see more architects noticing an increase in their order book. This however is only a small number compared to those who see their order book declining. This quarter 50% of the Italian architects reported negative developments in their order book and only 11% saw positive developments. Although no data on building permits are yet available for 2014 the figures of previous years were not positive: they showed big declines compared to 2010. This will have its influence on the construction in the 2 – 3 years after the building permits have been granted. Therefore the outlook for the next twelve months is still not very promising. Arch-Vision predicts a shrinkage of the market by 7% in 2014, by 4% in 2015 and 1% in 2016. This on top of the heavy decline in 2013 (-11%).

For the fourth quarter in a row the Dutch order book and turnover development were positive again. This is a continuation of the improvement we saw in the previous quarters, although the turnover development is the lowest of all last four quarters. The number of those architects experiencing improvements (43%) is higher than the number of those with declining order books (23%), something that has lasted for a year now. At the moment 22% expect an empty order book within the coming 12 months, which is nevertheless a bit more pessimistic than in the first quarter (19%), but still not at the level of 2012 (>30%). The positive architectural sentiment can also be seen amongst other indicators like the consumer, industrial and construction confidence indicators. These show an increase in comparison to the previous quarter. Therefore Arch-Vision predicts a small increase in 2014 (+1%) and further improvement in 2015 (+2%) and 2016 (+3%).

Q1 2013 showed a quite stable positive development regarding the order books of Belgian architects. In Q1 2014 however this development seemed to be turned into a more neutral scenario, but the following two quarters (Q2 and Q3) showed again the figures we saw in 2013; more architects reporting increasing (36% in Q3) order books instead of decreasing (23% in Q3) order books; more than a third of the architects indicated that their order book remained the same (41%). Only 9% of the Belgian architects expect an empty order book. Although this remained the same as in the previous quarter, it is still a relatively low figure. The building permits figures are showing opposite developments: a big drop for residential and a steady increase for non-residential. This leads to an unaltered prediction of the Belgian construction sector by Ach-Vision which is one of steady growth in future years: +2% (2014), +2% (2015) and +2% (2016).

After the negative order book developments in 2013, in 2014 the number of the Polish architects that experienced their order book growing was higher than the number who saw declining order books. This was already foreseen in previous quarters since the number of architects that expected an empty order book within the next 12 months had dropped from 31% to 14%. This quarter however we see a big increase of the architects who expect their order book to be empty in the next 12 months (24%). Poland is a country which heavily relies on new build with respect to the construction sector volumes (73%). Nevertheless it could be comforting that the other figures of the Barometers are positive. This is also the case for the building permits; they show a quite stable trend. All together Arch-Vision expects that the Polish construction sector will fluctuate between € 31 billion and € 32 billion euro: +2% (2014), +2% (2015) and +3% (2016).

These and many other results and trends of the developments of the European construction market can be found in the European Architectural Barometer, an international market research conducted among 1,600 architects in Europe. This study is conducted in Germany, France, Italy, Spain, United Kingdom, the Netherlands, Belgium and Poland by Arch-Vision four times a year. Besides indicators to forecast the European building volumes, a specific topic is highlighted each quarter. The topic in Q3 2014 was “Sustainability”.