Insight

'After the economic storm of the pandemic there will be rays of sunshine'

By Eline Lhoest
December 09, 2020

Low interest rates, an ambitious Europe-wide renovation initiative and a faster shift towards new technologies all add up to an optimistic 2021 for the construction industry after a year shaped by pandemic.

According to Knauf Insulation’s Davide Maiello, Head of Market & Business Intelligence for EMEA, “After every storm there is sunshine. And there will be sunshine in 2021.”

For construction and the insulation business specifically, the European Commission’s ‘Renovation Wave’ strategy will be transformational. The Commission’s aim is to “at least double” the annual rate of European energy efficient renovation from the existing 1% and in the process make 35 million buildings energy efficient by 2030.

“These are very aggressive targets that will have a massive impact on the industry,” says Davide. “In addition, finance rates have fallen from 1.5% in January 2020, down to 0.3% in December which is fuelling more appetite for investment and the number of households continues to increase and that means the construction of more buildings.”

Reshaping construction

The pandemic will also play a role in reshaping the world of construction. “Historically the industry has been one of sectors that has lagged behind others in terms of innovation. However, the pandemic has proven to be an important catalyst.

“For construction this has meant that whatever doesn’t kill you makes you stronger. The pandemic has pushed construction to develop and serve demand. There will be strong transition towards new technologies and new ways of doing business such as the growth in prefabricated or modular building.

This trend is driven by continued increase in the number of households, a shortage in skilled manpower, more demand for better quality homes and the seismic shift towards new greener energy sources. “All these long-term trends mean that the biggest thing to fear is fear itself,” says Davide.

So, in the light of this optimism, how challenging has the pandemic been for construction?

The insulation market will go down by low single digits this year and that is OK in a world that has been shaken to its core.
Davide Maiello, Head of Market & Business Intelligence Knauf Insulation EMEA

Europe hit hard by the crisis

According to Eurostat, the European Union’s data centre, global GDP shrank by 4.3% in 2020 but a complete recovery is expected with growth of 4.6% next year. Europe, however, has been hit hard by the pandemic with a GDP drop of -7.4% and a forecast of +4.6% in 2021 with further growth expected in 2022.

European buildings construction contracted by 8.8% in 2020 (while entire construction, including civil engineering, contracted by 7.8% for the same year), says Euroconstruct, which has constantly revised its forecasts for 19 key construction countries in Europe in recent months. The research centre now states that the construction industry’s recovery will be +3.8% in 2021.

“We have to remember the pandemic marks a one-year drop and this drop is not as bad as was initially expected. Plus, there will be recovery in 2021. During the crisis which started in 2008 the drop was for more than five years and it impacted the construction industry most of all which contracted by 25%. Having GDP and construction drops concentrated in just the one year of 2020 is no-where as bad as 12 years ago.”

 

However, the pandemic has brutalised other sectors, such as hospitality and retail. Unemployment in Europe has jumped from 6.5% at the start of 2020 to 7.5% in September and levels of debt have leapt from 78% in 2019 to 88% in the second quarter of this year. Add to this a fall in tax revenue for many countries and there are challenges ahead.

More money for renovation than new build

Although the picture is comparatively more optimistic for construction compared to other sectors, the optimism is not shared equally across all European countries. The industry in the UK, Ireland, France and Spain has been hit particularly hard by the pandemic while other countries such as those in Scandinavia, Germany and Switzerland have been impacted less than expected.

Another change across Europe has been the shift in focus towards renovation. In 2007/8 the majority of construction money, 58%, was spent on new build compared to 42% on renovation. Today renovation adds up to 54%, says Euroconstruct.

“In 2021 renovation is expected to increase by +5.2% and new build by +2.3%,” says Davide. “Renovation is proving to be more resilient than new build, plus there is a re-bounce in residential investment rather than non-residential. Office hours and retail spaces are never going to be the same again and consumers have higher levels of money available to improve their homes. Consumption has changed. And the world has changed.”