Construction | Rakli: Construction difficulties continue, but the worst is over

Construction the difficulties continue, but the worst pit seems to be behind us, the association of professional property owners and developers Rakli evaluate on Wednesday.

The decline in construction in Finland has been clearly deeper than in other euro area countries.

The industry’s difficulties will continue this year as well, but the falling interest rate, lower inflation and the improvement in the economic situation will support the recovery of construction, the organization estimates in its autumn economic review.

Rakli predicts that the amount of construction will further decrease by 5–6 percent this year and turn to an increase of around six percent in 2025.

The value of construction production shrank by around 13 percent last year.

The reasons were the high interest rate that continued longer than expected, tight capital markets and increased costs.

Steep the drop was seen in residential construction.

The volume of residential construction in Finland decreased by 35 percent in 2023. In the metropolitan area, it decreased even more strongly, i.e. by about 40 percent, Rakli states.

“Building permits issued after the promising April-May period fell back to a slight decline in June 2024,” states the review.

The bottom still seems to be behind us, although the growth in construction starts is largely driven by the growth in the production of ARA apartments financed with state support.

Now the decrease in interest rates is seen as a sign of recovery for the Finnish economy.

According to Rakli, real estate investors are also cautiously optimistic about the end of the year. Rakli expects a possible turnaround to be concentrated in Finland in the last quarter of the year.

This view is supported by the fact that a turnaround in property investment in Europe is expected to take place in the next few months.

Premises construction has remained more stable than housing construction.

Building permits issued for industrial properties and offices showed growth in April–June, although permits for warehouses and commercial premises have declined since the beginning of the year.

However, construction starts are increasing in offices, commercial premises and industrial properties.

In the capital region, the volume of office space construction increased by about ten percent in 2023. The strong growth differed from the development in the rest of Finland, as office space construction decreased by more than 15 percent in the entire country.

The growth in the capital region was driven by the increase in the number of public and business and office buildings, Rakli says.

Work- and the Ministry of Economy (TEM) announced on Wednesday regarding small and medium-sized companies its SME barometer score. According to it, business cycle expectations of SMEs have risen since last spring.

“This has been influenced by lower inflation and lower interest rates. In particular, SMEs employing 20–49 people were a positive surprise. The situation of SMEs in the construction sector is also gradually getting easier”, TEM assesses in the press release.