“Demand for investment in infrastructure, which is important for the implementation of smart cities, will increase. Especially upgraded elements – special sensors can determine the optimal time for garbage collection, control traffic or street lighting.” Thought
The war not only significantly slowed down activity in the Ukrainian construction industry, but also led to a restructuring of processes in the global construction market. What is the current situation in the real estate market and what trends will prevail in the near future?
How did the Russian invasion of Ukraine affect the construction industry?
The consequences of the war negatively affected the global economy, which was gradually recovering from the COVID-19 epidemic, and slowed this process, at least in the short term.
Construction, one of the important sectors of the economy, is no exception. Consulting firm GlobalData estimates that the global construction industry grew by just 0.6% last year. The only exception is China, where the industry grew by 5.5% in 2022.
With the onset of a massive invasion, participants in the global construction market are faced with the problem of restructuring logistics routes and rapidly increasing energy costs.
Supply chain issue. Good functioning of logistics processes plays an important role during the implementation of construction projects. In the event of a breakdown, the construction schedule is delayed and costs increase. This is what market participants have seen since the start of the pandemic.
With the Russian invasion of Ukraine, supply chains have come under pressure again. As a result of the destruction of enterprises and closed ports, imports of ferrous metallurgical products (cast iron, steel, etc.) from Ukraine were significantly limited.
On the other hand, the international sanctions imposed on Russia and Belarus have affected the decrease in imports of a significant number of products and accordingly, the need for their replacement has arisen. For example, in 2018, 60% of pig iron in the United States came from Russia and Ukraine. In 2022, Russian goods were mainly replaced by imports from Brazil (more than 2 million tons) and Ukraine (about 698 thousand tons). Yes, the reason for the resumption of supplies from Ukraine was access to Polish ports in the Baltic Sea.
Increasing cost of energy resources. The construction industry requires a significant amount of energy resources at every stage. The increase in energy prices generally affected the costs of raw material extraction, material handling, manufacturing of construction materials, real estate construction and operation. For example, steel, PVC (or PVC) pipes, bricks, etc. They require a significant amount of energy in their production. From this perspective, there was a decrease in production in 2022 and some steel mills in Europe were closed completely.
Consequently, the above-mentioned difficulties were a prerequisite for high inflation and rising prices of all goods, including construction products.
The discount rates increased by the US Federal Reserve and European central banks to cover inflation caused housing loan issuances to decline. Accordingly, this reduced the activity of buyers in the real estate market. Especially in Poland, it is planned to develop a new mortgage program to improve the situation and stimulate the housing sector.
How the construction market is developing in the world: the main trends
To varying degrees, the war has (and will) violate stability in Europe and the world to the fullest.
At the same time, there is a widespread belief in the market that the war will accelerate in the long run. Introduction of energy efficient methods into construction. Therefore, the implementation of “green” investments to reduce the impact of fossil fuel (coal, oil or gas) prices continues actively in some developed countries.
Energy-efficient building materials and technologies are also widely used to optimize energy consumption and costs. This market is currently valued at $422 billion. In contrast, the global market for “green” building materials is expected to grow to $951 billion by 2030 (up about 12% year-on-year).
The orientation to sustainable development is determined by the demand for quality facilities as well as by policy. In Europe, tenant and investor interest in office properties with low energy efficiency is expected to decline.
Accordingly, real estate that meets modern requirements will continue to be a profitable investment option.
current trend Increase in the share of investments in infrastructure projectsIt is important for arranging a comfortable environment and ensuring climate neutrality. In particular, these are communication networks, heating, ventilation, energy and water supply systems, road surface.
Plans for the modernization of infrastructure and the implementation of new facilities cover European and US countries where investment support options are being developed in this area. Therefore, several large-scale infrastructure projects are implemented in Europe today, the purpose of which is to expand rail and water communication between the countries of the region. As part of the strategy, the EU aims to attract a total of around 300 million euros in infrastructure by 2027.
Demand for investment in infrastructure, which is important for the implementation of smart cities, will increase. In particular, modernized elements – special sensors can determine the optimal time for garbage collection, control traffic or street lighting.
Undoubtedly, the war had an unprecedented impact on the Ukrainian real estate sector and remains one of the important factors affecting the state and development of the global market.
Therefore, in the future, the trend to implement sustainable practices in the real estate and construction sectors to achieve energy independence in the world will gain momentum, which is also driven by market demand and the need to achieve climate neutrality. As an EU candidate country, Ukraine needs to take this criterion into account and make the development of energy efficient construction and sustainable infrastructure one of the priorities of the recovery.
Source: Focus
John Holton is a seasoned author and journalist, known for his expertise in economics. He currently works as a writer at 24 news breaker, where he provides readers with in-depth analysis and commentary on the latest economic developments. With a background in finance and a talent for explaining complex economic concepts in a clear and accessible way, John’s writing is a must-read for anyone interested in staying informed about the economy.