Rising energy prices – a double-edged sword for the construction industry

Rising energy costs, as in other industries, are making more apparent in the construction industry mainly due to increasing transport costs, but also directly due to rising fuel costs for construction machinery. In addition, indirect increase in material prices, especially affected steel and petroleum products. According to the Federal Statistical Office, the Producer Price Index in March 2022 was about 67 percent higher than the previous year’s level for diesel fuel, about 60 percent higher for reinforcing steel and about 40 percent higher for insulation material. Mineral building materials are now also being drawn into the increasing price trend. Rising energy prices are making the production of cement and concrete more expensive.

This amalgamation leads to a trend towards – “contracts with variable prices” within the construction industry. Up until now, flexible, and daily updated prices were mainly applicable to short-term projects. However, now, the market is becoming more volatile, and hardly predictable. This is leading to changes in the contracts for construction industry. Planned construction projects or investments are no longer being carried out because the available budgets are no longer sufficient to ensure successful completion of the projects. This is likely to significantly affect public building projects. Construction price increases would have a dampening effect on demand and that will lead to decreased production. Experts assume that 20 to 40 percent of awardable projects will not be completed in the foreseeable future.

On the other hand, the sharp rise in energy prices will certainly make investments in energy renovation measures more attractive again. Here one can assume an expansion of measures in the building stock in the coming years. The extent to which this can compensate for the effects described above is questionable, but nevertheless all such companies that are involved in energy-efficient refurbishment should benefit from this development, both on the manufacturer side and certainly on the side of the contractors.

Every crisis always holds potential somewhere. So, this is also an opportunity to reposition oneself, to adapt the range of heat generators in the direction of renewable energies, to think about alternative building materials or simply to offer innovative services.

Yvonne Jacoby, Market Intelligence Senior Expert