Key Trends and Issues:
- Estonia’s construction industry underwent a period of weak performance. Industry output declined by 35.9% in 2009 and 22.2% in 2010. Estonia’s economy rebounded quickly from the economic downturn with an 8.3% growth in 2011, followed by a better than predicted growth of 3.2% in 2012, which aided recovery. The level of construction activity is far below the record high in 2007. The growth of the construction market since 2010 has largely been supported by the repair and reconstruction work of buildings, and increase in the volume of civil engineering and infrastructure construction works.
- In 2012, the value-add of construction was the main contributor to economic growth, but that recorded a decline in Q1 2013. In 2012, construction related to improving the energy efficiency of buildings contributed significantly to construction industry growth. This has since slowed resulting in a decline in construction volumes, while the value-add in civil infrastructure projects has increased.
- Estonia’s geographically advantageous location on the eastern shore of the Baltic sea and at the midpoint of Northern Europe makes it a great link to Russia, CIS, Central Asia, the Nordic countries and the European mainland. The country offers large ice free ports, shipment and storage facilities, high technology, and fast loading and discharging of vessels. There is still plenty of land available for the construction of new terminals and the government is keen to develop the country’s logistics industry.
- Currently, Estonian railways use the 1,520 mm broad gauge. While this makes Estonia an attractive European hub for bulk shipment of goods from the Far East and Russia, which also use broad gauge, freight to or from Estonia into Europe must change to 1435 mm European standard gauge. Rail Baltica, a project given top priority by the EU to link Finland to the Baltic states, Poland and Germany will drive rail infrastructure construction in the region.
- Estonia has set itself the target of increasing the share of renewable energy to 25% of the total energy-mix by 2020. In late 2012, despite opposition from coalition partners – the European Bank for Reconstruction and Development (EBRD), European Commissioner for Energy, and renewable energy producers – the government decided to reduce renewable energy subsidies by 20%. This could affect capacity investments over the forecast period.
- The demand for high quality office space remains high. The lack of construction during the industry downturn has led to demand exceeding supply.
- Estonia’s retail industry is projected to record stable and robust growth. The country’s large investors have chosen different paths for growth over the forecast period. Linstow’s management has decided to expand and refurbish their existing properties while Postimaja is opening a new mall in Tallinn. Estonian companies Pro Kapital and E.L.L Kinnisvara also plan to construct new centers.
- Cutting expenses and reducing labor costs has increased the competitiveness of Estonia’s companies in world markets. There has been a rapid increase of high value-added exports such as machinery and equipment by the manufacturing sector. The fast-growing manufacturing sector is expected to stimulate the construction of manufacturing plants and workshops.
Despite a construction boom, the majority of housing stock in Estonia consists of houses constructed before 1970 or during the Soviet era. There is still a demand for new dwellings with good location and quality in the construction market. The residential construction market is expected to grow at a stable rate over the forecast period with prices not expected to be as volatile as during the review period.