Romania’s construction sector reached record levels in 2023 and 2024, supported by strong private demand for certain property segments and a significant increase in public investment, from major infrastructure projects to hospitals, financed by national and European funds.

However, in the medium term, pending changes to the tax regime for construction workers, along with broader fiscal adjustments in Romania, could present challenges, according to a Colliers report on real estate market developments in the first half of the year. Moreover, delays in implementing the necessary reforms to maintain access to European funds could create further difficulties.

Silviu Pop, Director of CEE & Romania Research at Colliers, commented: “Over the past two years, the construction market has experienced both an increase in nominal value and a growth in work volume, creating challenges for developers attempting to launch new real estate projects. What has directly influenced this situation? Largely, the significant rise in overall construction costs was driven by the surge in commodity prices, which now appear to be stabilizing. Most commodity prices are approaching pre-pandemic levels and are below their 2020 peaks.”

“On the other hand, global geopolitical tensions - whether between major trading blocs or due to regional military conflicts (notably in the Red Sea region) - are maintaining the risk of commodity price reinflation. In fact, some prices began rising again in the second half of 2023,” he added.

Amid the tight labor market, construction prices resumed rising in 2024, reaching an annual growth rate of around 12% in May 2024 (the latest available data), following a stabilization period in the first half of the previous year. One of the main drivers of this increase is labor costs. While commodity prices have stabilized, Colliers advisers point out that staff costs continue to rise.

The number of construction workers reached a record high of nearly 453,000 in May 2024, reflecting a modest 1% increase from the previous year but a significant 15% increase compared to the pre-pandemic period, the same source said. According to Eurostat, hiring intentions remain positive, indicating that construction firms continue to seek workers, which is driving up wages.

Another key factor is that construction workers have benefited from tax exemptions since 2019, boosting their net income. However, due to pressure on the public budget, the government plans to abolish these tax breaks starting in 2025 (a measure not yet approved as of the beginning of the third quarter of 2024). This change could further complicate the market, putting pressure on companies’ profit margins as they may be forced to raise wages to retain or attract employees, Colliers said. Some of these additional costs are likely to be passed on to clients through higher prices.

A primary factor driving the construction market to record levels has been increased public investment, financed by both national and European funds. In the highway sector, Romania currently has around 800 km of high-speed roads under construction, compared to an existing network of 1,100 km. Hundreds of additional highway sections are also in various stages of development, with some already out for tender.

However, major investments are not limited to road infrastructure; railway modernization is also underway, and in the first half of this year, construction began on several major regional hospitals.

In the medium term, the construction market remains strong, with robust demand from beneficiaries and a steady flow of projects for construction companies. A variety of factors influencing demand creates a more favorable environment than in the past, particularly when compared to the 2006-2008 period when the market was primarily driven by private investors, especially residential developers. However, Colliers consultants also anticipate several challenges ahead.

“Beyond unpredictable external factors, particularly concerns about the global economy, upcoming changes in the tax regime for construction workers and broader tax reforms in Romania could pose challenges. Additionally, Romania’s delay in implementing the necessary reforms to maintain access to EU funds may introduce further difficulties. Therefore, while we anticipate positive results compared to recent years, achieving new highs seems unlikely. In this context, we expect pressures on the construction market to ease over the next year and a half,” said Alexandru Atanasiu, Board Member & Head of Construction Services at Colliers.

irina.marica@romania-insider.com

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