The Romanian Construction Market

The construction scene in Romania ended a strong year in terms of overall activity, closing a bit below 2023 which stands as a record high. This 4% dip in overall construction works activity relative to the previous year, as measured by the National Institute of Statistics (which aggregates activity across all subsectors), means that the market barely cooled. Compared to 2018, activity throughout 2024 was a staggeringly 78% higher, so almost double in terms of the volume of work. And it should come as no surprise given that the hefty state-backed investments are taking place alongside a reasonably strong private sector – though investment activities undertaken by private developers are a bit more nuanced from sector to sector. Overall, at the start of 2025, the market presents itself with new challenges that offer both potential opportunities and woes.

1. State investments – outlook shaky

As previously mentioned, state-backed investments, with the aid of EU funds, have skyrocketed over the past few years; just for reference, Romania delivered last year around 200 kilometers of high speed roads, taking the overall network of motorways Romania has to c.1,200 kilometers. By comparison, in the decade ending in 2023, the annual average of deliveries stood at around 35 kilometers/year. Another over 600 kilometers of highways are under construction and this is just the road infrastructure, with other major works due to start soon, including for railways and, possibly, healthcare. That said, the issue is that the vast majority of these projects are driven by EU backed projects which, in turn, hinge to a significant extent on the post-COVID relief funds, which are tied to a reform calendar. With Romania significantly behind schedule in this calendar and tranches of EU funds already delayed, it may be a matter of time before some works are prioritized over others, hence, the state investments may gradually cool from current levels. With the fiscal gap nearing 9% of GDP in 2024, slashing the deficit is becoming increasingly necessary (hopefully, in a more organized fashion rather than forced by a sudden shift of the economic tide) and historically, Romanian governments have sacrificed capital expenditures during such periods of fiscal tightening.

2. Nuanced approach by private investors

While Romania still has a lot of room to grow its real estate scene – as all major sectors seem undersupplied on a per capita basis relative to other CEE peers, let alone relative Western European countries. That said, the current economic context has led to some caution from some types of developers or has created specific challenges. For instance, for residential developers, a mix of caution and administrative hurdles have put works on break.

Meanwhile, industrial developers are also showing signs of wariness amid weakness in Western European markets. Retail developers, on the other hand, are moving full speed ahead, with major projects expected to start; this may be the only major real estate segment that is set to see a material acceleration over the next years after an already quite solid couple of years.

3. Construction prices could again come under pressure

After the prices dipped in 2023 from their highs in 2021-2022 (record highs for some categories of goods like some metals or food prices), things looked like they had at least stabilized. But it is not the case, as global geopolitical tensions keep markets on edge and from some standpoints, things are worse off now than they were a few years after the post-COVID shutdown/Suez channel incident led to a boom in prices. The London Metal Exchange Index (which mostly reflect the price of aluminum, copper and zinc), has shot up by close to 12% over the last 12 months, with copper hitting an all-time high in 2024; this shift is visible when looking at the Romanian National Institute of Statistics’ data for construction prices, which shows that the downward path seen in 2023 for materials has been fully reversed and now prices have returned to levels broadly comparable with record highs seen in 2022 in Romania. At a time when developers could be seeing increasing difficulties to pass on the higher costs down the line to clients/tenants, we can see this become a potential issue down the line in 2025, particularly if geopolitical issues (one needs only to take into account the potential for a trade war between major economic blocs at the start of 2025) reinflate prices even more.

4. Tight labour market, new fiscal problems

Another aspect which has been keeping upward pressures on construction prices is the tight labour market. This made it more difficult to fill in gaps for construction workers at a time when the volume of work was at record highs. For instance, compared to the pre-pandemic period, overall employment in the whole economy is up by roughly 3%, while the number of employees in the construction sector has increased by 14%. The sector has been quite attractive due to increasingly competitive wages including when compared to Western European countries after taking into account living standards. Things change drastically starting in 2025 after the government, faced with an increasingly difficult fiscal situation, canceled the income tax deduction for construction workers. And since employee retention is an issue, construction companies have had to cover all or at least a big chunk of this and based on the signals we have seen, this will be passed on further via price hikes that the beneficiaries will have to suffer.