A Difficult Year Ahead for Construction in 2025

The Dutch construction industry is bracing for its second consecutive year of contraction in 2024, estimated at a 2% decline in production. The downturn is driven by a combination of rising interest rates in the past years, regulatory challenges, and logistical constraints like land scarcity and network congestion. This challenging environment hinders the conversion of strong demand for housing, infrastructure, and renovations into actionable construction projects. Although interest rates are now beginning to ease, the scars of previous hikes linger, constraining both investor and individual appetite for new construction.

Housing Projects Under Strain

New housing developments remain under immense pressure, with production levels down 6% year-on-year in 2024. The deep-seated issues are multifaceted: fragmented land markets, network congestion on the electricity grid, and stricter environmental regulations surrounding nitrogen emissions are all to blame. Although there has been a slight recovery in building permits since the low point at the end of 2023, the pace of issuance is nowhere near the levels required to meet government ambitions of 100,000 new homes annually. Compounding this issue, access to crucial utilities like clean drinking water is increasingly strained in certain regions.

However, there is hope on the horizon as interest rate reductions by the European Central Bank (ECB) may start to positively impact housing affordability and developer confidence toward the end of 2024. Innovations like shared network connections and the development of areas unaffected by network congestion in provinces like Groningen, Drenthe, and Limburg offer some relief. A modest rebound of 0.5% growth in construction output is expected in 2025. The outlook brightens further for 2026, with an anticipated 3% annual growth driven largely by housing and renovation projects.

Renovation and Maintenance Provide Stability

The renovation and maintenance market, which constitutes roughly half of the housing sector, is faring better than new constructions. The push toward sustainability and government-backed initiatives, such as the goal to insulate 675,000 homes by 2030, continue to drive demand. Challenges persist, including regulatory hurdles and dependence on external capacities like warmtenet infrastructure, but the strong mandate for green retrofitting ensures long-term potential in this segment. Renovation projects are expected to bolster overall housing-sector growth from 2025 onward.

Infrastructure Growth Constrained by Budget and Capacity

Infrastructure projects (GWW) in the Netherlands face a somewhat stagnant outlook, with a significant reliance on government funding that remains constrained. While the energy transition and climate adaptation projects necessitate substantial updates to the nation’s infrastructure, challenges related to workforce deficits, nitrogen emissions, and complexity in project tendering hinder growth potential. The hesitancy of contractors to take on risky projects or those with unclear timelines—evident in cases like the Van Brienenoord Bridge maintenance stalemate—has also worsened delays.

Despite these hurdles, Tennet and regional grid operators are pursuing transformative energy infrastructure plans, potentially boosting demand for projects involving underground cables and transformers. While the full impact of these efforts will unfold over decades, a 1% growth for infrastructure projects is expected annually in 2025 and 2026.

Industrial and Commercial Real Estate Faces Net Congestion Roadblock

Utilitarian construction (commercial and industrial buildings) remains troubled, with declining investment appetite owing to previously high interest rates and a lack of buildable locations. Network congestion on the electricity grid is a particular pain point, limiting expansion opportunities for businesses. Surveys reveal half of Dutch companies are feeling the effects of these constraints, with over one-third unable to expand due to limited grid capacity. Light improvements in order intake, up 6% in 2024 compared to the previous year, suggest optimism driven by eased lending conditions. However, overall production for this segment is expected to contract by 3% and 4% in 2024 and 2025, respectively, before recovering slightly in 2026.

Positive Signals from the Building Materials Sector

After suffering a significant contraction of 11% in 2023 and an additional 7% in 2024, the Dutch building materials industry is preparing for a turnaround. Price stabilization and reduced energy costs have allowed the sector to regain its footing. Excess inventories have been drawn down, and with demand recovery projected for 2025, production is set to increase by 4%. The rebound is expected to accelerate in 2026, with production growth reaching 7%, in line with broader recovery trends in construction.

Outlook for 2025 and Beyond

While 2024 presents numerous challenges, 2025 brings signs of recovery, aided by declining interest rates and pent-up demand across housing, infrastructure, and renovation markets. The long-term drivers, including the energy transition, climate resilience, and the aging of existing infrastructure, ensure a sustainable demand outlook. The construction sector’s gradual recovery reflects the Dutch economy's resilience and its ability to adapt to evolving environmental, economic, and regulatory landscapes.