For construction and other industries, this means changes affecting general refinancing requirements. In addition, capital market conditions pose a particular challenge for project development activities and concessions business. It remains to be seen what changes will occur, both in financing development projects and on the investors market in 2009. Financing is a particularly important issue in the concessions business, as contract terms tend to be long. Future project financing conditions will have a decisive influence if and when new projects are implemented. On the other hand, the economic stimulus programs that have been announced are expected to benefit the construction industry in particular. These programs provide for much higher investment in infrastructure.
Global economic growth was 3.4 percent last year, significantly less than originally forecast for 2008. Despite the government measures, it cannot be assumed that the financial crisis is definitely coming to an end, making any forecast for 2009 highly uncertain. The International Monetary Fund (IMF) is anticipating global economic growth of around 0.5 percent.
Growth will vary considerably from region to region. Experts are expecting the US economy to contract by 1.6 percent in 2009 after growing by 1.1 percent last year. Much will depend on whether the rescue measures decided upon have an effect and credit flows are restored.
The Asia region was also affected by the turmoil, but to a lesser extent. The economic slowdown in a number of industrialized nations is now restricting export opportunities, however. After growing by nine percent in 2008, China"s
Following healthy growth of 3.1 percent in 2007, the economic area comprising the EU 27 expanded by just 1.3 percent in 2008, with the trend sharply down in the second half of the year. The IMF is expecting this negative trend to continue during 2009. It is currently anticipated that the economy will shrink by 1.8 percent.
In Russia too, there is uncertainty about how the economy will trend. In 2008, the Russian economy grew by another 6.2 percent, but making a prediction for 2009 is difficult given the shorter supply of capital and fears that a possible real estate bubble may burst. As investment activity within Russia is declining, the IMF is expecting GDP to fall by 0.7 percent, a surprisingly sharp drop for the region.
The rental market turned in a satisfactory performance overall in 2008. According to industry experts Jones Lang LaSalle, take-up in Germany's office and warehouse segments was slightly down on the record levels reached in previous years, by 8.0 percent and 7.0 percent respectively, only because of a weak fourth quarter. Vacancy rates in major real estate markets such as Hamburg, Frankfurt and Munich fell to all-time lows. In a welcome development, rents in Germany continued to rise, particularly for high-quality properties. Like the German market, Eastern Europe also saw a satisfactory trend in rents. Take-up declined only slightly. However, the downturn that began in the last quarter of 2008 will continue in both Germany and Eastern*
| Australia | Asia excl. Japan | Brazil | Chile | Germany | UK | India | Indonesia | Austria | Poland | Russia | Czech Republic | Hungary | USA |
United Arab Emirates |
|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2008 | 2.5 | 5.4 | 5.8 | 4.5 | 1.3 | 0.7 | 7.3 | 6.0 | 2.0 | 5.2 | 6.2 | 4.0 | 1.9 | 1.1 | 7.0 |
| 2009E | 2.2 | 2.7 | 1.8 | 3.8 | -2.5 | -2.8 | 5.1 | 5.5 | 0.8 | 3.7 | -0.7 | 3.3 | 2.3 | -1.6 | 6.0 |
Having overheated in previous years, Germany's real estate investment market returned to a normal level of activity in the first half of 2008. The volume of commercial property transactions fell by almost two thirds year on year. Although the financial crisis made for a weak fourth quarter, 2008 was still a better-than-average year in terms of transaction volumes on a multi-year view. This was due to strong take-up during the first half of the year. According to industry experts CB Richard Ellis, the investment market in Eastern Europe also fell sharply. One of the main reasons for the low volume of transactions both nationally and internationally was the very restrictive lending policies adopted by banks. These may well be relaxed again in the course of 2009. According to Jones Lang LaSalle, this would bring about a renewed increase in transaction volume in Germany and Eastern Europe. During times of economic uncertainty, properties that keep a stable value are of particular interest to institutional investors.
HOCHTIEF Projektentwicklung's core product – properties in superb locations – could be in high demand. A number of market players are expecting many of the institutional investors that are still holding considerable amounts of equity capital to shift their assets into properties that keep a stable value.
The markets of most significance to HOCHTIEF are non-residential construction and civil engineering. In Europe, these generally fared well despite the difficult economic environment, with many European countries recording sometimes sharp rates of growth. The key drivers were once again the countries of Eastern Europe, where market growth continued apace. According to the Euroconstruct group, the outlook for 2009 remains bright in many countries in which HOCHTIEF operates.
Offshore wind farms are another source of potential. HOCHTIEF has sound experience in this segment and can provide special jack-up platforms that enable foundation piles to be installed at sea.
The US construction sector was hardest hit by the financial crisis in the year under review. Industry experts at McGraw-Hill Construction report that construction activity fell by a total of 12.4 percent in 2008. In 2009, demand is expected to decline by 7.4 percent. It is important to note, however, that the individual segments vary considerably. Residential construction, a segment of little significance to our US subsidiary Turner, has been particularly affected, while non-residential construction, the segment served by Turner, grew by 4.3 percent. This segment is expected to shrink by 9.7 percent in 2009 as a result of the general state of the economy. In civil engineering, the market served by our US subsidiary Flatiron, investment requirements remain high. According to McGraw-Hill Construction, the market grew by 1.4 percent in 2008. A temporary decline of
| 2008 | 2009 | |||||
|---|---|---|---|---|---|---|
| Region | Non-residential construction | Civil engineering | Overall market | Non-residential construction | Civil engineering | Overall market |
| Australia | 2.1 | 8.7 | 5.5 | -1.9 | -0.8 | 0.3 |
| Brazil | n.a. | n.a. | 10.0 | n.a. | n.a. | 10.0 |
| Germany | 5.4 | 4.2 | 3.1 | -0.3 | 0.5 | -0.5 |
| UK | 2.6 | 9.3 | -1.1 | -2.8 | 5.8 | -3.2 |
| India | n.a. | n.a. | 10.0 | n.a. | n.a. | 10.0 |
| Indonesia | n.a. | n.a. | 7.0 | n.a. | n.a. | 5.0 |
| Austria | 0.0 | 5.5 | 2.0 | -1.7 | 1.8 | 0.0 |
| Eastern Europe | 4.7 | 5.9 | 6.2 | 2.5 | 13.3 | 4.8 |
| Poland | 10.3 | 14.3 | 12.4 | 5.2 | 21.4 | 8.0 |
| Russia | n.a. | n.a. | 17.0* | n.a. | n.a. | negative |
| Czech Republic | -1.1 | 4.9 | 2.2 | 2.0 | 5.5 | 3.6 |
| Hungary | -5.0 | -16.5 | -6.5 | -5.3 | -3.8 | -3.8 |
| USA | 4.3 | 1.4 | -12.4 | -9.7 | -9.0 | -7.4 |
| Western Europe | 1.1 | 1.5 | -2.9 | -4.0 | -0.6 | -4.8 |
Building to high environmental standards is of particular importance in the US market. For years, Turner has been the leader in green building. The trend toward green building is a market driver and, according to McGraw-Hill Construction, a source of numerous new orders. In November 2008, Turner's Green Building Market Barometer found that demand will remain high: The executives surveyed showed continued interest in sustainable buildings.
The previous year's positive forecasts for the Australian construction market were once again greatly exceeded. In 2008, all the segments served by HOCHTIEF saw significant market growth. In 2009, the civil engineering segment is expected to stagnate at a high level, contracting by 0.8 percent. For non-residential construction, research institute BIS Shrapnel is forecasting a decline of two percent.
Despite the current slowdown and the cancellation of a small number of projects, the medium-term outlook for the Gulf region is bright. Market researchers at Middle East
According to industry experts at the Construction Industry Development Council (CIDC), the markets in Asia remain on a growth path. The Indian construction market will expand by ten percent a year in the period to 2012, mainly as a result of civil engineering projects. The planned road construction projects alone add up to 30,000 kilometers. Market watchers also expect the Indonesian market to see positive growth rates, driven by numerous infrastructure projects. HOCHTIEF has a firm foothold here through its subsidiary Leighton and the Leighton business portfolio.
The Gulf states are one example of a growth region for FM solutions. These have seen rapid project development activity in recent years and are forecast to experience double-digit annual growth in facility management services in the future. HOCHTIEF Facility Management's presence in Bahrain enables it to respond flexibly and quickly to the growing needs in this region.
Sustainability is an issue of growing significance in the facility management market. Clients require end-to-end concepts that enable them to optimize processes and manage buildings in a cost-effective and environmentally sustainable manner. HOCHTIEF Facility Management can offer them added value through a combination of modern facility and energy management.
According to a study by market research institute trend:research, the German contracting market is potentially worth some EUR 20 billion. Growth rates for the period to 2015 are far in excess of ten percent. So far, only seven percent of this has been tapped. As many businesses are now focusing on their site costs, energy contracting will continue to gain in significance. The fastest-growing segments are industry, the public sector and healthcare, all segments in which HOCHTIEF Energy Management is very well positioned. Environmental aspects
There are already signs that relatively large property owners such as in the insurance industry will continue to outsource in 2009 and the years thereafter. Further growth is expected to come from the various insurance companies' plans to increase the percentage of their investments in real estate.
In Australia, the companies in the Leighton business portfolio provide a wide variety of services ranging from the maintenance of toll routes and tunnels through telecommunications services to innovative waste management. It is anticipated that these profitable segments will continue to see good rates of growth.
In 2009, PPP contract awards in the UK are forecast to total just over EUR 5 billion. Although the financial crisis could hamper the availability of long-term project finance, other European countries are increasingly recognizing the advantages of PPP projects. In Greece, the government is planning to put out to tender contracts worth billions.
HOCHTIEF PPP Solutions is currently active in Germany, the UK, Ireland, Greece, Austria and the USA.
PPP is gaining in significance in the USA, where HOCHTIEF has had a presence through a subsidiary of HOCHTIEF PPP Solutions since early 2008. This young US market is expected to see high rates of growth: HOCHTIEF estimates that the US PPP market could be worth USD 300 billion over the next ten years. In addition, the government is likely to increase investment in infrastructure.
In Canada too, the PPP market continues to grow. Various toll road projects worth more than EUR 2.5 billion are currently at the preparation stage. Added to this are further school and hospital projects. With its focus on civil engineering, our subsidiary Flatiron is already operating successfully in this region.
The growth outlook is also bright in Australia, a mature PPP market. Operating as a PPP project developer here for many years, our subsidiary Leighton has secured a leading position.
Due to the effects of the financial crisis, the Airports Council International (ACI) is expecting passenger numbers to fall by up to four percent in 2009. Over the long term, however, the ACI industry experts are forecasting average annual growth of more than four percent.
The airport privatization market will also remain dynamic. For HOCHTIEF, this trend offers long-term growth opportunities, as our international presence and expertise mean we are superbly positioned for future privatizations in Eastern Europe, Asia, South America and the USA.
Both lines of business – PPP and airports – require structured, long-term financing, which in turn calls for properly functioning financial markets. It is currently difficult to predict when such conditions will return.
The recent drop in the price of various commodities is not impacting directly on providers of contract mining services, as the mine owners bear the price risk and contracts run for long periods. Over the medium term, a deterioration in revenues could have a dampening effect. Currently, the market remains at a gratifyingly high level. Our Australian subsidiary Leighton, the world's largest contract miner, has been operating successfully in this segment for many years.
A small number of projects have already been implemented and a large number begun, giving Germany clear approval procedures and its first practical experience of geothermal power plants. This makes Germany an attractive market and means further projects are likely: According to a market study by GeoThermal Engineering, the next five years will probably see 300,000 meters of drilling, the equivalent of around 75 drill holes. HOCHTIEF operates in this segment through Süddeutsche Geothermieprojekte and is currently carrying out the drilling for the company's second geothermal power plant. Here too, the availability of finance will have a decisive influence.