The German construction sector had another challenging year in 2025 but has begun showing slight signs of improvement.
While building construction continued to suffer significantly from high construction and financing costs, civil engineering increasingly benefited from ongoing and newly initiated infrastructure projects. Incoming orders have started to increase, with pronounced regional differences. Geopolitical uncertainties, and volatile material prices continue to weigh on the sector.
Between Q4 2024 and Q4 2025, prices for the construction of new office buildings increased by 3.5%, for commercial buildings by 3.3% and for residential buildings by 3.2%.
At the same time, the easing of the energy market was beginning to have an effect: toward the end of 2025, energy prices were around 9.7% below the previous year’s level, noticeably relieving the cost structure in the construction industry. This has been counteracted by the recent developments in the Middle East, with energy prices spiking.
Many construction companies reported a real increase in both incoming orders and revenues. Several major projects provided momentum and led to an increase in public-sector construction contracts, making this sector significantly more resilient than others.
The macroeconomic outlook remains fragile, even though early indicators, such as material prices and an increase in building permits, suggest a gradual stabilisation that is providing some support to the construction industry. While residential construction remains under pressure, public sector construction and commercial construction are expected to be among the first segments to recover over the course of 2026.
Gross Domestic Product (GDP)
Source: Statistisches Bundesamt (Destatis)
Source: Statistiches Bundesamt (Destatis)
Current forecasts from the International Monetary Fund (IMF) and both the Organisation for Economic Co‑operation and Development (OECD) indicate a recovery of the German economy and slight growth of 1.1 % in 2026
Inflation/ Consumer Price Index (CPI)
In March 2026, the inflation rate rose in Germany, measured by the Consumer Price Index (CPI)—stood at +2.7% when compared year on year. While energy prices fell significantly toward the end of 2025, providing noticeable relief, prices in certain sectors, particularly industrial goods, and now also for energy have started to rise again. The sharp rise in inflation is primarily due to the fact that fuel and oil have become significantly more expensive as a result of the Middle East situation.
The stable overall inflation of approximately 2.0% at the start of the year is leading to a slight easing in financing costs, which is generally having a positive effect on investment decisions. At the same time, core inflation remains elevated at around 2.5%. This continues to put cost pressure on construction companies, specifically on wages, labour-intensive trades and other labour ‑driven services.
Source: Statista.com
Long-term interest rates and key interest rates
The long-term capital market interest rates in Germany stood at 2.74% in February 2026, the same level as in the previous month. Compared to February 2025’s figure of 2.4%, this represents a moderate upward movement. The current interest rate level is slightly above the long‑term average of 2.47%, measured over the period from January 2023 to February 2026.
Source: Ycharts
Since 11 June 2025, European Central Bank have applied the following key interest rates the Euro Area:
- Deposit facility (pre-set bank deposit interest rate): 2.0%
- Main refinancing operations (ECB Bank lending rate): 2.15%
- Marginal lending facility (ECB overnight bank credit rate): 2.4%
The European Central Bank has held its key interest deposit rate at 2.0 % since the middle of last year. As a result, financing conditions in the European Union remain stable, yet still challenging for many project developers. In particular, the residential construction sector, which is heavily dependent on external financing, is seeing the persistently elevated interest rate environment dampen new investment decisions.
For public infrastructure projects, however, the current interest rates play a significantly smaller role. These projects are primarily financed through long-term budgetary funds and subsidy programmes.
New orders in the main construction sector
In 2025, the overall construction sector experienced a slight recovery for the first time. September in particular saw a significant increase in incoming orders and revenues. This development was driven mainly by civil engineering and large public infrastructure projects, while residential construction continued to lag. After several years of declining revenues, the sector shows a strong need for recovery. Significant momentum is expected from the federal government’s dedicated funds, which is crucial for a sustainable economic revival.
Source: Statistiches Bundesamt (Destatis)
Building permits
Building construction had its first rise in construction permits in 2025 since 2021. Large-scale orders across the entire main construction sector, especially for railway line reparation as well as the expansion of digital infrastructure (including data centres), contributed significantly to this result.
Despite this statistical stabilisation, sentiment in the sector remains subdued. Turner & Townsends regular contractor survey shows cautious growth, alongside a competitive bidding environment. Many companies do not expect noticeable effects from political support programs until the medium term - or in some cases, not at all.
Although the permit situation shows initial signs of stabilisation, a genuine trend reversal is not yet clearly visible, as fundamental problems in construction persist and business sentiment remains subdued.
Figure 6:
Building permits issued in Germany by year
Source: Statistisches Bundesamt (Destatis)
Source: Statistiches Bundesamt (Destatis)
Overall, a slight increase of 1.0% in employment in the main construction sector to around 933,000 construction workers is forecast for the coming year. This increase is not nearly enough to stem the shortfall of skilled construction workers. According to the Germany Economic Institute, this shortfall will be approximately 170,000 workers by 2030, which is forecasted to rise to a shortfall of over 250,000 by 2035.
Overall business sentiment in the main construction industry deteriorated in March 2026 due to more pessimistic expectations and growing uncertainty stemming from the situation in the Middle East.
Turner & Townsend contractor survey
In the survey regularly conducted by Turner & Townsend among contractors in Germany, the majority describe the current market as ‘cold’. Contrary to our previous survey, in Q1 2025, no contractors describe the market as ‘hot’ with only a minimum as ‘warm’.
Looking ahead, contractors are not seeing their capacity utilisation fill up as quickly as in previous years, which in turn leads to more competitive pricing.
Source: Turner & Townsend contractor survey, Q1 2026
Source: Turner & Townsend contractor survey, Q1 2026
Delayed approvals, too many contractors looking for work and insufficient trust in the market top the supply chain challenges according to latest survey among German contractors. The shortage of skilled labour was also considered a considerable challenge.
Source: Turner & Townsend contractor survey, Q1 2026
The uncertain geopolitical situation, especially the current conflict in the Middle East, has already had, and will likely have further impacts on energy prices. It is too early to assess the significance of any potential economic impacts at this time. Other key challenges include excessive lead and delivery times and a shortage of qualified labour. Also relevant are the still‑volatile material prices, which remain a major cost driver for many companies. Over the course of 2025, there were renewed significant price increases for key materials such as copper and wood. Overall, this results in a challenging market environment in which many companies act cautiously and prioritise investments carefully.
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