Kreate operates in infrastrucutre constrcution market in Finland focusing on projects requiring specialised technical expertise. Kreate expanded its operations into Sweden in 2022, where the company’s focus areas are demanding rock and tunnel construction.
The construction industry has faced three crisis periods in two years: First, the COVID-19 pandemic took its toll on the economy and the operations at construction sites through different restrictions. Then, the Russian invasion of Ukraine caused price increases and availability issues with construction materials. And, now, we are facing inflation accelerated by the energy shortage and an economic downturn. The global changes are rapid, and the challenges relating to the environment, well-being and the economy are growing. However, the rapid changes in the operating environment also provide opportunities and, by working together, the entire construction supply chain can accelerate the green and digital twin transition by finding solutions for even more sustainable construction.
The long-term trends impact the world and will provide direction for infrastructure construction in the coming years. The importance of public transport infrastructure will grow with the requirement of carbon neutrality, new procurement models will become increasingly common and the green twin transition will focus on the circular economy and digitalisation. Despite the migration and multi-location working driven by the COVID-19 period, the densification of city centres will also continue in the future. Kreate is responding to the changing operating environment by finding new solutions, deepening its expertise and using its diverse competence for the good of the customer.
Development of the operating environment (Q1/2023)
The estimates of both the Confederation of Finnish Construction Industries and the Ministry of Finance’s RAKSU construction trends group for 2023 are gloomy. Both estimate a decline of around 3–4 per cent for the construction industry as a whole. In its economic assessment issued at the end of March, the Confederation of Finnish Construction Industries estimated that housing construction will decrease by up to 20 per cent in 2023, while the decline in infrastructure construction will be 2 per cent. The overall situation is boosted by growth expectations of 1.5 per cent in repair projects and nearly 1 per cent in business premises and industrial construction. The economic assessment forecasts that the economic cycle in construction is now close to the bottom and will slowly turn towards growth, while production will continue to decline for a while longer.
Housing construction is weighed down by a sharp contraction in housing projects started, which is due to higher-than-expected interest rates and an increase in supply. In the infrastructure construction segment, transport infrastructure construction is estimated to slow down; on the other hand, however, the stabilisation of cost development is expected to support projects from a financial perspective. The Confederation of Finnish Construction Industries estimates that the time of stable growth is now over and that the operating environment will be affected by a scarcity of projects going forward and disruptions in tendering. However, a record amount of construction has been done in Finland in recent years and it has been relatively cheap, as costs and interest rates have been low. Despite the drop being forecast now, construction is overall at a good level in Finland.
Due to the changes in the operating environment that can even occur rapidly, it is challenging to make long-term forecasts concerning infrastructure construction, and the developments may vary from negative to positive between the different infrastructure segments. The decline in housing construction according to the forecasts will be particularly reflected in the foundation construction market. On the other hand, growth is expected in the repair construction sector, which is presumed to balance out the foundation and special foundation construction market. Although the threat of a recession, rapidly progressing inflation and rising interest rates affect the profitability of the construction industry, many industrial investments are also planned, the possible start of which in the current year would balance out the infrastructure construction market, where a slight decline is expected. According to the investment survey conducted by the Confederation of Finnish Industries in January 2023, industrial investments are expected to grow by 7 per cent this year, amounting to EUR 9.6 billion. The forest industry, energy industry, mining industry and various projects related to the green transition may, if started, keep the infrastructure construction volume high and bring continuity to the market.
Despite the decline in infrastructure construction forecast for 2023, the long-term outlook of infrastructure construction in Finland is stable. In Sweden, too, the house construction segment and house sales have been on the decline as the house prices have fallen more than in Finland. In spite of the reductions in total volume, favourable developments continue in the Swedish infrastructure market; in particular, the rock engineering and concrete construction market, which demands special expertise and suits Kreate, will continue to be very strong in the next few years.
The economic downturn does not support the rapid increase of construction needs or the reduction of the maintenance backlog. The construction industry remains ready to drive economic growth, but the demand for construction is also largely affected by the stakeholders’ ability to renew their operations and the tolerance of the government’s economy. Any possible stimulus activities from the public sector and the transition away from fossil fuels towards renewable energy alternatives will also create markets and opportunities for infrastructure actors. Some infrastructure projects may be postponed due to fiscal austerity measures, while the maintenance backlog of infrastructure keeps growing. Finland’s NATO membership may also result in increased infrastructure construction needs nationwide. Urbanisation, the infrastructure maintenance backlog and public sector projects are expected to continue to drive growth in the future.
In its strategy, Kreate has chosen its business functions according to areas of structural engineering and transport infrastructure construction that will grow in the long term in line with the megatrends. Specialisation in demanding and versatile infrastructure is significantly more sustainable across business cycles and downturns than focusing on basic infrastructure construction. Furthermore, Kreate’s expansion into Sweden, which has an infrastructure market twice the size of Finland’s, offers opportunities for growth in the technically demanding infrastructure construction projects in the Greater Stockholm area, for example.
Overall, Kreate believes that the structural engineering and transport infrastructure construction markets that are relevant for demanding infrastructure construction will decline in 2023 compared to the level in 2022. However, Kreate’s situation is made better by the company’s strategic specialisation in demanding infrastructure projects and good order backlog, some of which extends into the coming years.