In 2021, Estonia's GDP is expected to grow by 9.0% reaching EUR 25.8 billion. Estonia's GDP amounted to EUR 23.7 billion in 2020, marking a 3.0% decline over the previous year (EUR 24.4 billion).
This decline in GDP was mainly due to the impacts of the COVID-19 pandemic and the subsequent measures taken by the government to contain its spread.
The number of enterprises in the broad construction sector grew by 50.1% between 2010 and 2020, totalling 21,969. This growth was primarily driven by increases in the number of enterprises in the architectural and engineering activities (+91.8%), the narrow construction (+56.0%), the real estate activities (+36.9%), and the manufacturing (+16.8%) sub-sectors over the same reference period.
The volume index of production in the broad construction sector recorded an increase of 41.8% during 2015-2020. This was mainly driven by a 47.0% increase in the construction of buildings and a 21.6% growth in the construction of civil engineering, over the same reference period.
Turnover in the broad construction sector marked a strong increase between 2010 and 2018 (+123.4%), reaching EUR 10.2 billion. It further increased to EUR 10.8 billion in 2020, marking a 136.5% rise since 2010. This growth in turnover was driven by significant increases in all the four sub‑sectors – the real estate activities (+159.5%), the narrow construction (+151.7%), architectural and engineering activities (+124.2%) and manufacturing (+94.3%) sub-sectors between 2010 and 2020.
In parallel, the gross operating rate of the broad construction sector, which is used to assess the profitability of the sector, stood at 12.1% in 2018, 1.9 percentage points (pps) above the rate registered in 2010 (10.2%). The real estate activities sub-sector registered the largest profit margin on sales (34.6%) in 2018, followed by the architectural and engineering activities (20.5%), the manufacturing (7.7%), and the narrow construction (6.5%) sub-sectors.
In terms of employment, there were 90,122 persons employed in the Estonian broad construction sector, registering a 26.4% increase in comparison to the 2010 level (71,298 persons). This was mainly driven by the growth registered in the number of persons employed in the architectural and engineering activities sub‑sector (+31.3%), followed by the narrow construction (+30.0%), the manufacturing (+24.9%), and the real estate activities (+13.4%) sub‑sectors over the 2010-2020 period.
Despite the COVID-19 pandemic, the residential construction sector was resilient in 2020. Demand for housing has increased in Estonia. Between 2015 and 2020, the house price index for existing dwellings grew by 27.0%. According to the data published by the Eurostat, house prices in Estonia have risen sharply from 2010. In the first quarter of 2021 they rose by 130.0% compared to the first quarter of 2010. This is well above the EU-average of 30.0%.
In 2020, building permits were granted for the construction of 8,833 dwellings. The total number of dwellings completed in 2020 was 7,579, an increase of 8.1% from 2019 (7,014 dwellings).
In April and May 2021, a total of 659 low-income families with children applied for home grants from KredEx (a government owned foundation providing financial services). The total sum of the grants applied for amounted to approximately EUR 7.0 million.
The Recovery and Resilience Plan (RRP) of Estonia is funded by EUR 969.3 million in grants from the Recovery and Resilience Facility. 41.5% of this will go to support climate objectives and 21.5% will help foster the digital transition.
The RRP includes support for the green transition through investments of EUR 50.0 million into green hydrogen technologies, EUR 92.1 million in energy and energy-efficiency, as well as renovation measures, and EUR 31.0 million for the construction of the Rail Baltic multimodal terminal in Tallinn.
Estonia is also set to invest EUR 24.0 million in increasing connectivity with the deployment of very-high-capacity networks, EUR 97.0 million in the digital transformation of the public sector and a further EUR 83.0 million for the digitalisation of businesses, thus promoting the integration of digital technologies in SMEs. According to the RRP, the country will also invest EUR 100.0 million in the setting up of the Green Fund to support innovative green technologies.
The civil engineering sector is expected to benefit from investments in transport infrastructure, which are required to implement the vision of the National Spatial Plan Estonia 2030+. The new Estonian government formed in January 2021 announced its plans to invest EUR 122.5 million in the development of the country’s rail infrastructure. The Rail Baltica project also plays a strategic role and will impact the Estonian construction sector in the coming years. In August 2021, Rail Baltica entered into the first two agreements for the construction of three railway crossings in Estonia. However, as per the Ministry of Economic Affairs and Infrastructure, the project will need an additional funding of around EUR 400.0 million and will be delayed by four years. Additionally, in October 2021, the government ensured of receiving the funding from the European Union for the construction of Tallinn hospital project which is planned to be operational in 2027.
Additionally, the Estonian Government adopted in June 2021, the Long-Term View on Construction 2035. The strategy conceives the built environment in Estonia as user-centred and aimed at creating a high-quality living environment. The vision for 2035 for the Estonian construction sector is an environmentally sustainable and efficient sector, at the forefront of new technological solutions. The strategy sets actions and initiatives involving both the public and private sector, including upskilling the workforce, fostering the use of BIM, and leveraging public procurement as a tool to digitize and make more sustainable the construction sector.
The Estonian construction sector’s development is experiencing difficulties in terms of labour and skills shortages. Bottleneck vacancies in construction persist, representing a barrier to the sector’s growth. Estonia is making efforts to reform its educational system, in particular vocational education training (VET) and reskilling and upskilling training programmes.
Overall, the Estonian construction sector has a positive outlook in the long-term. The policy and investment initiatives taken by the government in the infrastructure and housing markets are expected to drive growth in the construction sector. Investment in energy efficiency measures in apartment buildings, the digitalisation of economy and EU backed projects are expected to dominate the sector’s growth.