The population is shrinking, and the need for new construction is changing
In recent years, the construction of housing, residential garages, and holiday homes has declined significantly in Norway and most other European countries. At the same time, new non-residential buildings (all other buildings than the ones mentioned) have also seen relatively weak development. Altogether, this has led to a sharp decline in new building construction output in Norway and the rest of Europe.
Short-term forecasts from the Euroconstruct network suggest that an improvement is expected starting this year, with a gradual recovery in new building construction from this low level over the next few years. However, there are some significant structural changes suggesting that the new normal level for new building construction will be considerably lower than what was typical before the pandemic years.
The reconstruction of Ukraine is probably one of few factors that will counteract this long-term structural decline in new building demand in Europe as a whole. But in that case, it will be construction for replacement of destroyed buildings, not to increase the building stock.
Adjustments to climate change, the transition to renewable energy, and extensive infrastructure upgrades across Europe will involve massive investments, implying that interest rates are likely to remain relatively high going forward. Rising prices for emission quotas and the phasing out of free allocations to the cement and steel industries also suggest that construction costs will remain high. For buildings, investments will probably increasingly be directed toward the existing building stock. Climate change adaptations will include green roofs, better drainage, insulation retrofitting, upgraded windows, solar panels, etc. Regarding renewable energy, we will see more solar panels, home batteries, and geothermal heating among others. Existing buildings will also need to be used longer than today due to goals of a more circular economy, given the large emissions and waste associated with both new construction and demolition. Therefore, renovation and remodeling should increase going forward—at the expense of new construction—both to adapt the building stock to changing needs and to meet higher requirements for energy efficiency and resilience to extreme weather. Some older buildings will still be replaced by new ones.
Demographic changes will reduce the demand for new construction
A declining population, combined with significant aging, will require less additional floor space. The figure shows historical and projected annual percentage population growth for all age groups and the percentage of the population in working age in the euro area. The projections are made by the World Bank, but other sources show a similar trend. The 15–64 age group made up 67.6% of the population in 1992, dropped to 63.1% this year, and is expected to decline further to 59.7% in ten years. Annual population growth for all age groups in the euro area was nearly 0.9% in the early 1960s, dropped to 0.5% in 2004, and fell below zero last year. By 2050, the population in the euro area is expected to shrink every single year.
“This demographic shift will reduce the future need for new buildings.”
Developments in Norway show the same tendency, though slightly less dramatic than in the euro area. The 15–64 age group peaked in Norway in 2009, comprising 66.3% of the total population. That share has dropped slightly to 65% this year, but the decline is expected to accelerate in the coming years. Total population growth in Norway, however, has been strong since Ukrainian refugees began arriving in 2022, but it slowed significantly last year. At the peak, 14,700 Ukrainians came to Norway in a single quarter. In the first quarter of 2025, the number was 2,900. This contributed significantly to the first quarter of this year being the lowest in population growth since 2004, relative to total population, except for the pandemic year 2020. Population growth in Norway is forecast to decline each year ahead.
Consequences will likely be greatest for private sector non-residential buildings
Long-term demand for office space is expected to decline due to productivity gains from accelerated use of artificial intelligence in office professions, combined with increasing labour needs in health and care professions. Some office buildings will likely be repurposed, and new buildings will still be constructed where demand is highest, but overall new construction will decline. The same applies to retail buildings, as e-commerce continues to gradually replace physical stores – though not entirely. The need for hotel buildings will probably be less affected than other types of commercial buildings, while healthcare and social buildings may be the only building types that require expansion.
Changing building area needs in the future is just one of many consequences of the demographic shift we are facing – but it is undoubtedly a new paradigm for the construction industry in Europe.
