Sandsun/Envato
Just when it looked as if things couldn't get worse in the German building industry, IG Bau, the construction workers' union, has launched a nationwide strike, affecting numerous construction sites across the country. This development marks the first such widespread industrial action in over two decades, and it poses substantial questions about the future of construction projects and investor returns in Germany’s booming real estate sector.
The background to the strike is the collapse of wage arbitration in the construction industry, with its 930,000 employees, at the beginning of May. Since then, negotiations between IG Bau and the construction industry’s major employer associations, the Federation of the German Construction Industry (HDB) and the Central Association of the German Construction Industry (ZDB), have hit a deadlock.
The union is seeking a significant wage increase of €500 per month for all wage groups over the next twelve months, a proposal that stems from concerns about the rising cost of living and the need for fair compensation given the physically demanding nature of construction work.
IG Bau chief executive Robert Feiger was quoted as saying "We're going on strike now, and on a massive scale. We will paralyse the companies and construction sites because the construction companies won't have it any other way. Now it's up to the employers to decide whether the houses and flats will be finished on time and whether the traffic jams will get even longer due to motorway construction sites." The union initially left open when and where exactly work stoppages would take place.
Failed attempt at arbitration
Despite an arbitration attempt that suggested a more moderate wage increase, employers rejected the proposal, citing economic strains and an inappropriate reflection of the current industry realities in the arbitrator’s decision. "Across all sectors, we are seeing a negative sales trend in real terms. Residential construction is also in a deep crisis," explained ZDB Vice President Uwe Nostitz, highlighting the tension between wage demands and economic viability.
The strike has led to immediate disruptions on construction sites, with significant delays expected in the completion of ongoing projects, including residential buildings and infrastructure projects. This disruption comes at a particularly inopportune time, as the German real estate market is already navigating a complex landscape of high demand and insufficient supply.
Tim-Oliver Müller, Managing Director of the HDB, expressed his concern, noting that "every day that there is no construction means economic damage in an already uncertain situation, especially in residential construction. This damage is also at the expense of our employees, who are indispensable to us."
Further delays in project completions, higher costs
For investors, the strikes could obviously mean delays in project completions and potential increases in construction costs. These factors could affect the overall return on investment, especially for projects with tight completion schedules or those in the early stages of development. Moreover, the uncertainty around the duration and outcome of the strikes could make investors wary, potentially slowing down new investments even further in the sector.
The escalation to a nationwide strike suggests a profound dissatisfaction with how wage negotiations have been handled. While the employers’ associations have recommended a voluntary wage increase of 5% in the west and 6% in the east as a temporary solution, this wasn't enough to prevent strike action. Some industry voices, like Christian Hattendorf, Labour Director at Strabag, support the need for a fair wage increase: "Our employees have shown great commitment and personal dedication, especially in times of crisis. A fair and rapid increase in their wages and salaries is therefore something we would automatically accede to."
The main construction industry is one of the largest employers in Germany and, with a turnover of around €162 billion in 2023, is a vital pillar of the German economy. The last time there was a strike in the construction industry was in 2007, when it was regionally limited to Schleswig-Holstein and Lower Saxony. The last time there was a nationwide strike in the construction industry was in 2002.
