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Ireland Market Review 2019

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Construction in Ireland continues to boom, with all sectors showing significant growth. CSO indices published for Q3 2018 show that the volume of output in building and construction increased by 19.9% on a year-on-year basis.

€20.8b

Construction output

144,000

Employed in construction

18,072

New housing completions

Knowledge Center 2019 - Ireland summary

KC - Ireland summary 2019

Irish construction review and outlook

Derry Scully, Group President at Linesight, reviews the Irish construction industry performance in 2019 to date, and looks forward to what we can expect in the coming months.

The Irish economy continues to perform well with output this year still forecast to grow by close to 4%. However, there are some signs that the rate of growth is slowing down. There was an annual increase in employment of 2% or 45,000 people in the year to Q2 2019 bringing total employment to 2.3 million, but on a seasonally adjusted basis, employment decreased slightly over the previous quarter and the 2% year on year employment growth contrasts with rates of 3% to 3.5% in recent years.

The Government tax take for the first 8 months of the year was just over €35 billion, which was 0.7% ahead of budget projections and an 8.1% increase on revenues from the previous year. However, there are concerns that too much of this revenue is generated from an ongoing windfall of corporation tax paid by a small number of multi-national firms. Corporation taxes have more than doubled since 2015 and amounted to €4.9 billion in the first 8 months of this year, accounting for 14% of the overall tax take.

The slowdown in the Irish economy is demonstrated by several indicators. In August 2019 the KBC Consumer Sentiment Index fell to a 70-month low and stood at 77.2, down from a level of 102.4 a year previously. The AIB Manufacturing PMI hit 6-year lows over the Summer and has been in contraction for 3 months. In contrast, the AIB Services PMI is still showing consistent growth, albeit at lower levels than in recent years.

Construction

Turning to construction, the Ulster Bank Construction PMI fell to 51.4, its lowest level for several years, in July 2019, before rebounding somewhat to 53.7 in August. Construction output statistics from the CSO show that output increased by 5.9% annually in the first quarter of 2019 compared to the previous year but worryingly, the volume of output decreased by 0.3% in the first quarter of 2019 compared to the preceding quarter.

The overall slowdown in construction in Q1 2019, as measured by the CSO, reflects a decrease in civil engineering work of 9.9%, offset by an increase of 1.8% in residential building and a small increase of 0.1% in non-residential building. However, the Ulster Bank Construction PMI which is more recent would indicate that commercial activity is growing at a faster pace than this.

Employment in construction is also levelling off with numbers of employed standing at 146,300 in Q2 2019, compared to 144,600 in Q1 2019 and 144,000 in Q4 2018. Nevertheless, the latest numbers of people directly employed in construction still represent an increase of almost 20,000 since 2017.

The Irish economy continues to perform well with output this year still forecast to grow by close to 4%. However, there are some signs that the rate of growth is slowing down.

Taking account of all factors, we are still holding to Linesight’s earlier prediction of an annual value of construction output between €22.5 and €23.5 billion, although the out-turn is now likely to be closer to the lower / mid-point of this range. This represents an annual increase in the value of output of approximately 11%. This level of output, while sizeable, will still represent just 60% of the €38 billion level at the peak of the boom in 2007. 

Residential sector

The residential sector of the construction industry is finally showing a good growth pattern. This is the case for traditional housing schemes and, also, more recently, in the Build-to Rent and purpose-built student accommodation sub-sectors. Residential properties comprised 43% of investment in real estate in Ireland during the first half of 2019. Recent transactions bring the number of residential units owned by institutions to approximately 11,700, an increase of 25% since the end of last year, and this trend is continuing.

There were 9,185 new dwelling completions in the first half of 2019. This represents an increase of almost 17% on the same period last year. The number of housing scheme dwellings increased only modestly by 2.6%, while the number of single dwellings increased by 15.5%, but by far the largest increase was in apartments, which increased by 55.6%. 

Nonetheless housing schemes still represented the largest proportion of completions in Q2 2019 at 58% with single dwellings at 27% and apartments at 15%. Over half of all new dwelling completions in Q2 2019 were in Dublin or the Mid-East and over three-quarters of all new dwelling completions were in urban areas.

The pipeline for residential construction remains strong although the number of residential planning permissions decreased slightly to 7,493 units in Q1 2019 from 7,766 units in the same quarter last year. However, the number of residential units commenced in the first half of 2019 was 12,260 up from 11,966 in the second half of 2018 and 10,501 in the first half of last year.

Other sectors

Activity in the commercial offices sector continues with many new schemes under construction and in the first half of 2019 the Dublin office market recorded more than 150,000 square metres of leasing activity. However, the number and scale of new office developments under construction or due to start construction has declined in 2019 compared to previous years.

In other commercial areas of construction, the retail market is slowing due to current uncertainties and the rise in online buying, while the hospitality market is doing well with a record of over 5 million visitors to Ireland in the first half of 2019. This is reflecting in new hotel and restaurant projects and refurbishment of existing stock.

In the industrial sector, the IDA continues to attract multinational companies to invest in Ireland, and there are many IDA backed projects currently under construction or in the pipeline, particularly in the data centre, micro-processing and pharmaceutical markets. Whilst the majority of these companies are US owned the IDA have had success in attracting companies from China and other countries also.

In the public sector, the Government is on track for a capital expenditure of €7.3 billion this year. This represents a significant increase of 23.6% over 2018. Last year, the Government published the new National Development Plan 2018–2027, which provides for expenditure of €116 billion to upgrade State infrastructure over the next ten years. Under this plan, public capital investment, as a percentage of national income, will move to amongst the highest in the EU. 

Contributor: Derry Scully

 

 

Value of construction output 2008–2019

Ireland construction output 2019

 

Construction output 2013–2019*

Construction output table

Gross National Product (GNP) 2013–2019*

GNP

Public capital programme 2018–2022

Ireland public capital programme

Public capital investment allocations 2018–2022

Ireland Public Capital Programme

Change in public capital allocations 2018 vs 2022

Ireland public capital expenditure 2018 vs 2022

Employment in construction 2011–2019*

Ireland Employment in Construction Sept 18

PPP programme and social housing land initiatives

Ireland PPP programme

Linesight average Irish construction costs 2019

Ireland construction costs 2019

Linesight tender and cost indices

The graph below illustrates how construction tender prices and the input costs of labour and materials diverged considerably following the collapse in construction from 2007 to 2010. Since then, as the industry started to recover, tender prices have been rising at a considerably faster rate than construction input costs, which increased at a much more moderate level. In 2019, we expect both indices to have converged. Linesight’s research shows that, on average, tender prices rose by approximately 7.5% during 2018, while construction input costs rose on average by 3.5%.

These increases were driven primarily by increasing demand and skills shortages. The new Sectoral Employment Orders, increasing building standards, including the nZEB regulations, and the shortage of waste disposal sites also added to upward price pressures. Prices for the traditional trades of concrete, reinforcement and formwork are increasing, as are specialist subcontractor works for mechanical, electrical and glazing.

During 2019, we predict that input costs will increase by approximately 3%, as increases in labour and material costs continue. Tender prices, however, will increase faster, by an average of 6.5%, driven by the shortage of resources throughout the industry as the recovery continues, and construction output across both private and public all sectors continues to rise. A number of significant, large projects in the pipeline will also add to upward pressure on prices this year.

These percentage increases reflect a national average. Construction prices in the Greater Dublin Area and other major urban centres will increase at a faster rate, particularly for complex inner city projects, while increases in provincial locations will be more modest. The increase in tender prices, which we expect to continue for several more years, emphasises the importance of budgeting for future construction inflation when evaluating proposed construction projects.

Ireland tender price and cost indices 2008-2019 

Ireland Linesight Tender Price and Cost index

  

Linesight tender price index 2008–2019

Ireland Linesight Tender Price Index 2019updated

Linesight average construction cost index 2008–2019

Ireland Linesight Constrction Cost Index

SCSI tender price index 2008–2019*

Ireland SCSI Tender Price Index Sept 18

Wholesale price index building materials*

Ireland Wholesale price index

Consumer vs construction price inflation 2008–2019

Ireland consumer vs construction price inflation

Construction Purchasing Managers’ Index*

Ireland Ulster Bank Construction PMI Sept 18

Office rents 2018

Ireland Office Rentsn 2019

Irish main contractors’ turnover

Ireland contractors turnover 2019

Irish services sub-contractors’ turnover

Irish sub contractors

Basic hourly wage rates

Ireland Wage rates in Construction (Conflicted copy from LP4C7NKC2 on 2019-03-16)

Basic hourly wage rates – mechanical

Ireland Mechanical Wages 2019

Basic hourly wage rates – electrical*

Artboard 69

Planning charges 2019

Ireland planning charges

Fire certificate charges 2019

Ireland fire charges

Annual housing completions 2011–2019*

Ireland new housing completions Sept 18

New housing completions by type 2011–2018

Ireland New Housing Completions by Type 2019

Residential property price index*

Residential property price index

SCSI house rebuilding costs 2019

House rebuilding cost

Related Insights

Related Insights