Regional Analysis 2020

Ireland Market Review 2020

All sectors of the industry are predicted to perform well, with residential in particular demonstrating good growth in 2020.

€25bn
Construction output in 2019
149,900
Employed in construction in Q3 2019
19.5%
Increase in annual housing completions in 2019
+5.4%
Tender price forecast for 2020

Ireland summary 2020

Ireland summary 2020

Irish construction review and outlook

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

Economic overview

Despite the continuing uncertainty of Brexit and international trade tensions, the Irish economy grew considerably again in 2019, but this growth is predicted to slow somewhat this year. The ESRI forecast a growth rate of 5.8% for 2019 and is forecasting a rate of 3.3% for 2020. This still represents the highest growth in the eurozone, mainly driven by strong exports. However, it assumes that Britain will leave the EU in an orderly manner and that a new trade agreement can be successfully negotiated in a reasonable timeframe. Employment levels reached 2.3 million in 2019 and are forecast to grow further in 2020. The economy is now close to full employment as the jobless rate has slumped to just 4.8%. This is a sharp fall from the height of the recession, when it hit almost 16%. 

The Government is now operating the national finances with a small surplus after many years of deficits. Tax receipts for 2020 are forecast to exceed €60 billion, but there are increasing concerns that too much of this revenue will be generated from an ongoing windfall of corporation tax paid by a small number of multinational firms. 

Construction

Construction output continues to grow, but at a slower pace than in recent years. We are forecasting an output level of €25 billion for 2019 and a range of €26.5 to €27 billion in 2020. All sectors of the industry are predicted to continue growing, as evidenced by the Ulster Bank Construction PMI index, which rebounded to a growth level of 52.0 in December 2019, following three months of contracting (sub-50.0) levels. In the National Development Plan, the Government has committed to increasing expenditure on public capital projects by 10% in 2020 to a level of €8.2 billion. Compared to recent years, this now represents a significant proportion of overall construction output.

Economic growth is forecast to slow to 3.3% for 2020, which still represents the highest growth in the Eurozone and is driven by strong exports

Employment in construction continues to increase, with 149,900 employed in the industry in Q3 2019. However, as we noted last year, growth in construction employment is levelling off and this represents an increase of only 3,400 people (or 2.3%) compared to the same quarter in 2018.

Residential sector

After years of very low output, the residential sector of the construction industry is now demonstrating good growth. There were 17,995 dwellings completed in 2018 and this number is likely to have risen to approximately 21,241 in 2019. For 2020, a further increase of 3,000 units (14%) is forecast, bringing the total number of units expected to be constructed this year to approximately 24,500. However, even this level of completion is well below the 34,000 units that the Central Bank estimates need to be constructed each year up to 2030 in order to meet demand. 

The mix of residential units, however, has changed in recent years, with more emphasis on apartments, as their construction becomes more viable. In Q3 2019, 1,083 apartments were completed, representing an increase of 81% over the same period in the previous year. Whilst the increase in apartment construction is welcome, the number constructed still only represents 19% of overall residential completions, which is well behind the average of over 50% across Europe. 

As noted last year, the advent of the build-to-rent (BTR) and purpose-built student accommodation (PBSA) sub-sectors is helping to drive the increase in apartment numbers.

Traditional housing schemes still represented the largest proportion of completions in the first three quarters of 2019 at 59%, with single dwellings at 25% and apartments at 16%, but rising to 19% towards the end of the year, as noted above. Geographically, 60% of all new dwelling completions in Q3 2019 were in Dublin or the Mid-East. Apartments were even more narrowly focused, with 72% of completions in Dublin.

The pipeline for residential construction remains relatively strong, with numbers of both planning permissions and commencements rising in Q3 2019. Residential planning permissions granted in Q3 2019 increased by 32% from the same quarter the previous year, mostly attributed to apartments, which increased by 2,517 units in 2018, to a total of 5,656 units.

Other sectors

Activity in the commercial offices sector is predicted to continue in 2020, as almost all completions in 2018 and 2019, as well as a large proportion of those due for delivery in 2020, are already let. The majority of new developments in 2020 will be pre-let, with only small amounts of speculative development. Overall uptake for 2019 was less than in 2017 and 2018, but this reflects some deals not completing before the year-end, which will give a boost to the 2020 numbers. Most activity will still be located in Dublin and its suburbs, but there is increasing activity in Cork, Galway and Limerick, albeit at a smaller scale.

Turning to other commercial areas of construction, retail construction will remain focused on relatively few major schemes, as the sector is curtailed by consumer sentiment and online sales. 

However, online sales will in turn increase the need for additional logistics facilities in the industrial sector. In the hospitality sector, there are currently approximately 5,000 new bedrooms under construction, with approximately half of these due for completion this year. Another sector that is likely to experience growth is healthcare, particularly for both short-term and long-term nursing homes. 

All sectors of the industry are predicted to perform well, with residential in particular demonstrating good growth in 2020.

In the FDI sector, the IDA continues to attract major multinational companies to Ireland, and these companies employed over 245,000 people at the end of 2019. During 2019, IDA-backed companies contributed almost 14,000 net new jobs across a total of 250 investments, of which 125 were new, 88 were expansions and 37 were R&D investments. While many of these investments were in the Greater Dublin Area, significant investments also took place in Dundalk, Waterford, Cork, Limerick and Galway. Regional development will remain a core IDA strategy over the coming years.

Challenges

Brexit and the agreement of a new trade deal with the UK remains a major concern for the Irish economy overall and for the construction industry. Aside from uncertainty slowing down investment decisions, for construction in particular, these concerns relate to tariffs on materials imported from and exported to the UK, and to quality certification of these materials. There are also concerns about ongoing volatility in the euro-sterling exchange rate.

As an open economy, Ireland is particularly vulnerable to changes in the global economy, and the impact on confidence and investment decisions. Current global concerns include ongoing trade disputes, a slowing Chinese economy, concerns over the Coronavirus (COVID-19), uncertainty in the US in advance of the upcoming Presidential election and sustainability issues in Europe. However, these uncertainties are likely to maintain interest rates at their current, very low or negative values, and this will help to sustain development.

Domestically, the major challenges continue to be around skills shortages and construction price inflation. The industry has taken steps to address the skills shortage by employing greater numbers of apprentices and by recruiting more people from abroad, both returning emigrants and new immigrants. Construction tender levels are continuing to increase at a pace well ahead of general inflation, and this is affecting the viability of some construction projects. However, while prices are still rising significantly, the pace of the increase is slowing, and this is to be welcomed.

Contributor: Derry Scully

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