Regional Analysis 2020 Ireland

Ireland Market Review 2020

While the full impact of the COVID-19 pandemic on the Irish economy and the construction industry will take time to emerge, it is already clear that it has been substantial and wide-reaching.

Construction output in 2020 forecast
Employed in construction in Q2 2020
33% reduction
Q2 2020 house completions Y-o-Y
Tender price forecast for 2020

Irish construction review and outlook

As we near the final quarter of 2020 and begin to realise the 'new normal’ of COVID-19, Stephen Ashe, Director at Linesight, reviews the Irish construction industry performance to date and what we can expect in the coming months.

Economic overview

While the full impact of the COVID-19 pandemic on the Irish economy and the construction industry will take time to emerge, it is already clear that it has been substantial and wide-reaching. 

Figures released in early September by the CSO indicate a 6.1% contraction in Q2 2020, constituting the largest quarterly decline on record. However, given the severity of the crisis around the world, that figure is still below the EU average of circa 12%. With the initial expansion estimate for Q1 revised downwards to a contraction of 2.1%, negative GDP growth over two consecutive quarters means that Ireland has entered a recession.  

The Irish Government’s budget deficit increased to €9.5 billion in August, as VAT receipts reduced and spending on the likes of income supports related to the pandemic soared. This compares to a deficit of €625 million in the same period last year this time last year, marking a year-on-year deterioration of €8.8 billion. These figures, however large, are to be expected given the scale of the crisis. There are, however, some positive signs in that the cumulative tax revenue is only down 2.5% compared to a year ago, and strong sectors such as technology, pharma and exports continue to perform well. 

The Government is now operating the national finances with a deficit of €18.5 billion and our economy is expected to shrink by 8.5%

The Government is now operating the national finances with a deficit of €18.5 billion and our economy is expected to shrink by 8.5%. This is a direct result of the ongoing cost of the pandemic and the government stimulus packages.

Overall employment levels reached 2.36 million in Q4 2019. This number fell to 2.2 million in Q2 2020 (or 1.78 million COVID-19 adjusted). While we are seeing signs of recovery, it should be noted that the duration and outcome of COVID-19 will further influence these figures, with the hope being that this will be in a positive way.  

Additional public investment has been provided in direct response to COVID-19, as well as through the July Stimulus Plan, and public expenditure is planned to increase by 12% in 2021. It is also encouraging to see the Government sticking broadly to the Project 2040 ambitions. 



As outlined in the Build 2020 report prepared by the Department of Public Expenditure and Reform, total investment in building and construction grew by an estimated 11% in 2019 to €27 billion. However, it could decrease by up to 35% in 2020 due to a fall in public and private sector investment, to reach in the region of €17.9 billion. This is a substantial impact on the construction industry, and while we are seeing cautious optimism in terms of existing projects proceeding and new pipeline, a recovery is largely dependent on the duration of the pandemic. As is to be expected, the path to recovery will not be straightforward, and is likely to be interrupted by recurrences and additional waves of the virus. 

With construction turnover at €18 billion, it represents 5.4% of total projected GDP for 2020 of €331 billion. This is well below the EU average of 9%, reported by the European Commission.  

The Ulster Bank Construction Purchasing Managers Index (PMI), which measures sentiment in the sector, hit an all-time low of 4.5 in April 2020 (less than 50 indicates a contraction). The index rose to 51.9 in June 2020 for the first time in four months, following the significant fall in sentiment in March and April during the height of the COVID-19 restrictions. It then rose marginally to 53.2 in July before falling to 44 in August.

As of 6th September 2020, 10,023 construction workers remained on Pandemic Unemployment Payments, down from 52,118 on 3rd May 2020. With the vast majority of construction sites now back open, we expect these numbers to reduce again substantially. We anticipate construction employment to level out at 148,000, following a dip to 129,000 in Q2 at the height of the pandemic in Ireland, which is a decline of 1,900 on the 2019 numbers. 

Construction employment represents a 6.3% share of total employment in the Irish economy, just below the 2018 EU average of 6.8%.


COVID-19 response

The public health measures introduced on 27th March 2020 to halt the progress of COVID-19 required the imposition of restrictions on many areas of our society and economy, including the construction industry. Some measures introduced by the Government included ex gratia interim payments to contractors on public works contracts, to cover certain non-pay fixed costs associated with site closures. 

A number of other Government stimulus plans are welcomed, including the enhanced levels of support for the Help to Buy incentive, the Credit Guarantee Scheme, the Pandemic Unemployment Payment, the Employment Wage Subsidy Scheme (which will now run to the end of March 2021) and the temporary reduction in the standard rate of VAT from 23% to 21%.

The Government published the Roadmap for Reopening Society and Business, to ease the COVID-19 restrictions and reopen Ireland’s economy. The status of this roadmap is somewhat in flux, as we witness localised lockdowns in some counties.

The construction industry and the Construction Industry Federation (CIF) has shown strong leadership in coping with the impacts of COVID-19 through collaboration with the stakeholders, the launch of a training and induction programme, and introduction of standard operating procedures (SOPs) for construction sites.


COVID-19 impact on construction projects 

Construction sites re-opened in mid-May having been shut since early April. Within a week of re-opening in excess of 150,000 people undertook the CIF’s post-COVID-19 induction programme, which was very much welcomed.

The impact of COVID on construction projects varies widely. Key aspects such as the type of project and the stage of the project have a key bearing. Challenges include extension of time claims during the lockdown period and post-lockdown, as a result of the SOPs, supply chain pressures, and additional costs associated with increased welfare/cleaning regimes on site. 

On a positive note, our own internal project data indicates that construction productivity as a result of the SOPs has not been impacted to the extent that was feared. This highlights the already mature nature of our health and safety standards on Irish construction sites.

While COVID-19 has resulted in additional costs, it should be noted that the fall in construction output has potentially created a more competitive tendering environment, putting downward pressure on contractor margins. Our recent internal project data supports this viewpoint.


Pipeline and outlook

Certain sectors have been severely impacted by the pandemic, in particular, retail and hospitality. Both industries are now focused on survival and adapting to a new reality.

The impact of COVID-19 on the commercial sector remains to be seen, but at a minimum, clients are re-assessing their space requirements and are reviewing options around futureproofing designs. This will allow the occupiers of office space to respond quickly to changes in business practice, such as headcount growth and contraction, new ways of working, social distancing and flexible working. 

The investment in the life sciences, pharma and data centre sectors has accelerated as a result of COVID-19, to reflect the requirement for medical supplies and a vaccine, together with the increased demand for cloud services. The warehousing and distribution sector is also experiencing strong demand, reflecting the surge in online purchasing. Institutional residential projects, including PRS, have remained resilient also. 

The Goodbody Analytics BER Housebuilding Tracker indicates a 33% year-on-year reduction in house completions in Q2 2020, representing the largest annual decline in house building in eight years. 

The Goodbody Analytics BER Housebuilding Tracker indicates a 33% year-on-year reduction in house completions in Q2 2020, representing the largest annual decline in house building in eight years. It is noted, however, that figures are beginning to rebound, and the expectation is that the year-on-year reduction will stand at approximately 20% by year end (equating to circa. 16,500 units). 

The figures are still less than half of what is required to tackle the housing crisis, with the Central Bank estimating that 34,000 new homes must be built every year for the next decade to meet demand. 

Key viability issues in residential development have been highlighted by Linesight and a number of others, including Irish Institutional Property (IIP) and the Society of Chartered Surveyors Ireland (SCSI), and this needs to be addressed urgently.


Other challenges


The Brexit transition period ends on the 31st December 2020, and yet trade negotiations with the EU are still ongoing. This lack of direction is further adding to uncertainty, with the true impact unclear until such a point as an agreement is reached or at least a mutually agreeable direction emerges.


Sectoral Employment Orders (SEOs)

A law governing minimum rates of pay in construction will stay in place pending a State challenge to a High Court ruling that declared them unconstitutional. In June, the High Court struck down Chapter Three of the Industrial Relations Act 2015, which allows the Government to make SEOs, setting pay and conditions in building and related industries. The State intends appealing the High Court finding to the Supreme Court, which has the final say on all constitutional issues. If that challenge fails, it will mean that Chapter Three of the Industrial Relations Act 2015 will have no effect, and we may see widespread industrial/strike action.



As part of the July Stimulus package, the Government is releasing €100 million to create 35,000 higher education places and revolutionise Ireland’s position on apprenticeships. Under this new scheme, employers will receive €2,000 upfront for each apprentice they take on, and a further €1,000 twelve months later if the apprentice is still on their books. The Government will also be rolling out a new apprenticeship scheme for some transition year students and launching a new consultation on the future of the apprentice in Ireland. The aim is to grow the number of new registrations to 10,000 a year over the next five years. This is welcome news in addressing the ongoing challenges around skills shortages. 


Foreign Direct Investment (FDI)

As an open economy, Ireland is heavily dependent on foreign direct investment, and the corporation tax and employment this brings. A new report from the OECD shows that Ireland receives more of its corporation tax from foreign multinationals than any other jurisdiction in the world. The OECD calculates that foreign multinationals account for 65% of corporation tax receipts here. In light of recent cases, a spotlight has been shone on our corporate tax system and this won’t ease anytime soon. As a result of FDI, the performance of the US economy (33% contraction in the months of April, May and June) has a direct impact on Ireland and the EU, and so, the full realisation of its considerable recent decline will be heavily felt.



In summary, while the outlook may appear to be somewhat bleak at present, there are some positives to be taken from the current market performance in terms of the performance of some sectors, the lesser extent of the declines in some areas than was anticipated and the fact that there is light at the end of the tunnel in terms of the recovery.While it remains to be seen just how long this tumultuous period will remain for, it is promising to see continued activity across the construction industry in Ireland, and the various mechanisms and supports planned to sustain this stability. 

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