The AECOM Annual Review of the Construction Industry is predicting that Irish construction will grow by double digits again in 2016. John O’Regan, AECOM’s Head of Programme, Cost and Consultancy, Island of Ireland says that construction industry activity grew by 14% in 2015.
“We saw the construction industry gradually return to growth in 2014 after the dramatic drop between 2007-2011 and this growth pattern has continued in 2015. We would estimate the value of construction output to have been circa €12.25 billion in 2015, a 14% rise on 2014, and we anticipate double-digit growth this year.”
John O’Regan says that confidence has returned to the construction sector.
“However, we are continuing to issue a note of caution that the upturn has been concentrated in the greater Dublin area. Notwithstanding this, we have seen the beginnings of the recovery in the regions with an increase in the number of enquiries, along with previously shelved projects being revisited.”
Turning to the issue of tender prices, O’Regan says AECOM are predicting a 6% construction price rise nationally.
“2015 saw tender price increases of circa 5% which – if exceeded or repeated over a number of years – would reduce the competitive advantage that Irish construction has enjoyed over recent years. Looking forward to 2016, we anticipate that tender price inflation will continue at an average of circa 6%. The regions should have inflation of circa 5% whereas the greater Dublin area will experience tender prices rises of the order of 6%-8%.”
John O’Regan said that AECOM has started to see some stress fractures appear in segments of the construction industry during the second half of 2015 that will continue into 2016. In particular a number of capacity concerns have arisen in the Dublin market which in turn can have knock-on effect nationally.
“In Dublin and across the island those looking at procuring projects in 2016 can anticipate major shortages of resources in certain areas as well as rising tender prices. Many specialist contractors in areas such as facades, steel and concrete already have their order books full well into 2016 arising from the increase in commercial and large FDI schemes.
“We would also have capacity concerns heading into 2016 in respect of main contracting– and specifically in respect of high-value fast-track projects generally and highly serviced €100 million+ projects. The primary reason for this concern would be the limited number of entities considered capable of delivering on projects of this nature. During the downturn a considerable number of the larger organisations went out of business and others scaled back considerably, thus the willingness and ability to ramp up will undoubtedly be a factor in the coming years.
“For the survivors of the worst recession in living memory, the appetite for renewed growth is certainly present but the approach to risk will be different. The capacity of tier one Irish contractors to deliver the likely number of large projects is going to be limited. It is unlikely that large international contractors will be attracted to the Irish market, particularly with the vibrancy of the London market.
“The short term solution to capacity issues will be dependent on returning emigrants, a new wave of European emigrants and tier two Irish contractors increasing their resources and output. Successful Northern Ireland contractors who have expanded into Scotland and the rest of the UK may also consider redirecting some of their efforts back to Ireland.”
O‘Regan concluded by explaining that there is a variation in the performance of the different construction sectors as well as in the regions:
· The residential sector would still appear to be in a dysfunctional state with the number of 2015 completions estimated to be circa 12,000 units. This was adversely affected by the uncertainty of the second half of the year and we expect the recent policy measures to partially address this issue and provide a kick start to some residential development. However, given the current Central Bank restrictions, the bulk of residential development will in the starter home market.
· In the commercial sector, there is a considerable degree of construction activity in the Dublin office market – city centre Grade A accommodation remains in short supply. Outside of Dublin, new build activity is sluggish although a gradual take-up of existing stock will lead to development over time.
· With exports continuing to grow strongly and a steady stream of new announcements from IDA Ireland, the prospects for construction activity in the industrial sector are strong.
· Notwithstanding the improved consumer confidence, the challenging financial environment makes capital investment decisions more difficult. Thus, while we would expect further growth in retail in 2016, it will remain considerably less than a decade ago.
· In relation to tourism, sport and culture, Dublin features strongly with hotel room rates increasing as the bed shortage intensifies. As such there will be an appetite to build hotels or extensions in the Dublin market. Regionally, the focus is more likely to continue to be transactional.