High prices forced first contraction in construction sector in over a year

The Irish construction industry experienced its first size reduction since April of last year, when the pandemic was still constraining operations, as a result of severe price constraints.

According to the BNP Paribas Real Estate Ireland Construction Purchasing Managers Index (PMI), new orders decreased abruptly and quickly.

Additionally, purchasing activity was limited and staffing levels were the same.

Director and Head of Research at BNP Paribas Real Estate Ireland John McCartney stated that June “has been a milestone month for construction activity.”

The post-Covid recovery has been eroding since February, but the June PMI shows the first real decline since the lifting of pandemic restrictions.

A common concern, according to him, is that costs are increasing more quickly than delivered property values, which is hurting feasibility.

After registering 51.5 in May, the headline seasonally adjusted index had a score of 46.4 in June, falling below the no change threshold of 50.0.

The PMI discovered that expenses increased more quickly than the value of supplied properties, placing pressure on the feasibility of projects.

The majority of respondents—about 64%—said that their input prices had gone up in June.

While the cost of materials kept rising, labour pressured inflation as well.

According to Mr. McCartney, “the number of persons working in construction increased by 30% in the year to March, and the consequent labour shortage has propelled construction wage increases to about 9% per annum.”

Order books were weaker for the third month in a row in June, and employment growth in the sector slowed for the first time since we ended the lockdown. This shows that the situation is starting to regulate itself.

Construction of commercial property saw a greater degree of sector contraction than residential real estate.

The market’s near-term net absorption appears to be covered by the existing pipeline of Dublin office building, which Mr. McCartney said partly reflects cost pressures.

The delay was very slight, and given the pipeline of homes that are already under construction, 28,000 new dwelling completions can be anticipated this year, an increase of more than 30% year over year.

For the first time since September 2020, there was pessimism about the sector’s prognosis, which was fueled by declining new orders and indications of a larger economic slowdown.

Group Media Publication
Construction, Infrastructure and Mining   
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