Construction costs surge again with concrete levy impact yet to be felt

Construction costs in Ireland have accelerated again on the back of higher energy costs amid warnings that the Government’s controversial concrete levy is likely to push prices higher.

BNP Paribas Real Estate Ireland’s latest construction industry tracker detected a modest pick-up in activity in September following three months of contraction, with new orders stabilising and employment increasing.

However, input cost inflation accelerated to a three-month high on the back of higher energy, raw material and transport costs. Respondents linked the price rises to the war in Ukraine.

The company’s purchasing managers’ index (PMI) for September indicates that overall activity across the residential, civil engineering and commercial construction subsectors rose to posting 50.2 from 46.9 in August. A score above 50 signifies expansion.

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“Solid expansion between January and May gave way to quite a sharp slowdown in construction activity over the summer months. However, operations now appear to have stabilised at this lower level with the September PMI reading broadly in line with August’s figure,” John McCartney, head of research at BNP Paribas Real Estate Ireland, said.

The survey was largely completed before the Government’s recent budget and therefore its impact on the sector has still to be determined.

“However, we can anticipate that construction firms may see the extension of Help-to-Buy until December 2024 as a supportive measure, while the proposed 10 per cent levy on concrete products may be seen as a potentially unhelpful addition to costs,” Mr McCartney said.

The Department of Finance has revised up the potential impact the concrete levy it plans to implement to help cover costs tied to mica redress would have on building new homes, amid calls for new builds to be exempt.

Despite the stabilisation of new orders, which helped push the PMI into overall growth, there were ongoing reports of difficulties caused by rising prices and fragile demand, BNP said. Civil engineering activity, which includes road projects and other public works, continued to fall.

“In the short term, order books are broadly unchanged from August and, reflecting this, input purchases are similarly stable,” Mr McCartney said. “Looking slightly further ahead, the future expectations index indicates that marginally more firms expect to be busier in one year’s time than less busy, despite a continued increase in construction costs.”

Separate figures from estate agent Savills Ireland show the take-up of office space in Dublin continued to bounce back strongly from the pandemic, reaching 75,715sq m (815,000sq ft) in the third quarter of 2022, more than double that achieved in the same quarter last year.

The total take-up rate so far this year has now surpassed the annual total for 2020 and 2021 respectively with city centre stock remaining the main choice for occupiers. The top five deals took place in Dublin 1 and Dublin 2.

The largest letting of the quarter was A&L Goodbody’s pre-let of 14,400sq m (155,000sq ft) at 25 North Wall Quay which is being redeveloped by commercial real estate group Iput.

Despite the uptick in letting activity, Savill’s director of office agency Shane Duffy cautioned there was still concern about the deteriorating economic outlook.

“The activity in the Dublin office market has picked up significantly this year following the full reopening after the pandemic,” Mr Duffy said.

“Although nervousness remains surrounding global recession/hiring freezes, interest rates and the energy crisis, the occupational market has shown continued appetite for high-quality offices as illustrated by the strong year-to-date take-up figures,” he said.