November saw the sharpest fall-off in construction activity so far this year, with the biggest reduction occurring in the housing sector.
BNP Paribas Real Estate Ireland’s construction activity index dropped to 44.5 in November, down from 47.3 in October, marking the fifth successive month of decline.
The construction PMI is compiled by S&P Global from a panel of about 150 construction companies. A reading above 50 indicates an overall increase in activity compared to the previous month, and a number below 50 an overall decrease.
Construction companies said a slowdown in the economy and completion of projects, and delays in client decision making on home improvements were all factors that contributed to the fall in activity. However, business sentiment strengthened in November as 32 per cent of respondents predicted a rise in activity in the coming year.
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Lower current workloads also led constructors to scale back employment for the first time in almost a year, while companies experienced the sharpest rise in input prices since August (although inflation remains much weaker than during 2021 or 2022).
Commercial activity slipped from expansion to contraction between October and November, with the commercial subindex falling from 50.9 to 43.8.
The housing sector saw the sharpest fall in activity, with a subindex reading of 45.2 in October slipping further to 43.5 in November – the biggest slowdown since April.
John McCartney, director and head of research at BNP Paribas Real Estate Ireland, said rising interest rates and construction costs have made commercial developers “more cautious”.
“In Dublin’s office market, developers have heeded the signals of rising vacancy and softening lease terms to turn off the supply tap. Completions will fall by 25 to 30 per cent this year, and the 2024 pipeline is lower again,” he said, warning that the slowdown in office building may persist until 2027.
Mr McCartney said the slowdown in residential construction is “more surprising”, given an 8.4 per cent increase in investment in new dwellings compared with the first three quarters of 2022 (according to latest national accounts), and an 8.8 per cent rise in completions over the same period.
“The most likely explanation is that activity has temporarily slowed in October and November due to projects being completed as we approach year end.
“However, national accounts data also reveal that the home improvement market has contracted over the last six months as build costs continue to rise,” he said.
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