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Friday 30 September 2016

Construction is on the up, but problems remain

Andrew Nugent

Published 12/04/2015 | 02:30

The planned redevelopment of Boland’s Mill is one of several office developments planned for Dublin
The planned redevelopment of Boland’s Mill is one of several office developments planned for Dublin

The Irish construction sector has turned a corner and output is expected to grow in the next two years, mainly driven by new private sector construction in the residential and commercial property sectors, which will help alleviate the shortage of supply.

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A sustainable construction sector is a key element of any properly functioning economy and following several years of declines in output, the construction sector finally began to stabilise in 2013. The sector grew by 9.9pc in 2014 to €11bn, according to a new report by the Society of Chartered Surveyors Ireland (SCSI), the professional representative body for the property and construction sector.

Since the industry bottomed out in 2012, the overall volume of output is projected to be almost 42pc higher by 2016 as the economic recovery gathers momentum and becomes more widespread. The sector accounted for approximately 6.9pc of GNP in 2014 and is expected to reach a value of €12.5bn or 7.5pc of GNP this year.

Other indicators including employment levels are also improving following a dramatic decline.

An estimated 115,800 people were employed in the construction industry in Q4, 2014, representing an increase of 18,500 or 19pc from the lowest point reached in Q1 2013. There has also been a 27pc increase in the number of people applying for built environment related courses on the CAO which is also positive given the shortage of skills and capacity currently in the industry as many exited the sector and country during the recession.

The positive growth indicators are a step forward for the construction industry and economy but many challenges remain. The construction sector is heavily reliant on the performance of the wider economy and growth is coming from a low base and while many projects are beginning or underway, it is likely to be 12 to 24 months before many materialise in order to alleviate supply shortages. Furthermore, the overall sector output is still below the 12pc of GNP level which is considered a sustainable level according to European standards.

Investment in the commercial property sector has experienced a strong start to 2015 largely driven by increases in rents for prime office space arising from a shortage of availability of modern stock.

According to the SCSI report, the level of commercial construction output is projected to be at around €3.5bn over the two year period 2015-16.

Perhaps the most significant contribution to the private commercial construction market (offices, industrial, retail) is expected to come from Nama through its support for construction projects and through other initiatives.

The overall amount of office space planned on sites is of the order of 316,000 sq m out to 2025, with four operational projects in the North Lotts and Grand Canal Docks SDZ in the Dublin Docklands expected to deliver around 130,000 sq m of commercial space over the next four to five years.

The Foreign Direct Investment (FDI) sector is also generating significant opportunities for the construction industry, as existing and new FDI companies seek to expand in, or relocate to, Ireland. It is important to ensure that we have sufficient modern office accommodation to support their needs and that rents do not become uncompetitive compared to other international locations.

In terms of the housing market, the shortages of supply in key areas remain an issue. According to analysis in the SCSI report, that the number of units actually built within a given year is less than the official figure suggests as it is based on ‘completions’ ie units which are connected to the electricity supply.

The SCSI forecasts that approximately 10,000 units will actually be built in 2015, and 14,000 in 2016 as the large number of units from unfinished estates washes through the system. That said, the annual average demand is for 26,000 units a year so we are still some way off reaching a sustainable level of output.

A number of new initiatives by Government will support more development coming on stream as schemes become more viable.

Plans such as including the implementation of some of the Construction 2020 measures under the Planning & Development No 1 Bill which reduces construction costs including Part V and development contributions are welcome.

However we need to see speedy implementation of these measures to ensure that the sector can meet the anticipated growth and reach sustainable levels for the benefit of the overall economy.

Andrew Nugent is Incoming President of the Society of Chartered Surveyors of Ireland

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