Paul McNeive: Developing construction
THERE was great interest in my recent development appraisal showing that a speculative office development in Dublin would be profitable. There was surprise that, almost counter-intuitively, the cost of building the project is a far less risky factor than the selling yield or the risk of delays at the planning stage.
All of that prompts me to look more closely at the whole area of construction and how it is managed.
It is important to distinguish between building "costs" and building "prices". Building costs have fallen relatively little from their peak in 2007.
The cost of labour has fallen by only 7.5pc and the cost of some building materials has increased. However, the prices charged to clients have fallen by over 30pc and that amount represents the disappearance of contractors' profits and reduced professional fees.
As the market improves, building costs are staying constant but building prices are rising by 3-4pc per annum. In order to retain key staff and core skills, contractors are still tendering to do work at a loss and this is a fantastic opportunity for developers, occupiers and NAMA to get buildings built.
Government should be taking greater advantage of the situation to have "shovel ready" projects completed at very low cost, whilst creating employment.
Given that several of Ireland's contractors have closed down, as the economy improves I suspect there is a likelihood of a sharp increase in building prices, as an increase in the number of projects will allow the remaining contractors to quickly increase margins. This is already happening in certain areas such as specialised mechanical and electrical contracting.
At the recent Society of Chartered Surveyors conference I was impressed by a presentation by Dr Ray O'Connor, a graduate of DIT Bolton St who emigrated to the US and now heads up Topcon, a global leader in precision measuring instruments. Demonstrating the changing technology, he showed how buildings can now be quickly designed or surveyed in 3D, using digital and GPS instruments.
Indeed this 3D technology is at the heart of 'Building Information Modelling' (BIM) which is in its infancy in Ireland but will soon replace traditional 2D plans and become the new system for costing construction projects.
The BIM is a detailed computerised 3D model of a building into which the quantity surveyor can input rates and quantities, electronically producing a building cost. All other designers (mechanical and electrical, etc) can input into the BIM and the occupier of the completed building can then use the model for various purposes, eg fit-out design.
At the same conference I bumped into Derry Scully, chairman of construction specialists Bruce Shaw. He sees the market here improving and Bruce Shaw has increased employment numbers in Ireland to 110.
Most of the growth is in the pharmaceutical sector where they are working on new plants for Amgen and Jazz Pharmaceuticals and in the high-tech industrial sector where, for example, they have been involved in five new data centres at Grangecastle, Co Dublin. Another notable project is the new brewery for Diageo at St James's Gate.
Impressively, Bruce Shaw turned the downturn into an opportunity to expand worldwide and have opened 20 offices in the US, Asia Pacific, throughout Europe and across the Middle East. Scully explained that they had established great relationships with multinationals like Microsoft and Hewlett Packard through working with them here and they moved overseas on the back of those.
Today, Bruce Shaw has six Irish quantity surveyors working on a data centre programme throughout the US for Microsoft. They have 40 staff in the Middle East including architects, quantity surveyors and facility managers.
One client is Mobily, Saudi Arabia's largest telecoms company for whom they look after the development and management of 15 data centres, several hundred retail units and a 100,000sqm office headquarters. Bruce Shaw's focus is the recovering Irish market and they will be recruiting more staff next year.
Another fast growing discipline in Ireland is that of the 'project manager'. This speciality developed in the States and is becoming common here now – especially on larger projects.
The project manager is highly experienced in construction and acts as the clients "eyes and ears" during the project, from feasibility to appointing the contractors and professionals to managing the site.
There are already 50-60 chartered project managers in Ireland, mainly surveyors, engineers and architects.
The technologies and skills surrounding construction are changing quickly and professionals must master these to capitalise on the return to development.