Executive summary
Heraclitus, the ancient Greek philosopher, once said, “everything changes but change itself”, a dictum that encapsulates the fluctuating fortunes of Ireland’s construction market.
Activity volumes remain below pre-pandemic levels, with various sectors experiencing a volatile recovery amid wider macroeconomic challenges.
The BNP Paribas Real Estate Purchasing Manager’s Index showed a reading of 45.6 in July, meaning activity has now fallen in nine of the last 10 months. The ability to progress projects greatly depends on sourcing development finance — an increasingly difficult task given the increased cost of borrowing, resulting in new project commencements tapering off.
However, Irish construction firms continue to embrace change by investing in new staff, upskilling existing employees and tapping into emerging technologies.
Key public sector impetus such as the government’s Housing for All plan is helping to provide tender opportunities and a pipeline of future projects across the industry. Amid a growing population, as highlighted by data from last year’s census, the need for more housing has never been greater — particularly given Irish households are some of the most crowded in Europe.
Private and public sector initiatives that make the most of Ireland’s strong academic and technical talent ecosystem will be crucial in navigating some of the country's obstacles. Challenges such as labour availability and material costs, especially, are ongoing threats to the viability of projects. For instance, residential developers face the balancing act of achieving a profit while taking on high costs but still delivering at prices that first-time buyers can afford. Finding equilibrium is all the more challenging outside Dublin, where unit sale prices are lower.
Hence, the launch of Enterprise Ireland’s Construct Innovate Technology Centre at the University of Galway is a welcome investment in providing innovative solutions to some of these challenges.
Furthermore, modern methods of construction (MMC) will become increasingly prominent nationwide as Housing for All includes a roadmap with targets for its adoption in publicly procured residential construction — including the progression of new procurement approaches in social housing that will promote its use.
While the economic outlook is somewhat subdued, continued capital investment from government, steady recruitment levels and a willingness to innovate all offer reasons for optimism that Irish construction fortunes could soon change for the better.
Wider economy
Despite economists downgrading their outlook for growth in GDP terms for the Irish economy, they still consider its overall position and fundamentals very strong.
The Economic and Social Research Institute (ESRI) expects modified domestic demand to grow by 3.5% this year and 4% next year. It reports that risks to the economy include "stubbornly high" core inflation and some signs of weakening export performance.
While exports and employment in the ICT sector have continued through the first half of 2023, the decline in the value of pharma-related exports — a significant contributor to Irish economic activity — should be monitored closely as this will have further ramifications for the domestic outlook.
Consumer price inflation and interest rates
Consumer price inflation in Ireland fell to 5.8% in July 2023, down from 6.1% in the 12 months to June. Annual increases have remained above 5% every month since October 2021.
To rein in inflation, the European Central Bank (ECB) raised interest rates for a ninth consecutive time and to a 22-year-high of 4.25% in July.
Despite eurozone inflation falling by almost half since last autumn to 5.3% in July, the ECB anticipates it still staying above its 2% target for the foreseeable future, suggesting more rate hikes are likely. Echoing the ECB's forecasts, the OECD predicts inflation will ease to 3% in 4Q 2023 and remain at similar levels during 2024.
Impact on construction
As the ECB attempts to control inflation, increasing mortgage rates are the most visible effect of higher interest for the general public. Daft.ie estimates property prices have dropped by 0.5% nationwide in the space of a year amid the higher cost of obtaining a mortgage — the first time prices have fallen since 2020 when Ireland was in lockdown. Continued annualised price falls can quickly impact the viability of house builder’s development plans.
Economists at Goodbody project the completion of 30,000 homes this year and in 2024, just short of a government target of 33,000. Increased state involvement has helped the figures hold up amid viability constraints such as high costs and interest rates. New policies facilitating higher density housing developments have resulted in apartment starts outnumbering houses for the first time.
Data from Census 2022 highlights the pressing need for more housing to keep up with higher-than-anticipated population growth. The total number of people living in Ireland has reached 5.1 million — an 8% increase since April 2016.
At 2.74, the average household size in Ireland is higher than the European average of 2.2 and this figure has barely dropped from the 2016 census figure of 2.75. The limited availability of new housing can be attributed here, as renters and those living with parents are increasingly confined to shared accommodation.
According to calculations by Gleeds, 461,000 new homes would be required to bring the Irish average down in line with the rest of Europe and alleviate crowded households. This figure is in addition to the construction of homes necessary to provide for natural population growth, net inward migration and replacement of obsolete homes.
With an increase in the national population since 2016, housing delivery targets likely need to be revisited.
Housing is among the number of infrastructure issues faced according to IDA Ireland, the government agency for foreign inward investment. Those wishing to make a home and work in Ireland are finding the cost and availability of housing to be a serious deterrent, as well as hampering the ability of existing investors to grow.
Construction activity
Mixed sentiments
According to a recent survey by the Society of Chartered Surveyors Ireland (SCSI) and PricewaterhouseCoopers (PwC), seven out of 10 chartered surveyors believe the overall outlook for the construction sector is positive. However, this sentiment is more subdued than a year ago.
A lower proportion of respondents anticipate an increase in workload over the coming 12 months, with the index falling from +82% to +43% but remaining positive overall: 52% of surveyor respondents expect workloads to increase over the coming 12 months, while 39% project that workloads are going to stay the same.
By way of comparison, no respondents forecasted a decrease in workload during last year’s survey, which has now increased to 9% of surveyors anticipating a reduction in workload for the next 12 months.
Frameworks and funding
Various government frameworks and policies, such as Housing for All and Project Ireland 2040, are helping to provide a pipeline for future projects and capital investment for the industry.
The ESRI projects that the population of Ireland will increase by around one million (20%) on 2016 levels to almost 5.7 million people by 2040. Coupled with a projection of 660,000 new jobs created, this will give rise to a need for at least an additional half a million new homes by 2040.
A €20 billion state investment, Housing for All, into financing the development of housing to the end of 2025 will help meet the demand, albeit still short of the 461,000 new homes requirement — with the aim to deliver 300,000 new homes by the end of 2030. Additional private capital sources totalling approximately €4 billion of annual funding is estimated for achieving this, with a proportion financed by the domestic banking sector. However, the vast majority will be sought from international sources, underlining the critical importance of institutional investment in generating construction activity and, ultimately, additional housing supply.
Project Ireland 2040 commits to expenditure on capital projects totalling more than €165 billion. Described as "likely the largest ever public investment project in the history of the State", the proposed landmark Dublin Metro Link will consist of a 19km railway service between Swords, Dublin Airport and Dublin city centre.
In addition to infrastructure projects, other key components include improving access to quality education, health services and leisure facilities across the country. The Department of Housing, Local Government and Heritage will fund previously stalled projects, such as the delayed construction of the Cork Event Centre, which is set to cost €50 million in grant aid.
Viable development
Viability is one of the key challenges to the Irish government’s Housing for All policy. Gleeds analysis of apartment delivery costs at a county level in the graph above demonstrates the difficulty developers have in breaking even against an affordable sales price.
Developers struggle to deliver a key component of housing supply at a price that first-time purchasers can afford due to the continued high costs of building apartments, in particular. The problem is more acute in cities outside Dublin, where unit sales prices are lower. The situation has been exacerbated by the high levels of price inflation currently still affecting the construction industry.
With a range of government schemes available (Project Tosaigh, Croí Cónaithe (Cities) Scheme) to improve viability, it is critical for developers to reverse engineer their projects to a target cost and ensure that the total delivery cost per apartment (in addition to other evaluation criteria) gives them the highest ranking possible when applying for funding.
Materials and labour
Wholesale prices for construction products saw the above changes in the 12 months to July 2023.
Materials prices and input cost increases have recently become among the most prominent issues within the construction industry globally. Additionally, rises in materials costs have had a knock-on effect on the availability of certain materials, particularly those necessary for engineering processes.
While costs have stabilised compared to the immediate post-pandemic period, they remain elevated compared to pre-pandemic levels. Furthermore, wage demands and the availability of labour are now applying upward pressure on tender price inflation.
According to the latest CSO figures, the labour market is operating near total capacity, with the unemployment rate falling to 4.4% in 2Q 2023 — the lowest level since 2001.
Tendering and inflation
Challenges in the Irish market include:
- Development finance is difficult to source
- Concerns about the planning system’s ability to process planning applications
- Labour availability and skills shortages
- Energy price escalation in materials costs remains a challenge.
The following sectors present the most tender opportunities:
- Public sector (government-funded projects)
- Education, including higher education
- Residential, including student accommodation
- Energy and infrastructure
- Hospitality and leisure
- Logistics and warehouses.
Market sentiment and inflation forecast:
- New project commencements have begun to taper off, causing a reduction in early-stage activity. In 1Q 2023, active residential sites in Dublin decreased by 8.5% compared to the same period in 2022
- Local market tender prices in 2023 have typically increased to 3–5% compared to previous pricing. January to December 2022 saw an 11.5% increase year-on-year
- A report by the SCSI found that despite cost inflation having dropped for non-residential construction costs in the first half of the year — a rise of 2.4% down from 3.7% in the second half of 2022 — the availability of labour and wages are becoming key cost drivers
- Gleeds forecast for construction cost inflation for 2023 is 4%
- The economic outlook is more subdued than in prior periods.
Cost benchmarks
Typical construction costs per square metre in Euros.
The costs exclude professional fees, taxes, inflation, loose furniture, planning fees and charges.
There is also no allowance for demolition, removal of harmful materials, abnormal ground conditions, extensive external works or basement construction.
New build office (city shell and core/landlord fit-out):
CAT A: €3,700 – 4,200
Commercial fit-out:
CAT A: €700 – 1,100,
CAT B: €2,200 – 3,000
Primary school:
€1,990 (Department of Education cost limit)
Warehouse (10% offices):
€1,300 – 1,900
Standard apartments (under 12 storeys):
€2,700 – 3,200 (no underground car park)
Student accomodation
€2,700 – 3,200
3–4 star hotel:
€3,200 – 4,300
The advice given is for typical construction costs/inflation in the Irish market in 3Q 2023.
Construction costs may be affected by a number of factors, including location, scale, complexity and specification.
Sector insights
Hot topics
MMC: public sector buy-in
Whilst MMC are already used in the Irish construction industry, the support of the government in facilitating its use, as well as promoting construction sector innovation and productivity in general, is crucial to its future development.
MMC, including offsite manufacture, minimises environmental impact and onsite disruption. Factory production facilitates easier testing to relevant standards and significantly increases performance, including sustainability and energy efficiency. It also supports jobs; there is a good regional distribution of over 100 dedicated facilities for offsite fabrication in Ireland, generally located near the larger cities of Dublin, Cork, Galway and Limerick but also in counties close to the motorway network.
Government initiatives to speed up delivery times for new home construction, increase the use of offsite manufacturing and drive transformation in the sector include last year’s launch of Enterprise Ireland’s Construct Innovate Technology Centre, hosted at the University of Galway. Funding of €5 million over five years has been committed to accelerate research and innovation and aims to combine a network of government, industry and academia.
The Department of Housing is working closely with all local government and heritage authorities to increase and accelerate the delivery of a range of social housing programmes, including the use of design-build rapid delivery methodologies (including prefabricated and modular build units). Local authorities have been advised that these delivery approaches should be adopted where appropriate to deliver social housing projects on local authority-owned land.
Furthermore, the Housing for All plan includes a roadmap with targets for adopting MMC in publicly procured residential construction — including progression of new procurement approaches in social housing that will promote its use.
As confidence in the feasibility of MMC grows, it will be vital for government to capitalise on the current momentum in residential construction innovation and apply it to other sectors.
Digital technology and robotics
There are around 53,000 construction SMEs in Ireland, which make up over 90% of the industry. For these companies adopting new technologies, costs can be a significant barrier. The Digital Transition Fund assists SMEs to establish digital solutions and is essential for associated retraining costs and the current labour shortages being experienced.
Digital technology can improve the management of data, finance and materials, enabling companies to save time and access better or more accurate real-time information. Examples include a tender managing system.
Meanwhile, the use of robots is becoming increasingly common in the early and offsite stages of the construction process. While fully automated sites are not a realistic prospect in the near term, robots are more visible in areas where projects require less human judgement and problem-solving skills.
3D printing is one application where automation has moved away from factory settings to onsite, part of a growing trend that started with BIM software which enables the design and construction of buildings using 3D models that can be shared amongst stakeholders.
As well as delivering an efficient and precise output, 3D printing is also helping with job creation. Stryker recently created 600 high-tech jobs with the opening of its 3D printing facility in Cork.
Retrofitting
Commercial
The Sustainable Energy Authority of Ireland (SEAI) has a target of net zero emissions across the nation’s commercial and public sector buildings by 2050, as agreed by the European Union through the European Green Deal.
Estimates show that by 2030, 30% of commercial buildings will achieve a Building Energy Rating (BER) of B or higher. However, research from EY has found that 80% of Irish businesses have low confidence in meeting carbon neutral targets in 2030 — representing an increase of 66% on last year.
The government’s Climate Action Plan 2021 sets out measures such as capital funding to support and incentivise increased energy efficiency and decarbonisation of commercial buildings.
Retrofitting
Residential
Ireland’s latest greenhouse gas emissions provisional figures from the SEAI’s energy balance published in June show residential property contributed 10% in 2022 — down 12.7% year-on-year.
The introduction of the Nearly Zero Energy Buildings standard in 2020 for new dwellings has resulted in the effective phasing out of fossil fuels as a heat source, with heat pumps instead facilitating emissions reductions.
The National Residential Retrofit Plan aims to achieve the equivalent of 500,000 homes retrofitted to a BER of B2/cost optimal or carbon equivalent. In addition to this is a planned installation of 400,000 heat pumps in existing homes to replace older, less efficient heating systems by the end of 2030.
Summing up
Despite various headwinds facing the Irish construction market, the willingness of both private and public sectors to embrace innovation should go a long way to help the industry meet the demands of a growing population and economy.
Investment in digitalisation, the adoption of new technologies and appropriate use of MMC are critical to the delivery of profitable and successful projects.
New initiatives and facilities opened so far this year demonstrate how Ireland is tapping into its strong ecosystem of universities, engineering talent and partners such as the IDA. This continued collaboration will be key in helping Irish construction firms navigate the remainder of 2023 and beyond.
Get in touch
Barry Keogh
DIRECTOR, COUNTRY HEAD, IRELAND
Research team contacts
James Garner
SENIOR DIRECTOR, GLOBAL HEAD OF DATA AND INTELLIGENCE
Nicola Sharkey
PROJECT DIRECTOR, INSIGHTS AND RESEARCH LEAD, INTELLIGENCE
Ned Chehalfi
RESEARCH MANAGER, INTELLIGENCE
Sam West
RESEARCH MANAGER, INTELLIGENCE
Edna Benavides
ASSOCIATE DIRECTOR, INTELLIGENCE MANAGER FOR EUROPE
Padmini Gangaraj
MARKET RESEARCH AND CLIENT ENGAGEMENT MANAGER, INDIA
Res Orgut
ASSOCIATE DIRECTOR, USA
Sherif Sweillam
DIRECTOR, HEAD OF BUSINESS OPERATIONS, EGYPT
Research team contacts
Nicola Sharkey
PROJECT DIRECTOR, INSIGHTS AND RESEARCH LEAD, INTELLIGENCE
James Garner
SENIOR DIRECTOR, GLOBAL HEAD OF DATA AND INTELLIGENCE
Ned Chehalfi
RESEARCH MANAGER, INTELLIGENCE
Sam West
RESEARCH MANAGER, INTELLIGENCE
Edna Benavides
ASSOCIATE DIRECTOR, INTELLIGENCE MANAGER FOR EUROPE
Padmini Gangaraj
MARKET RESEARCH AND CLIENT ENGAGEMENT MANAGER, INDIA
Res Orgut
ASSOCIATE DIRECTOR, USA
Sherif Sweillam
DIRECTOR, HEAD OF BUSINESS OPERATIONS, EGYPT
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The report was prepared in August 2023 and published 30 August 2023.
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