Construction Sector Output expected to grow by 30% by 2018

A new report on the Construction Sector published by the Society of Chartered Surveyors Ireland (SCSI), has forecast an increase in output of 30 per cent by 2018. The expansion could lead to the creation of just over 30,000 construction jobs which will bring total employment in the sector to 178,000, if barriers to development can be overcome.

The industry has contracted enormously from output levels of around € 34bn in 2007 to around € 8.8bn last year and the report suggests that there was a stabilisation in construction output for the first time in several years in 2013 and a modest increase in growth of around 5% is expected this year.

However, while the growth figures may sound considerable, the volume of construction growth will still only reach 7.4% of projected GNP by 2018 –compared to the 12 per cent of GNP which represents a sustainable level of output according European standards.

According to the report, which was written by Amárach Research in conjunction with the Society of Chartered Surveyors Ireland (SCSI), the return to growth will be driven by the private commercial and residential sectors.

Conor-O'DonovanAccording to the report the number of residential units completed in 2013 was 8,301 (in 2006 it was 89,000) which is substantially below the numbers required according to the ESRI. They estimate that between 10,000 and 12,000 new houses are needed this year and next and after that between 20,000 and 25,000 will be needed per annum. A recent report by the Housing Agency also suggests that 80,000 units will be required in urban areas over the next 5 years.

Almost a third of the SCSI members surveyed as part of the report said that the availability of finance for both developers and buyers is the primary challenge facing the residential construction sector over the next three years. Property prices in Dublin grew by 15.7% in 2013 and there are concerns that this level of price inflation, while coming from a low base, could become unsustainable if it continues at the same rate.

Development levies, zoning and density requirements were all seen as barriers to development which must be overcome to ensure  growth in industry output. Furthermore, the employment and skills shortages which will and are arising out of the recovery need to be addressed at a national level, according to the survey respondents.

In terms of commercial construction, investment in the Irish commercial property market grew to almost € 2bn in 2013 – three times higher than 2012. The growth was driven by the office market due to increased Foreign Direct Investment and strong take up levels by technology companies. The lack of supply in City Centres is a key challenge and falling vacancy rates – down to 9% in central Dublin – have led to rent increases of up to 10 per cent in the first three months of the year.

However the rise in rents is bringing construction projects closer to viability and according to SCSI members, more controlled speculative development is needed to ensure that large multinationals coming to Ireland can source suitable accommodation rather than waiting the 24-36 months needed for construction.

Thirty seven per cent of surveyors said the key challenge was the availability of finance. They also suggested that the planning timeframes are too long and a fast track planning process should be put in place for developments with high potential job creation opportunities.

The Public Capital Programme, which has accounted for close to 50% of the construction industry output in the recent past, has been hit hardest by fiscal retrenchment with Government spending on capital programmes declining from € 9bn in 2008 to € 3.4bn in 2013. This means that the Programme is back at 1999 levels.

Not surprisingly over a third of respondents to the survey cited the lack of government funding/investment as the main challenge facing the social infrastructure sector (health and education) over the next three years due to fiscal constraints.

The report also noted that tender prices fell by 33% from peak, but now appear to have stabilised and have begun to show an increase of around 3% per annum according to the latest SCSI Construction Tender Price Index.

The SCSI also called for greater governance in the sector as recommended in the Forfas Report on the Construction Sector and called for the appointment of a Chief Construction Advisor to Government to ensure that there is greater co-ordination around policies and to return the construction sector back to sustainable levels.

This article first appeared in Irish Building Magazine and can be viewed with this link.