AECOM Ireland predicts 5-7% growth in country’s Construction Industry in 2014

AECOM Ireland has predicted that the country’s construction industry will grow by 5-7% during 2014 on the back of increased activity in the commercial and residential sectors as well as the recommencement of public private partnership infrastructure provision.

This prediction is contained in AECOM Ireland’s Annual Review 2014 which will be published later today at the firm’s Positive Leadership conference which will be taking place in Dublin’s Marker Hotel. Speakers at the conference include the IDA’s Barry O’Leary and Bill McMorrow, CEO of the property investment firm, Kennedy Wilson.

AECOM Ireland’s Director, Paul Mitchell, said that while 2013 represented another tough year for the construction industry, it also marked the first year since the start of the downturn where certain sectors of the construction industry experienced growth and a real sense of optimism took hold:

· Construction employment grew by 9.5% from quarter one to quarter three in 2013;

· Residential commencement notices increased by 95% in the 12 months before November 2013;

· The CSO’s Building and Construction Index showed a 12% increase in output between quarter two 2012 and quarter two 2013;

· However, public sector capital spend was very modest.

Looking to 2014 and beyond, Paul Mitchell said that while the signs are positive, AECOM Ireland is cautioning against concluding that we are on the brink of a recovery in construction.

“It is still too early to say whether there will be a recovery in the Irish construction industry. The reason for this caution is that any recovery is starting from a very low base and there are a number of downside risks. One of these risks arises from the fact that the public capital programme will decline by 2.8% in 2014 and a further 2.5% in 2015. When tender price inflation is taken into account, the reduction in public sector construction activity is even greater still.”

Other reasons for caution as to whether the Irish construction industry is in recovery or not cited by Paul Mitchell include:

· While pockets of greater Dublin require residential development, the over-supply of housing nationally may be a barrier to new developments;

· The financial institutions’ lasting inability to extricate themselves from the personal debt hangover restricts their ability to resume normal lending;

· As a small open economy we are exposed to any downturn in the world economy and western markets continue to maintain a weak outlook.

Returning to the Government’s crucial role in providing assistance to the construction industry at this fragile point in recovery cycle, AECOM Ireland’s Paul Mitchell acknowledged the importance of recent incentive schemes including PPPs and the VAT back on residential improvements

“However, at this delicate point in the cycle, it is incumbent on the Government to introduce a short term Incentive Plan to encourage the delivery of new offices to meet the impending demand from FDI companies for large office space. Because the financial viability of commercial offices are at a tipping point, this is the opportune time to attract inward investment whilst at the same time assisting struggling construction companies. As the IDA have repeatedly called for, there is a narrow window to secure incoming investment and if we do not have appropriate office space available, they will not wait for up to three years for it to be constructed.”

The AECOM Ireland Annual Review 2014 looks in more detail at the different sectors of the Irish construction industry. In relation to residential development, Mr Mitchell says that the majority of activity in this sector is in the area of repairs, maintenance and improvement and the outlook for this work has improved with Budget 2014’s Home Renovation Initiative.

“We would expect output in the residential sector to increase from its historically low base, but not to an extent that would offer a significant boost to the overall industry.”

The AECOM Ireland Annual Review 2014 also predicts:

· New office building in 2014 with significantly more starts in 2015;

· Expansion and improvement works in industrial construction to meet the needs of the export industries;

· Apart from fit-outs, retail construction will continue to struggle.

Finally, the AECOM Ireland Annual Review 2014 looks at the issue of tender prices and construction costs:

· Tender prices are now 28% below 2007 prices;

· However, prices rose by 3% during 2013 and it is expected that they will rise by a similar amount in 2014;

· In relation to costs, the building and construction materials component of the CSO Wholesale Price Index grew by 1.6% between quarter three 2012 and quarter three 2013;

· While there is some uncertainty over labour costs due to the lack of clarity over the future role of Registered Employment Agreements, AECOM Ireland anticipate a 2% increase in construction costs during 2014.