KMCS’s report gives KMCS’s overview of the construction market in Ireland at Q4 2016 and estimates a forecast of possible construction and tender cost inflation for future years.
KMCS expect the recovery in the construction industry to continue and are predicting an output level of just over €15 billion for 2016, representing an annual increase of 21%. While such a recovery is to be welcomed it is worth noting that at €15 billion the industry output will still only be at approximately 40% of the 2007 peak output. This level of output was unsustainably high but Ireland’s current level which represents 7.6% of GNP is still well below the recognised European sustainable level of 10% to 12%. Using this metric, the output of the Irish construction industry should be between €20 and €24 billion on an annual basis. It is to be noted that construction of c. 20,000 residential units per annum would add an estimated €4–5 billion in output.
Accelerating output against the background of fixed levels in the supply chain is creating upward pressure on construction tender prices with contractors looking to increase margin given construction demand is greater than the capacity of the supply chain (and margins have been depressed in the past number of years). The pattern of increasing tender prices following economic growth is a feature of the Irish construction cycle.
KMCS forecast 6.5% tender cost inflation for 2016 with an expected 4.7% (range 3.6% – 5.5%) tender price inflation in 2017.
KMCS note that cost increases (base costs plus other development costs) experienced by contractors in 2016 would equate to an approximate increase in €10,500 in the base cost of delivering a 1,100 sq ft starter type house. This cost increase will eat into the benefits of the recently announced Government help to buy scheme.
Should you wish to find out more about the current Irish construction market and how KMCS can assist you on your projects please contact their Dublin Office.