Construction inflation moderates but remains high

August 26, 2023

Tender prices for commercial construction projects rose by 2.4% during the first half of the year.

That’s down from 3.7% during the second six months of 2022, according to the Society of Chartered Surveyors Ireland (SCSI).

It means the annual rate of commercial construction tender price inflation between July of last year and June of this year was 6.2%.

That compares with 11.5% in the 12-months from January to December.

“Material price inflation is still an issue, but it is becoming less of a driver as supply chains and the cost of energy in manufacturing materials have stabilised compared to the immediate post Covid period,” said Donal Hennessy, Chair of the Quantity Surveying Professional Group in the SCSI.

“Right now, the availability of labour is becoming the dominant concern for the sector with rising labour costs, driven by skilled labour shortages and wage demands applying significant pressure to tender price inflation.”

Mechanical and electrical services are where the shortage in skills is particularly acute, Mr Hennessy added.

This is because the pharma and commercial sectors are soaking up supply, he said.

“While we welcome the ‘Careers in Construction Action Plan’ launched earlier this week by the Government, it’s clear this is an area which needs to be prioritised and which will require continual focus for the foreseeable future,” he stated.

SCSI said materials such as reinforced steel, insulation and fuel are settling in price, other inputs like concrete are still rising in cost.

“This is a real concern for the sector particularly given the Government plans to introduce a ‘concrete levy’ in Q3,” said Karen Brady, Chartered Quantity Surveyor.

“Looking at the national picture, costs continue to be driven by high construction demand due to economic growth and population expansion.”

“However, barring any major economic shocks, we expect to see a continuation of low single digit growth figures in the medium term.”

“And while the overall trend is positive for the sector as far as a levelling off of this Index is concerned, capacity pressures as well as the high interest rate environment will continue to put pressure on the financing of projects, leading to significant uncertainty in the market.”

Article Source: Construction inflation moderates but remains high – Will Goodbody – RTE

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