AECOM is hopeful that the pent-up demand for private sector capital investment will be unlocked as market conditions are clarified in the UK generally. However, it is noted that that whilst there has been a general trend of growth in the local industry since 2014 there has been a recent dip of 1.5 percent in the last 12 months. This slight contraction in output is largely down to a noticeable reduction on housing of 10.7 percent in Q2 of 2019. We are hopeful that is just a blip in the Q2 stats and that we will see a rebound in housing over the next couple of quarters. On a brighter note infrastructure investment has been growing strongly and is 27.6 percent higher than this time a year ago. The volume of infrastructure is now at its highest level since 2012.

Talent Supply

Labour availability is becoming an issue for certain key trades and we understand that electrical and plumbing trades along with brick layers are particularly hard to secure for key projects. This is likely to do with the opportunities for these key trades in Republic of Ireland (RoI) and Great Britain (GB). In GB there is a shortage of key trades due the effects of the uncertainty around availability of European Union (EU) labour.

This labour availability issue is driving changes in our industry, particularly with the private sector where off site manufacturing and modular construction methods are becoming more mainstream for hotels, student accommodation and residential. It is not thought this will alleviate all labour shortages, but it is helping. 

Tenders & Contracts

Despite parts of the market being subdued we are noting inflationary pressures on tender prices and some material prices. For example, for materials from China such as granite and other quarried products where inflation has been seen of up to 20 percent in the last year.

General construction tender price inflation has been around 5 percent for the year to Q4 2019. We believe this is driven in part by a busier market in the Republic of Ireland and the continued success of NI contractors winning work in Great Britain and choosing to price work in NI at similar rates.

As in ROI, the continued shortage of labour in key areas coupled with the effects of whatever will happen with the UK’s trading relationship with the EU will likely continue to put upward pressure on tender prices. When coupled with a weakening outlook for the local economy, making it hard to contextualise what impact this will have in the next year.

Given the seemingly contradictory statistics and general feel of the market, assuming an orderly exit from the EU and no further shocks to the value of sterling, AECOM is projecting tender price increases of 3.5 percent in NI for the next 12 months.

The last twelve months overall have been stable. However we consider the next twelve months will bring some opportunity to NI, whether it’s with Construction & Procurement Delivery (CPD) procurement methodologies allowing a more sustainable construction market in the public sector or with some clarity coming from the the current political instability giving local private and FDI investment the confidence to invest

Dublin and the regions

As the economy continues to grow and an unemployment rate of circa 5 percent – which is sometimes considered full employment – most employers in the industry continue to face the challenge of recruiting and retaining staff. For the Greater Dublin Area, it is particularly challenging, where there is a premium to attract staff due to the higher cost of living leading to an extended commute. There is an increasing trend amongst employers, partly driven by staff retention and partly by advances in the use of technology, to facilitate employees working from home or in other flexible office solutions.

The regions are finally starting to see an upturn. Initiatives such as the development of Advanced Technology Units by IDA Ireland around the country in Monaghan, Sligo, Galway, Limerick and Cork give confidence to the market. Arising from the commercial and human resources pressures highlighted earlier associated with Dublin, companies are increasingly looking at the value achievable and importantly the potential of regional locations for attracting and retaining employees, we see this impacting on the market with speculative office developments in Galway, Cork and Limerick.

Productivity shows the relationship between the output and input needed to undertake the work, including labour, all technology and equipment, and is a measure of efficiency in the economy. An analysis of gross value added per employee across varying sized construction firms indicates:

• Large firms (over 250 employees) had significant increases in their productivity levels, returning to pre-recession levels by 2016
• Businesses with less than 10 employees have the highest levels of productivity since 2013
• Small (10-49 employees) and medium (50-249 employees) firms are lagging behind the large and micro firms, with productivity levels below the industry average.

It should be noted that the Irish construction industry is comprised of a high proportion of self-employed people, or small firms who are subcontracted to larger contracting firms.

Government capital spending rose from €3.8 billion in 2012 to €8.1 billion in 2020. The National Development Plan 2018-2027 addressed the underinvestment in infrastructure over the recession period, and the importance of Government capital expenditure for the industry is clear from 2011 to 2014. Going forward, the National Development Plan gives a degree of certainty to the construction industry over the next decade, but also highlights the need to manage cost inflation within the sector, particularly relating to labour supply and skills within the sector.

While this story of boom and bust growth in the construction industry is familiar and part of business cycles, there are significant differences in the current cycle from the construction-fuelled growth of the 2000s, and lessons that need to be remembered. The economy is not reliant on the construction sector for growth as it was at the peak of the Celtic Tiger boom. At the end of 2006 for instance, 11 percent of Ireland’s labour force was employed in construction. Today, this figure is just over 6 percent, similar to levels seen in the 1990s. There were 140,000 employed in the construction sector in 2019 compared to 240,000 in 2007.

In the coming decade, the construction sector will need to address challenges and transitions that will have significant social and economic impact, including transitioning to a low carbon economy, preparing for a downturn, dealing with digital and technological advances and paradigmatic shifts in the face of continuous change.