Cost inflation in commercial construction sector slows to 3%  

Overall, the annual rate of inflation is down from 6.2% in the same period last year and the Society of Chartered Surveyors Ireland attributes the fall-off to reduced price volatility for construction materials

Construction cost inflation during the first half of the year was highest in Munster. 

The annual rate of inflation in the cost of commercial construction has fallen to 3%, with the rate of increase levelling off over the last six months, a new report by the Society of Chartered Surveyors Ireland (SCSI) shows.

Overall, the annual rate of inflation is down from 6.2% compared to the same period last year. The SCSI is attributing the fall-off in inflation to reduced price volatility for construction materials.

The Tender Price Index (TPI) shows that in the period January to June, commercial construction tender prices increased by 1.5%, which is the same rate as seen during the last six months of 2023.

However, the report notes significant variations across the regions over the last six months, with the highest rate of inflation, 2.5%, recorded in Munster. In comparison, Dublin recorded no additional increase in this period.

Costs in Leinster, excluding Dublin, as well as in Connacht/Ulster, rose 1.5%.

Chair of the SCSI’s quantity surveying professional group Donal Hennessy said the fact that inflation has remained at 1.5% over two consecutive six-month periods is a “welcome development”.

These figures illustrate the dramatic change we have experienced with regard to commercial construction inflation over the last two years.

"In the first six months of 2022, inflation reached a record high of 7.5%, while the annual rate of inflation hit 14%,” he said.

According to the SCSI, the reduced rate of inflation is due to a more competitive commercial construction market and “reduced price volatility for construction materials".

“Three out of four respondents believe tender prices will continue to increase in the second half of the year, while a fifth anticipate prices will remain the same,” Mr Hennessy said.

“Surveyors believe the main issues which will impact the market are the introduction of Government levies on construction and demolition-waste disposal, labour costs, and high fuel costs.” 

The report said 78% of quantity surveyors believe that tender prices will continue to increase in the second half of this year, with just over 20% believing that inflation will remain at 1.5% or below.

The slowdown in commercial construction cost inflation comes as the office market experiences a slight rebound following years of high vacancy levels following the pandemic.

According to the BNP Paribas Real Estate office market report, over 86,000sq m was taken up over the April to June period which is the highest quarterly figure since the last three months of 2021 when activity was propelled by both end-of-year seasonality and a post-covid employment surge in employment.

Between April and June, another 70,000sq m of commercial space came on stream across the county.

However, demand for office space did not keep up with the supply and as a result office vacancy rates continued to rise.

The overall vacancy rate now stands at 15.2%, according to the real estate company, up from 14.5% from the start of the year. Vacancy rates are forecasted to peak at 16.5% and 17% in late 2025.