Builders hit by a 'plunge' in commercial activity while housing output also slows

The survey also highlighted growth in employment in the industry last month, rose for the 11th time in 12 months in December, and reported optimism reached its highest level since last May. Pic: Eamonn Farrell/RollingNews.ie

Interest rates and high input costs continued to put pressure on the construction sector last month as builders reported a steep reduction in commercial activity in addition to slowing housing output, according to a leading survey.

The findings of the survey of purchasing managers who work in the building industry, as tracked by the BNP Paribas Real Estate index, showed a “continued plunge” in commercial activity, driving down the overall reading to 45.1. Anything below 50 is considered to be in contraction territory.

“Commercial values have inevitably been impacted by higher interest rates, and this has been compounded by soft occupational demand in some sectors, particularly offices,” said John McCartney, director and head of research at BNP Paribas Real Estate Ireland.

Of the three types of construction covered by the report, the sharpest reduction was seen for commercial activity where the rate of contraction was sharp and faster than that seen in November. Activity on housing projects fell markedly, but to a lesser extent than in the previous survey period.

Higher charges by suppliers resulted in a further increase in input costs during December, although the rate of inflation eased from that seen in November and was softer than the average for 2023 as a whole.

“The net effect has been squeezed development margins, stemming the flow of new project starts,” he said.

In the previous purchasing managers index, Mr McCartney said the previous decline in commercial property activity was unsurprising despite a “record year” for Dublin warehouse completions and “significant development in Cork".

Meanwhile, housing output continued to slow but at a softer pace than in November. But optimism among builders strengthened again especially in relation to residential activity this year though as commencements are up by almost 18% between January and November and the sector continues to be benefit from demand amid an ongoing housing shortage.

The survey also highlighted growth in employment in the industry last month, rose for the 11th time in 12 months in December, and reported optimism reached its highest level since last May.