Construction activity hits two-year peak

Construction of apartments, recovery in the hotel market, and an increase in investor interest in the provision of student accommodation were the key drivers

Mon, 13 May, 2024 - 00:05

Alan Healy

There has been a sharp increase in the pace of construction growth, with separate reports highlighting a recent surge.

Building activity expanded more quickly in April, with the BNP Paribas Construction Index recording its first back-to-back monthly expansions for two years.

Commercial construction was strongest, backed up by residential growth.

The headline, seasonally adjusted index rose to 53.2 in April, from 51.6 in March.

The rate of expansion was the fastest since March 2022 and the growth of new business was the principal factor.

“Increased activity was reported across the board,” said John McCartney, head of research at BNP Paribas Real Estate Ireland.

“On the residential side, the number of dwellings under construction dipped last year as completions had been outstripping new starts.

"However, this situation has reversed dramatically, with twice as many commencements (11,956) as completions (5,841) in the first quarter of 2024.”

There is uncertainty about whether the commencements surge is a once-off caused by developers rushing to avail of the waiver of development contributions.

This had been scheduled to expire on April 24, but has been extended.

“However, leading indicators on the PMI dashboard suggest that the momentum may be sustained; new orders, employment, and input purchases all rose further, while 87% of building firms said they expected to be as busy or busier this time next year,” said Mr McCartney.

The index, compiled from questions put to purchasing managers in the industry, also found job creation was flagged by companies for the fifth consecutive month and the latest rise was solid, despite easing from March.

The pace of input cost inflation was broadly stable in April as input prices continued to rise sharply.

Higher oil and transportation costs were mentioned by some companies.

A separate building report found that the construction of apartments, a recovery in the hotel market, and an increase in investor interest in the provision of student accommodation were the key drivers of construction activity.

Deloitte’s annual Crane Survey has found that Government policy has had a positive impact on the residential market, both improving first-time buyers’ purchasing power and driving construction activity.

A total of 32,800 residential units commenced construction last year, a 22% annual increase.

This rise has continued in 2024, with 12,000 units commenced in the first quarter.

Deloitte said 2023 was a stellar year for the hotel sector, helped by a rise in air-passenger arrival figures that now exceed pre-pandemic levels and record-breaking numbers of domestic trips.

An estimated 1,650 new rooms were opened in 2023, and although down from 2022, this was an improvement on 2019.

At the start of 2024, about 2,850 rooms were under construction across Dublin, Cork, and Galway, with the majority due for delivery in 2024.

Deloitte pointed to the Ruby Hotel in Dublin 7 and the Moxy Hotel on Cork’s Camden Place as large new developments adding further rooms this year.

“There are a number of really encouraging indicators that show the recovery of the hotel market in Ireland following covid-19, from construction activity to occupancy rates,” said Deloitte head of real estate John Doddy.

“However, it is uncertain whether this stellar market performance will continue. Initial market soundings suggest a weakening in demand, with hotel groups citing the increased Vat rate and increased competition as key challenges facing the industry in 2024.

"However, several key events, such as Taylor Swift and Bruce Springsteen concerts, will likely bolster performances over the summer.”

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