Commercial Property

Covid has slowed the pace of construction cost rises

Costs in the building industry rose by just 0.9pc in first half of 2020

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Builders have returned to work with the easing of lockdowns. Photo: Chris Ratcliffe/Bloomberg
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Builders have returned to work with the easing of lockdowns. Photo: Chris Ratcliffe/Bloomberg

Commercial construction costs are expected to rise only slightly over the rest of this year despite the impact of lockdowns on sites and supply chains, new requirements for physical distancing on sites and additional protective equipment.

The latest Tender Price Index published by the Society of Chartered Surveyors Ireland shows construction costs have continued to rise in 2020, but at a dramatically slower pace than in recent years.

The survey showed prices rose by just 0.9pc in the first half of 2020. That compared to a rise of 2.8pc in the previous six months.

The forecast for the 2nd half of the year is for prices to rise 1pc.

The survey suggests inflation in commercial construction costs stalled as a result of slackening in demand seen in the 'sharp and immediate impact' on tender activity.

The survey, which is based on a combination of a member sentiment survey and tender returns, was conducted in July when Covid-19 was having its largest impact across all aspects of society.

Micheál Mahon, President of the SCSI, said the significant slowing of tender price inflation can be attributed to Covid-19, especially the adherence to lockdown measures as well as concerns from contractors with regard to future workload.

"While large scale projects in the data centre and pharmaceutical sector continue to be very active since the reopening of construction sites in May, there has been an increased level of caution regarding funding new developments generally," he said.

The SCSI has expressed concern over the future impact that Covid-19 and a 'no deal' Brexit could have on the sector. Mr Mahon said the Government should use Budget 2021 to help modernise the sector which has lagged behind other parts of the economy in the pace of technological adoption and change.

"Ireland is seen as a tech friendly country but to date that is not as evident in the construction sector. We need to develop a construction tech hub to foster innovation and increase the resilience of the industry to external challenges and the changing world of work. We also need to make our systems of public tendering more efficient and remove exclusionary criteria. We are working closely with the Department of Public Expenditure and Reform and other industry stakeholders in this respect and we hope to see significant change in this respect within the coming years," Mr Mahon said.

The Chartered Surveyors' Index is a measure of average price increases across differing projects and locations.

The latest report showed the rate of inflation was fairly uniform in Dublin, Munster and Connacht/Ulster at 0.8pc to 0.9pc in the first half of the year but higher, at 1.4pc in the rest of Leinster.

Irish Independent

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