Commercial construction tender prices increased by 7.5% in the first half of 2022, a higher increase than that recorded during the Celtic Tiger era
Chartered Surveyors say national annual rate of construction price inflation is now running at 14%
Lockdowns due to covid, supply chain shocks and the war in Ukraine have seen tender price inflation rise by 22% over the past 18 months
SCSI calls on Government to address inflation by focusing on soft costs such as planning reforms and utility connection charges
Friday July 22nd, 2022: The latest Tender Price Index published by the Society of Chartered Surveyors Ireland shows the rate of construction price inflation increased by 7.5% in the first half of 2022, up from 6% in the second half of 2021.
This is the highest six-month increase recorded since the SCSI began tracking commercial construction inflation figures in 1998; higher even than the 7.4% recorded during the Celtic Tiger era in the second half of 2000.
According to the SCSI’s index – which is the only independent assessment of commercial construction tender prices in Ireland – this brought the national annual rate of inflation – July 2021 to June 2022 – to 14% – up from 13.4% in the previous report.
The report indicates little variation across the regions with the rate of inflation in Dublin at 7% while its 8% across the rest of the country.
Fig 1. Construction Tender Prices 2010 – 2022 The sentiment survey, which is based on responses from Chartered Quantity Surveyors from all round the country, working on commercial projects, was conducted in June 2022. The SCSI said the latest figures are based on median values rather than averages, as this gives a more accurate reflection of the responses it receives.
Kevin Brady, Chair of the Quantity Surveying Professional Group in the SCSI said the current levels of construction inflation were due to a series of exceptional events.
“During the last six months we’ve recorded the highest ever rate of construction inflation increase since we began tracking it 24 years ago. This is largely due to the impact of the war in Ukraine, which is causing high energy prices and exacerbating the inflationary pressures on construction materials.
In the previous six months the main issue was material price volatility due to supply chain issues while during the first half of 2021 it was pent-up demand for construction services as we emerged from covid lockdown. In addition to these external issues, high demand over the last year and a half has been compounded by severe labour shortages and rising labour costs. As the sector struggled to deal with this series of unprecedented events, construction inflation has risen by a record 22% over the last 18 months.”
“These are significant increases, and their continuous nature is adding tremendous pressure on the sector in terms of viability for projects. It had been anticipated that the increases we saw in the second half of last year following the reopening of the industry after covid restrictions would stabilise as supply chains and demand adjusted in the first half of this year. However, the war in Ukraine has continued and has resulted in a sustained rise in inflation.”
“The products which are seeing the highest increases include insulation, plasterboard and sanitaryware. Rebar – steel used in reinforced concrete and copper – is down while the price of timber products – softwoods, OSB boards, plywood etc – remain high but the rate of increase is levelling off” Mr Brady said.
The President of the SCSI, Kevin James, said that while it was extremely challenging to accurately predict future tender rates given current market and geo-political uncertainties, chartered quantity surveyors expected to see further inflationary increases in the second half of 2022 but at a lower rate than that recorded over the past 18 months.
He said the fact construction inflation levels were now surpassing those of the Celtic Tiger era meant the Government had to take urgent action.
“Whilst activity within the construction sector remains extremely high across all regions, our members have indicated continued concerns regarding affordability and viability in relation to projects on the back of significant increases since 2021.
Commitments by Government to reform planning procedures is welcomed by the SCSI. The SCSI believes Government should reduce overall levels of risk and costs of delivery where they can such as reducing planning delays and timelines.”
Mr James said that if there was an economic slowdown it will likely lead to greater competition in the market.
“Our members are reporting that currently the industry is near peak capacity; however, given that the threat of a downturn in economic activity is being widely predicted, we could see capacity coming back into the market. This could lead to a reduction in the pipeline of work and encourage more competitive tendering as a result.”
Looking ahead to Budget 2023 the SCSI cautioned the Government against introducing further taxation on commercial property transactions.
Mr James said that while activity within the construction sector appeared strong – led by new industrial and logistic developments in particular – other areas, such as retail and some office types had seen declines due to covid and viability issues.
“In last year’s budget stamp duty on commercial transactions was increased to 7.5%. We’re calling on Government to refrain from further increases, as such interventions cause uncertainty in the market and act as a deterrent to investment. In the current environment we don’t need further uncertainty” Mr James concluded.
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Note to Editor
Methodology and Use of Data Notes
The Index is the only independent assessment of construction tender prices in Ireland. It is based on the responses of 183 Chartered Quantity Surveying members of the SCSI who undertook the survey in June 2022. The Tender Price Index (TPI) H1 2022 is based on sentiment returns only. The TPI is for non-residential projects during the period in question. It is based predominately on new build projects with values in excess of € 0.5m and covers all regions of Ireland.
The Index relates to median price increases across differing project types and locations. It should be regarded as a guide only when looking at any specific project, as the pricing of individual projects will vary depending on such factors as their complexity, location, timescale, etc.
It is important that the TPI report is used appropriately and not for all construction projects, including those in the residential sector and those below €0.5 million. The Tender Price Index H1 2022 provides median reported figures across all project tiers. Breakdowns by tier may vary. Project specific advice should be sought from a Chartered Quantity Surveyor before deciding an appropriate TPI provision for individual construction projects.