Commercial construction tender prices increased by 1.5% in the second half of 2023, down from 2.4% in previous six months
Chartered Surveyors say national annual rate of commercial construction inflation is now running at 3.9% down from 11.5% in 2022
Reduction in rate due to stabilising material prices, reductions in energy costs and greater competitiveness within the market
Shortages of skilled labour now the main cost driver
Thursday 1st February 2024: A new report by the Society of Chartered Surveyors Ireland (SCSI) shows that while construction costs are continuing to rise, the rate of increase eased significantly in the second half of 2023.
The latest Tender Price Index (TPI) published by the SCSI shows the rate of commercial construction inflation increased nationally by 1.5% in the second half of 2023, down from 2.4% in the first half of last year.
According to the SCSI’s Tender Price Index, (TPI) which is the only independent assessment of commercial construction tender prices in Ireland, the annual median national rate of inflation for the calendar year 2023 was 3.9%, down from the 11.5% recorded for 2022.
The TPI is recorded every six months and the fall for the preceding 12 months – July ’22 to June ’23 – was 6.2%, which shows the inflation rate has been on a downward trajectory for the last 18 months.
The report indicates some variation across the regions with a higher median rate of inflation of 2.2% recorded in Leinster (excluding Dublin) and 1.5% recorded for Dublin. Connacht / Ulster recorded a 2% increase while Munster recorded inflation of 1%, down from 3% in the first half of the year.
Fig 1. Construction Tender Prices 1998 – 2023 Research for the latest edition of this sentiment survey, which is based on responses from Chartered Quantity Surveyors from all around the country, working on commercial projects, was conducted in January 2024.
Kevin Brady, a member of the SCSI’s Quantity Surveying Professional Group said that while persistent market challenges remain, the fact the rate of increase had moderated significantly was a positive development.
“Two years ago, in the first half of 2022, the TPI recorded its highest ever 6-month inflation rate of 7.5%. So, we are clearly in a much better place now. The softening of the rate of increase is due in the main to the stabilisation of the price of building materials, reductions in energy and fuel costs along with greater competitiveness within the market. Reduced demand in some commercial sectors will help increase capacity within the industry for new projects.”
“However, in the second half of last year the market experienced continual challenges with frequent increases in financing costs, shortages of skilled labour and rising labour costs, all of which remain key issues today. Surveyors are consistently reporting the latter as the main driver behind the latest cost increases and the main challenge facing the industry at present. They say labour inflation is being driven by a combination of a shortage of skilled tradespeople and pressure from the cost-of-living crisis which is leading to increasing wage demands. The Sectoral Employment Order* increase of approximately 5% last year is also having an impact on tender levels.”
“Looking further afield SCSI members believe there is potential for geo-political issues, particularly the war in Gaza, to spread more widely and impact key supply routes, leading to additional transport costs.”
The President of the SCSI, Enda McGuane, said the latest report showed that concerted action was needed to address the skills shortage right across the construction sector.
“Given that the Housing for All targets should undergo significant upward revision in the near future, it’s also likely that the number of construction workers required to deliver the higher targets will also have to be revised upwards. We will clearly need more surveyors, electricians, engineers, plumbers, architects, and carpenters to name but a few. We need to attract more people into these roles and to develop alternative pathways to them.”
“While this will be a challenge, it also brings opportunities. Opportunities to work in new and exciting areas such as modular construction, operational data analysis or sustainability
consultancy. Opportunities also to address the gender imbalance across the built environment sector and the ongoing lack of diversity in the industry.”
Mr McGuane, who is the Asset Management Lead for the Land Development Agency, was speaking ahead of the SCSI’s annual dinner which takes place at the Clayton Burlington Hotel this evening (Thursday) and is due to be attended by over 1,300 chartered surveyors and guests.
The full Tender Price Index report is available at https://scsi.ie
*Sectoral Employment Orders (SEO) covering rates of pay, sick pay, and pensions in the construction sector were signed into legislation following acceptance by the Minister of State at the Department of Enterprise, Trade and Employment, of recommendations from the Labour Court.
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Methodology and Use of Data Notes
The data outlined within this report was provided by SCSI Chartered Quantity Surveyors with direct expertise and knowledge on the market conditions in the construction sectors across the country. The statistics extracted from our member survey were utilised in outlining the findings of this report, which is intended to give a general overview of median commercial tender price trends within Ireland’s construction sector.
The Index is the only independent assessment of construction tender prices in Ireland. It is compiled by Chartered Quantity Surveying members of the SCSI. The Tender Price Index (TPI) 2H 2023 is based on sentiment returns only. The TPI is for commercial 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, and timescales.
It is important that the Tender Price Indices 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 2H 2023 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.
**From 1H 2021 onwards, the median value is used as the statistical methodology.