Activity in construction industry sees first slowdown in 6 years

Activity in the construction sector contracted for the the first time in over six years in September, Ulster Bank’s latest Purchasing Manager’s Index reveals.

The PMI fell to 48.3 in September, a significant drop from 53.7 recorded in August.

Any figure under 50 signals a slowdown in a sector, while a figure over 50 signals growth.

September saw the first contraction in the construction industry since August 2013.

The slowdown was mainly accounted for by a fall in commercial activity, while the housing sector continued to post growth.

Ulster Bank noted that the housing PMI reading of 52.9 was still “comfortably” above the expansion threshold of 50.

It added that housing remained the strongest sub-sector for a ninth month in a row, though the pace of residential activity growth did ease to a four and a half year low in September.

Civil engineering firms posted their 13th consecutive monthly fall in activity, while commercial building decreased for the first time since July 2013, and at a solid pace.

Ulster Bank said that new business growth declined to its slowest pace in over six years as Brexit weighed on customer demand.

It also said the the Future Activity Index remained near August’s nine-year low with concerns about Brexit impacts the key factor affecting sentiment regarding the sector’s prospects for the incoming year.

As well as a smaller rise in new business, employment growth in the construction industry eased to an almost six-year low during September with firms expressing a reluctance to take on additional staff as a result of lower activity levels.

“Recent manufacturing and services PMI survey results have been signalling a deterioration in activity trends in some key areas of the Irish economy in recent months, largely reflecting the combination of weaker
global growth and growing risk of a no-deal Brexit,” commented Simon Barry, chief economist at Ulster Bank.

“The September results of the construction equivalent are suggesting that softer trends in the internationally-traded sectors of the economy are showing signs of spilling over into construction activity,” he added.

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Construction activity growth eases to four-month low in May

Activity in the construction sector eased to a four month low in May, according to the latest Purchasing Managers’ Index from Ulster Bank.

The Ulster Bank Construction PMI fell to 54.9 in May, down from a reading of 56.6 in April.

But despite the slowdown, the construction industry has marked more than five and a half years of continual expansion.

Ulster Bank said the housing sub-category recorded the fastest rise in activity of the three monitored sub-sectors for the fifth month in a row during May.

Commercial activity also increased, but at the slowest pace since August 2013.

Meanwhile, civil engineering activity declined for the ninth consecutive month, with the rate of contraction quickening slightly from April.

Ulster Bank also said that despite expanding at the slowest pace since December 2018, the rise in
new business was the 71st in as many months.

Construction companies told Ulster Bank that increased market activity and the starting of new projects were the main factors behind the expansion in new work last month.

And employment across the construction sector increased for the 69th successive month in May. But Ulster Bank noted that despite the solid growth, the rate of job creation eased from April to the slowest since March 2015.

Meanwhile, the rate of input cost inflation eased in May to the slowest since September 2016.

Simon Barry, chief economist at Ulster Bank, said that Irish construction firms continued to experience solid, though slower, growth in May.

“Very encouragingly, the residential sector remains a particular bright spot with housing activity continuing to expand sharply last month,” Mr Barry said.

“Commercial activity also very much remains in expansion mode, but the commercial PMI has now fallen for three months in a row, with the May reading marking the slowest pace of growth in nearly six years,” he added.

He noted that new business and employment levels continued to rise at healthy rates in May, albeit in line with overall trends, both indices eased last month.

He said this was particularly evident in the case of employment, with the rate of job creation dropping to its slowest pace in over four years.

But he added that this is best seen as a retreat from very elevated readings in recent months.

“Survey respondents remain optimistic about the sector’s prospects over the year ahead, with expectations of stronger customer demand cited as an important source of support,” the economist added.

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Construction activity growth quickens in April despite Brexit concerns

Construction activity rose sharply last month with April marking the 68th consecutive month of stronger construction activity in Ireland.

The Ulster Bank Construction Purchasing Managers’ Index – which tracks changes in total construction activity – rose to 56.6 in April up from 55.9 in March.

Ulster Bank said that housing activity was the strongest performing sub-sector as growth in residential activity continues to show welcome signs of rapid expansion.

Commercial activity also increased last month, though at the slowest pace in six months. But for the eighth successive month, civil engineering activity declined, though at a weaker pace than in March.

The index shows that new orders continued to rise sharply amid reports from companies of improving demand conditions in April.

But some companies also cautioned that Brexit uncertainty was weighing negatively on customers.

Some firms also said they had raised their input purchases in order to mitigate any supply disruptions resulting from Brexit.

Ulster Bank said that in contrast to the faster rise in new business, employment growth in the Irish construction industry eased slightly during April.

Despite this, the rate of job creation was sharp and quicker than the long-run series average with companies indicating that extra staff had been hired in order to keep up with customer demand.

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Apartments on the rise as house-building slows

The number of apartments built here increased 64pc in the first three months of the year, driven by investment from so-called ‘cuckoo funds’.

At the same time there has been a slow-down in the pace of new house-building, which has clocked up the slowest increase since 2013.

The number of apartment units finished in the first three months of this year was up 64pc compared to the same period last year, new figures from Goodbody show.

In the build-to-rent sector, so-called ‘cuckoo funds’ will be the biggest driver of the growth in apartments, according to Goodbody’s ‘BER Tracker’ report.

Without these ‘cuckoo funds’, fewer apartments would be built, according to the report.

“Without this investment, it is likely that the output in the [apartment] sector would be much lower in the coming period due to viability and funding constraints,” said Dermot O’Leary, chief economist at Goodbody.

The selling of homes to ‘cuckoo funds’, which then rent them out en masse, has become increasingly common in this country as the housing crisis continues to spiral.

Critics say it deprives aspiring home-buyers of a chance to buy a home, in the way that cuckoos elbow fledgling birds from their nest.

Criticism has come from as high as the United Nations, which recently accused the Government of facilitating the “financialisation of housing” through preferential tax laws and through weak tenant protections, among other measures.

Overall, houses remain the most common form of residential unit being built.

As apartments represent fewer than one in five residential units completed during the three months, the proportion of output coming from this type of residential property remains small. In addition, the growth in apartment building is coming from a very low base.

“The apartment growth rate is coming from a low level, as Ireland has the lowest proportion of apartments in its housing stock out of any country in Europe,” Mr O’Leary said.

New figures from Goodbody show that 2,358 housing units were built in the first three months of this year.

This represents an increase of 16pc year-on-year, the slowest level of growth since 2013, when Goodbody began its ‘BER Tracker’ series.

Overall, there were 4,255 residential units completed in Ireland in the three month period, up 22pc year-on-year.

Completions of residential units in housing estates continued to account for more than half of the output.

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Dublin 7th most expensive place in the world to build

Dublin is the seventh most expensive place in the world to build, with average construction costs at $3,245.10 per metre squared, a new report shows.

The International Construction Market Survey, from global professional services company Turner & Townsend, shows that San Francisco takes the top spot in 2019 as the most expensive city in which to build.

Dublin is now ranked third most expensive in Europe, behind only London and Zurich, and trade labour costs have risen 5% in the past year, to stand at €35.70 per hour.

The report noted that construction activity here is being driven by the upturn in economic performance.

Major projects getting underway include the Dublin MetroLink, St James’s Gate urban quarter redevelopment and the fit-out of Facebook’s new headquarters.

It said this demand is putting costs under pressure as the skills crisis bites.

Globally construction prices are predicted to rise 4.1% on average over the next 12 months.

But as a “hot” construction market, cost price inflation in Dublin is expected to outpace this with a 7% increase forecast for 2019 as the construction sector remains undeterred by Brexit.

Other markets in Europe that are classed as “hot” include Frankfurt, Berlin, Warsaw and Vienna, as they compete to attract business relocations from London.

This year San Francisco has overtaken New York as the most expensive city in which to build worldwide (at $4,482.70 per m2). London, Zurich and Hong Kong round out the top five.

Turner & Townsend said the extent of the price escalation experienced across the top performing markets means that for every building constructed in Dublin, you could build five similar structures in Istanbul for the equivalent cost.

Mark Kelly, Managing Director Ireland at Turner & Townsend, noted that market confidence and construction demand in Dublin has not been too badly shaken by the continued uncertainty surrounding Brexit in the UK yet.

He said the economic upturn has attracted a wave of large office and residential projects in the Irish capital, and the early spoils of Brexit have added further momentum as some major occupiers look to relocate from London.

“But the longer-term implications of Brexit remain a lingering threat and could yet douse cold water on these hot market conditions,” Mr Kelly cautioned.

He also said that mounting construction cost pressures is another factor currently clouding the market outlook.

“With demand relatively high across the continent, and investment only likely to continue this upward march, the shortage of skilled labour and supply chain capacity in Europe is becoming increasingly problematic – driving significant competition on wages and inflating construction costs further,” he added.

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Housebuilding boosts ‘robust’ construction growth

Construction sector output remained strong in March, and was led by housebuilding for the third month in a row, according to the latest industry figures.

Ulster Bank’s construction industry purchasing managers index (PMI) tracks output and sentiment among hundreds of managers month to month.

The latest PMI reading of 55.9 in March was down from 60.5 in February, and signalled a softer expansion, but growth remains sharp and faster than the long-run series average, according to Ulster Bank chief economist Simon Barry.

The PMI plots activity on a simple gauge either side of 50 – so numbers rising from 50 mark growth and numbers descending from 50 show decline.

“Irish construction firms continue to experience rapid growth in their activity levels,” Mr Barry said.

“A decline in the headline PMI index, from 60.5 to 55.9, indicates that the pace of expansion did ease back in March.

“However, this follows a very strong February performance and the still-robust level of the PMI signals that Irish construction continues to expand at a solid rate.

“Mirroring the pattern of the headline PMI, the sectoral subindices also painted a picture of moderating growth in March, though the housing and commercial indices both remain at levels consistent with ongoing solid activity growth,” he said.

The housing subcategory recorded the fastest rise in activity of the three monitored sub-sectors – commercial activity also increased solidly, but civil engineering activity declined for the seventh consecutive month and at the fastest pace since November 2018 – a sign that infrastructure activity is not keeping pace with overall growth.

The increase in housebuilding appears to be jobs-rich.

Respondents to the PMI survey reported a marked pick-up in the pace of job creation, with the employment index rising to a very elevated reading of 59.6 in March, matching a nine-month high.

Demand for construction workers is being underpinned by new business, which continued to rise solidly during March.

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Pace of construction activity growth slows in March

The pace of expansion in construction activity eased in March, the latest Ulster Bank Construction Purchasing Managers Index shows.

The index eased to 55.9 in March from 60.5 in February, but Ulster Bank said this follows a very strong February performance and the still-robust level of the PMI signals that Irish construction continues to expand at a solid rate.

The index – which covers housing, commercial and civil engineering – shows that demand for construction workers continues to be underpinned by new business which continued to rise solidly in March.

For the third month in a row, the housing sub-category recorded the fastest rise in activity of the three sectors in March.

Commercial activity also increased solidly over the month, but growth eased notably from February.

But civil engineering activity declined for the seventh consecutive month and at the fastest pace since November 2018.

Ulster Bank noted that new order growth eased slightly in March from February with companies said they faced solid demand conditions for construction projects.

New business inflows among Irish construction firms have now increased in each of the past 69 months, the bank added.

Employment growth in the construction industry quickened to an eight-month high last month and Ulster Bank noted that the rate of job creation was steep amid reports that extra staff had been hired in order to keep up with customer demand.

Simon Barry, chief economist at Ulster Bank, said the demand for construction workers continues to be underpinned by new business which continued to rise solidly in March, though at a slightly slower pace than the very rapid rate recorded in February.

“Firms themselves remain optimistic about the coming year, with 43% of respondents anticipating higher output levels over the year ahead, with expectations of stronger customer demand cited as an important source of support,” Mr Barry said,

However, he noted that sentiment about the sector’s prospects did moderate slightly in March.

“This was amid reports from respondents that Brexit risks and uncertainties are weighing on perceptions of the construction outlook, albeit that the March PMI survey results indicate that construction continues to outperform both manufacturing and services where Brexit risks are more pronounced,” the economist added.

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