Although Ireland has moved into Phase 3 of post-COVID-19 recovery, the risk of disruption remains, with delayed project starts and completions, increased fixed costs and uncertainty around workload making future prospects unpredictable. But with the Irish construction market having been one of the most dynamic in Europe in recent years, what steps can the industry take to ensure its long-term recovery?
Construction price inflation in Ireland has been increasing at between 6-8% every year for the past 2-3 years and, unlike most other construction markets in Europe, these inflationary pressures will need to be absorbed before price falls associated with labour inflation and pricing of risk have an impact.
This will help to counter the risk of a downward spiral in response to COVID-19 disruption, preventing the scale of correction seen in the last downturn when prices fell by at least 40% in two years. However, with tender price growth expected to be flat in 2020, many private sector markets - including housebuilding and commercial development – will potentially take until at least 2022 to fully recover.
We are forecasting tender price growth in construction of 3-5% and 5-6% in infrastructure nationally by 2022. Public sector investment is predicted to increase by 10%, but in the shorter term this is unlikely to compensate for a reduction in the pipeline for commercial and residential sectors.
How to position for long term success?
Clients and contractors looking to bring forward projects will be only too aware of new risks associated with health and safety, productivity, viability, local lockdown, and supply chain stability.
This increased sensitivity to risk is likely to be seen in higher hurdle rates on investment returns, more demanding contract terms and greater project selectivity. These factors will determine how many projects proceed, and how quickly they will start.
This presents an opportunity for clients who are ready and able to work with their project teams to bring forward deliverable projects.
As Sabrina Mackin, Market Lead for Ireland at Arcadis, said:
“Construction is at a turning point. Clients are reconsidering their business needs, with risks around lower productivity, future COVID-19 disruption to works, and supply chain resilience all having the potential to cause delays and increases in costs. We need a different approach, not just to make sure that projects succeed, but also to ensure the long-term health of the sector.
“Urgent, short term actions to help cushion the impact of the pandemic and save jobs need to go hand- in-hand with more sustainable ways of working. From embedding digital technologies to exploring more collaborative business models, we have a real opportunity here to strengthen the industry. Everyone has a role to play, whether by underpinning demand, creating new capacity, or by enabling the innovation necessary to improve performance and productivity. But it is not just about recovering to a pre-COVID-19 state; we need to push the industry beyond it. The construction sector can potentially come out of the COVID-19 crisis on the wave of change, providing the whole ecosystem is able to come together, commit and collaborate.”
Download the full Irish Summer 2020 Market View to find out more.
We own the responsibility to sustain our world and society in a balanced way, with the health, safety and well-being of people and stakeholders central to all we do.Health & Safety