Construction activity kept shrinking in December

December saw a further “plunge” in commercial construction activity, as developers were hit by higher interest rates and input costs coupled with softening demand for office space.

The latest monthly construction purchasing managers’ index (PMI) published by BNP Paribas Real Estate shows that overall construction activity contracted in the final month of 2023, but at a softer pace than the previous month.

The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index reached 45.1 in December, up from 44.5 in November but still marking the sixth consecutive month of contraction in the construction sector.

The construction PMI is compiled by S&P Global from a panel of about 150 construction companies. A reading above 50 indicates an overall increase in activity compared with the previous month, and a number below 50 an overall decrease.

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The sharpest reduction was seen for commercial activity, which fell from 43.8 in November to 42.8 in December.

John McCartney, director and head of research at BNP Paribas Real Estate Ireland, said the “continued plunge in commercial activity” has squeezed development margins, stemming the flow of new projects.

“Leaving aside Covid lockdowns and the decline seen last August, the latest reading was the weakest in over a decade. Commercial values have inevitably been impacted by higher interest rates, and this has been compounded by soft occupational demand in some sectors, particularly offices. At the same time, input costs have continued to rise, albeit at a declining pace,” he said.

Housing activity also slowed, with December’s PMI reading at 45, but contraction was at a softer pace than in November when the housing index reading was at 43.5.

Mr McCartney noted that housing commencements are up by almost 18 per cent between January and November, “suggesting a positive outlook for the sector”.

Meanwhile, employment returned to growth in December, after having fallen for the first time in 11 months during November, and business sentiment rose to a seven-month high as more than 34 per cent of respondents predicted a rise in activity over the coming 12 months, against 15 per cent that were pessimistic.

Higher charges by suppliers resulted in a further sharp increase in input costs during December, although the rate of inflation eased from that seen in November and was softer than the average for 2023 as a whole.

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