Construction sector activity returns to modest rate of growth in March

Construction activity expanded in March for the first time in nine months, the latest index for the sector from BNP Paribas Real Estate Ireland indicates.

The index reading of 51.6 was the first to exceed the 50 no-change mark since June 2023, with the expansion following eight consecutive months of contraction. Although modest, the rate of expansion was the most marked for almost two years.

Renewed expansions in activity were registered for housing and commercial activity, the index found, with the rise in work on residential projects the first in a year-and-a-half and most pronounced since May 2022. Commercial activity also rose solidly, ending a four-month sequence of decline.

Survey respondents indicated that activity had risen on the back of increases in new orders, which also returned to growth during March following eight months of reduction. The increase was again modest, but the sharpest for a year.

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Rising workloads encouraged construction firms to increase their staffing levels again in March, extending the current sequence of job creation to four months. Companies often reported that they had taken on new staff on a full-time basis.

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Meanwhile, the rate of input cost inflation quickened to a seven-month high, with higher transportation and labour costs adding to general inflationary pressures.

“In many ways, the return to growth in March is no surprise. Employment, a classic leading indicator of activity, has risen in all but four of the last 36 months,” said John McCartney, director and head of research at BNP Paribas Real Estate Ireland.

“Moreover, when directly questioned about their future expectations, Ireland’s building firms have been getting progressively more optimistic since July 2022.”

While the March expansion was “broadly based”, this conceals contrasting dynamics in the residential and commercial sectors, he added.

“A surge in commencements has led to a pickup in early-stage home-building activity. Our read is that housing delivery may struggle to reach the Government’s target in 2024. However, the March PMI supports our view that the longer-term trend is positive.”

By contrast, the expansion in commercial activity has been driven by a final push to finish office blocks that were started some years ago.

“When completed, these properties will add to already elevated vacancy, meaning that the only new starts for the foreseeable future are likely to be pre-let buildings. Vacancy rates in the logistics sector are much lower. Nonetheless, the construction pipeline has slowed after record delivery in 2023, and rising interest rates and build costs have made developers more cautious about speculative warehouse development.”

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