Cost of commercial building set to keep soaring

Commercial building costs will continue soaring this year after increasing by more than 13 per cent through 2021, the latest figures show.

Rising materials and energy prices have been driving up construction costs since early 2021.

Figures released by the Society of Chartered Surveyors of Ireland show the annual rate of construction inflation hit 13.4 per cent from January to December last year.

The society’s figures are based on prices that builders bid for new commercial projects, that is offices, factories and other business premises, worth more than €500,000.

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Its Tender Price Index shows that a building that would have cost €1.6 million to complete in December 2020 would have cost €1.82 million at the end of last year.

Closed sites

The society’s figures also indicate that the rate at which building prices increased accelerated through last year.

Construction inflation hit 8.4 per cent in the first half of 2021 before taking a further leap over the closing six months.

Prices rose at a far slower rate through 2020, when a Government lockdown shut building sites for 10 weeks, while ongoing curbs slowed work when construction resumed.

The index shows that the building costing €1.6 million to complete at the end of 2020 would have cost €1.57 million a year previously.

Surveyors believe that prices will continue increasing in 2022. Kevin Brady, chair of society's quantity surveying group, noted that inflation was continuing while commercial building increased around the Republic.

“The main reasons for current price inflation are high price volatility across a range of building materials, particularly insulation, cement, plasterboard, metals and fuel,” he said.

Mr Brady added that a shortage of workers and high demand for building as Government lifted its Covid restrictions contributed to inflation.

Labour costs increased from February 1st, when new minimum pay rates set through legally binding sectoral employment orders came into force.

Those orders applied to all building trades. Mr Brady predicted that the society’s next index would show their impact on contractors’ prices.

Russia's invasion of Ukraine has driven up the cost of steel, base metals and energy, surveyors say.

Invasion of Ukraine

They saw signs of inflation easing late last year but the conflict sparked by Russia’s attack on its neighbour sent prices back on the increase.

Kevin James, the society's vice-president, said builders were focused on managing risks and ensuring contracts offered protection against inflation.

He reported that some contractors were either delaying jobs or selecting those where clients took on the inflation risk themselves. “This is particularly apparent in the private sector,” he added.

Mr James argued that the Government needed to take steps to protect contractors working on State-funded building projects from inflation.

“This will enable contractors to respond to the frequent increase of material prices facing the market at present and ensure more balanced risk-pricing,” he said.

He urged the Government to improve public procurement procedures to help cut costs.

Mr James said builders would have to minimise inflation’s impact by using modern construction methods and identifying possible savings.