Growth in commercial property building costs falls due to Covid-19

Growth in the cost of building commercial property slowed dramatically in the first half of this year due to Covid-19, figures from the Society of Chartered Surveyors Ireland (SCSI) show.

According to the SCSI’s latest Tender Price Index, the national average inflation rate increased by just 0.9 per cent in the first half of 2020, down from 2.8 per cent in the second half of last year.

This brought the national annual rate of inflation down to 3.8 per cent from 7 per cent in the previous 12 months.

While the rate of inflation was fairly uniform across Dublin, Munster and Connacht/Ulster at 0.8-0.9 per cent, the rate in the rest of Leinster was 1.4 per cent.

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The survey, based on a combination of member sentiment survey and tender returns, was conducted in July when Covid-19 continued to have an unprecedented impact across all aspects of society.

SCSI president Micheál Mahon said the significant slowing of tender price inflation could be attributed to Covid-19, and in particular due to lockdown measures and concern from contractors with regard to future workload.

Tendering activity

“Covid has had a sharp and immediate impact on the level of tendering activity and, in turn, tendering rates as many construction firms focus attention on securing projects for 2021,” he said.

“While large-scale projects in the data centre and pharmaceutical sector continue to be very active since the reopening of construction sites in May, there has been an increased level of caution regarding funding new developments generally.

“It remains to be seen what proportion of projects that were paused get restarted. Another key factor will be the level and timing of capital investment included in the upcoming budget. Given the current level of uncertainty we are forecasting a similar level of 1 per cent inflation for the second half of 2020.”

The SCSI expressed concern over the future impact the pandemic and a no-deal Brexit could potentially have on the sector. Mr Mahon said the Government should use Budget 2021 to help modernise the sector.

‘Construction tech hub’

“Ireland is seen as a tech-friendly country but to date that is not as evident in the construction sector,” he said.

“We need to develop a construction tech hub to foster innovation and increase the resilience of the industry to external challenges and the changing world of work.

“We also need to make our systems of public tendering more efficient and remove exclusionary criteria. We are working closely with the Department of Public Expenditure and Reform and other industry stakeholders in this respect and we hope to see significant change in this respect within the coming years.”

Writing in The Irish Times on Monday, Mr Mahon said the rate of construction inflation was decreasing, and that construction costs looked likely to soften over the coming two years.

“That is why we believe the Government should take advantage of the softening in construction costs, and commence a large-scale building programme via local authorities,” he said.