Commercial construction tender prices soften but inflation still ‘substantial’

The price of commercial construction project tenders increased by 4 per cent in the second half of 2022, down from a record 7.5 per cent in the first six months of the year, mostly due to a decline in fuel and energy costs.

The latest construction tender price index from the Society of Chartered Surveyors Ireland (SCSI) indicates that the rate of price inflation in the sector remained substantial in the six months to the end of December last despite a welcome softening in the rate of increase.

The average price of a project tendered for in December 2022 was 11.5 per cent higher than the same month in 2021, the index has revealed.

This has been driven mostly by sharp increases in the price of energy and materials against the backdrop of soaring demand, lingering supply chain bottlenecks from the Covid-19 pandemic and the war in Ukraine, which has pushed up energy prices and caused shortages of raw materials. In figures published last month, the Central Statistics Office (CSO) revealed that construction material prices increased by 16.2 per cent in the 12 months to the end of 2022.

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While the hope would be that the downward trend will continue this year, 4 per cent is still a high figure and it’s clear the effects of Russia’s invasion of Ukraine... continue to dominate the market

—  SCSI chairman Kevin Brady

However, SCSI said the 11.5 per cent increase represented a sharp decrease in the annual rate of tender price inflation from 14 per cent in 2021.

SCSI chairman Kevin Brady said: “The easing of the rate of tender price inflation seen in the last six months of 2022 is due to fuel and energy prices abating toward the back end of the year coupled with a slight easing of supply chain issues. These changes have contributed to the more moderate fluctuations in material prices that Ireland has been experiencing since 2021.

[ Cost of building hundreds of schools soars amid construction inflation ]

[ Wholesale electricity prices fall 41.4% in January ]

“While the hope would be that the downward trend will continue this year, 4 per cent is still a high figure and it’s clear the effects of Russia’s invasion of Ukraine – particularly with regard to increased fuel and energy costs – continue to dominate the market.”

The CSO’s January wholesale price index, published earlier this week, indicated that annual rate of construction materials price inflation declined from 16.2 per cent in December to 15.5 per cent last month as the rate of energy and raw materials price inflation softened. Wholesale electricity prices fell by 41.4 per cent, meanwhile, one of the largest monthly falls on record, according the CSO. Prices were also 19.5 per cent lower than those recorded in January last year.

Upward trajectory

Mr Brady said input prices are expected to “continue to fluctuate” for the foreseeable future, with prices likely to continue on an upward trajectory “until there is a marked decrease in the cost” of energy.

SCSI president Kevin James said: “While there are signs the rapid rate of construction inflation has peaked, it is also likely the increased costs of fuel and energy will continue to impact manufacturers for the foreseeable future. The SCSI Tender Price Index has risen by a record 26 per cent over the last two years and concern remains as to how long it will take for inflation to fall to more acceptable levels”.

Economic headwinds and market uncertainty may help to push down market demand and, in turn, prices, he said, with anecdotal evidence that investors in commercial property adopting a “cautious approach”.

Figures published by BNP Paribas last week indicated that construction activity slowed across the residential, commercial and civil engineering sectors – mostly large, State-funded projects – last month for the fourth month in a row.