Marginal growth in commercial construction in October

Commercial construction activity grew in October, reversing a three-month streak of contraction in the sector. However, real estate firm BNP Paribas Real Estate Ireland has warned that the supply pipeline of new office projects is set to fall away “sharply” from next year.

The latest BNP Paribas Real Estate Ireland construction activity index dropped to 47.3 in October, down from 48.6 in September, and signalled a fourth consecutive monthly reduction in construction activity. The construction PMI is compiled by S&P Global from a panel of around 150 construction companies. A reading above 50 indicates an overall increase compared to the previous month, and below 50 an overall decrease.

BNP Paribas Real Estate said that the pace of decline in October was less pronounced than contractions over the summer, but it was solid and faster than that seen in September as panellists reported a general slowdown in market conditions.

Commercial construction activity returned to marginal growth in October, with the commercial subindex reaching 50.9, reversing three months of decline.

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John McCartney, director and head of research at BNP Paribas Real Estate Ireland, said the expansion in commercial activity might “seem surprising” given oversupply in the office market and a lack of large-scale development.

He said the growth in activity was the result of a “strong push to get projects completed by year-end”, with more than 26,000sq m of Dublin office space earmarked for completion in the third quarter having been delayed until quarter four, on top of a further 75,000sq m already scheduled for quarter-four delivery. “However, speculative office starts have dried-up in response to market signals, and the supply pipeline falls away sharply from next year,” he said.

The residential construction subindex for October showed the biggest contraction, at 45.2, due to completions outpacing commencements in recent months. However, Mr McCartney said 2024 should be “another strong year for housing delivery” as more than 18,000 new dwellings were currently under way in Dublin alone.

Employment in the construction sector increased again in October, making it the tenth consecutive month of growth, and BNP Paribas Real Estate noted that the rate of job-creation last month was solid and faster than in September.

Companies maintain an optimistic outlook for 2024, amid hopes that new projects will feed through to growth in activity. Despite this sentiment in October was the lowest since November last year, as companies expressed concerns about the potential impact of a weaker economic climate on activity in the sector.

Rising prices for a range of inputs meant that overall expenses increased markedly again in October. The rate of inflation softened to a four-month low, however, with some signs of prices for certain items easing.