Building costs rising to pre-crash levels, surveyors warn

Latest tender price survey from the Society of Chartered Surveyors Ireland shows that building costs are likely to increase by 7.4 per cent this year

Eureka secondary school in Kells which was under construction as part of the PPP programme that was jointly funded by the now bankrupt Carillion. Photograph: Alan Betson / The Irish Times

Eureka secondary school in Kells which was under construction as part of the PPP programme that was jointly funded by the now bankrupt Carillion. Photograph: Alan Betson / The Irish Times

 

Office and infrastructure building costs are heading for highs reached ahead of the financial crash 11 years ago, figures published on Tuesday show.

The latest tender price survey from the Society of Chartered Surveyors Ireland (SCSI) shows that building costs are likely to increase by 7.4 per cent this year following a 3.95 per cent jump in the six months ended June 30th.

The SCSI Tender Price Index rise of 7.4 per cent this year will be about half a percentage point higher than the society’s prediction at the start of 2018.

“This will bring construction prices back to the level they were at in the first half of 2006 and just five index points below what they were when prices peaked in the first half of 2007,” the society said in a statement released with the survey results.

Credit froze in the second half of 2007, bursting a bubble in property prices and sending the Republic’s building industry into a recession from which it only began recovering six years later. The slump wiped out almost 200,000 construction jobs.

Prices this year will overtake 2006, according to SCSI. Its figures show that the Tender Price Index is likely to reach 147.3 by the end of this year – 100 is the benchmark set in 1998. The gauge reached a high of 152 in the first half of 2007.

Offices in central Dublin cost €2,500 a sq m to build, according to Des O’Broin, president of the SCSI. He said that he expected that to reach €2,600 to €2,700 by the end of this year.

Figures from consultancy Linesight show that last year, the cost of building primary and secondary schools was on average €1,210 a square metre in 2017.

Based on the SCSI’s predictions, that could reach €1,300 by the end of this year.

Carillion collapse

The society’s figures are based on tender prices for commercial and infrastructure building.

Mr O’Broin warned that the increase created a challenge for anyone seeking bids for building projects, particularly any development funded by the State, as those are fixed-price contracts.

“Given the continued rise in tender prices over a relatively short period of time, it will be a concern for contracting authorities receiving tender proposals for national projects that contractors may well run into financial difficulty half way through – as evidenced in recent school delivery projects,” he said.

Mr O’Broin was referring to a hold-up in the construction of six schools in the east and southeast, where work halted after one of the main contractors, British giant, Carillion, went to the wall owing £7 billion to creditors. Its collapse had a knock-on effect on local builder, Sammon Construction, which went into liquidation.

“The current rate of increase is not sustainable in the long term,” Mr O’Broin said. “The major reason cited by SCSI members for the continuing increase in tender prices is ever increasing workload coupled with the skills shortage being experienced by both main contractors and specialist sub-contractors.”

Labour and raw material costs are rising, while new regulations governing how much energy completed buildings consume are also having an impact, chartered surveyors say.

Mr O’Broin predicted that Brexit and a likely global trade war could also contribute to movements in building costs.