Sponsored content is premium paid-for content produced by the Irish Times Content Studio on behalf of commercial clients. The Irish Times newsroom or other editorial departments are not involved in the production of sponsored content.

Construction to grow by 30% in next four years

SCSI report forecasts the creation of 30,000 new jobs but warns revival will not return the industry to pre-2009 levels of activity

A major new report on the construction sector has forecast an increase of 30 percent in output over the next four years and the creation of about 30,000 new jobs – but it warns that even that revival will not be enough to return the industry to pre-2009 levels of activity.

The report, entitled Construction Sector Outlook 2014 , was produced for the Society of Chartered Surveyors Ireland (SCSI) in conjunction with Amárach. It says that while the new jobs will boost total employment in construction to about 178,000, it will still bring output to only 7.4 per cent of projected GNP in 2018 – as against the European norm of 12 per cent.

The report says that to achieve that growth, urgent action is needed to tackle three key problems: the fact that while green shoots are most evident in Dublin, there are only limited signs of recovery elsewhere; a continuing lack of finance for development; and worsening skills shortages.

And it calls for the appointment of a Chief Construction Adviser to the Government to ensure the maximum possible co-ordination and promotion of policies aimed at returning growth in the sector to sustainable levels.

“What this report shows is that growth is going to be driven predominantly by the private commercial and residential sectors, from houses to office space – but even here, it’s dependent on finance becoming more readily available,” says SCSI president, Micheál O’Connor.

Public expenditure is expected to remain fairly stagnant apart from a few well-flagged projects next year .

“Overall we are optimistic, but cautiously optimistic,” he says.

The scale of the collapse in construction is evident from the fact that while 89,000 residential units were completed in 2006, last year the number was just 8,301,.

That lack of supply pushed Dublin property prices up almost 16 per cent during 2013, and has left a substantial housing shortfall. According to the Economic and Social Research Institute, 10,000 to 12,000 new houses are needed this year, and twice that in 2016.

By contrast, investment in commercial property grew to almost €2 billion in 2013, three times the rate of 2012, driven by increased demand for prime office space . As a result, vacancy rates are down – to 9 per cent in central Dublin – and rents are up.

“The IDA has commented that the lack of large floorplate modern offices of 70,000-120,000sq ft is a serious issue in terms of our competitiveness in continuing to attract inward investment,” says O’Connor .

“Companies do not want to wait 24-36 months and so we must see more measured speculative development to improve the availability of accommodation for these companies.”

The peak was 2007 when output reached unsustainable levels at around €34 billion or higher, an extraordinary 23 per cent of GNP, recalls Derry Scully of Bruce Shaw quantity surveyors, chairman of the Project Management Professional Group at SCSI.

“The problem is that we seriously over-corrected. Output in 2013 was around €8.8 billion. We’ve seen massive cutbacks in both the public and private sectors. Employment has plummeted from 350,000 to 150,000. And we are now trying to regain that ground.”

'Overly bureaucratic'
Scully sees evidence of the recovery in the number of new companies, particularly in the tech sector, arriving in Ireland and leading a long-overdue revival in commercial activity – with the first tower cranes already back on the Dublin skyline.That growth so far has been Dublin-centric which is not surprising, he suggests.

"Construction will always lag behind property, and the other regions will always lag the greater Dublin area in terms of construction recovery. That's where the bulk of the population is and it's where most FDI wants to be – and so the recovery will flow out from there, first to Cork, Limerick and Galway over time."

The conditions for that recovery have to be right, however. Kevin James, managing director of consultants Gardiner & Theobald and a member of the SCSI Quantity Surveying Professional Group, believes banks have become "overly bureaucratic" in their analysis even of viable projects – and that is now slowing growth unnecessarily.

“The pendulum has swung from one extreme to another,” he says, reflecting the view of almost a third of SCSI members who told a survey carried out for the SCSI report that they believed lack of finance would be “the primary challenge” facing the residential property sector for the next three years.

Having worked in Ireland with bluechip clients, for example, James also knows the slow and complex nature of the planning and planning appeals process can be frustrating for overseas companies .

“If you’re a tech company and you’ve set your sights on a building in the right location but it needs a change of use, it should be possible to achieve that within a reasonable timeframe. That’s why the SCSI report recommends a fast-track planning process for projects with high job creation potential.”

Another challenge facing the industry, says Conor O’Donovan, director of policy and communications at the SCSI, are restrictions on the Government’s public capital programme (PCP).

Development finance
"The PCP is hugely important to construction, accounting for as much as 50 per cent of total output. Despite that, it has fallen from more than €9 billion in 2008 to €3.9 billion in 2012 to €3.4 billion last year," he says. "Stimulus packages for the construction sector, announced recently, are very welcome, but it is also very important that the PCP is fully implemented as planned."

Micheál O'Connor, adds: "In one sentence, we need a Government approach that removes barriers to growth, provides more development finance, reduces planning delays, is properly targeted about housing and enterprise development, and implements the key findings of last year's Forfás construction report. In other words – we need a joined-up national strategy."