Dublin’s construction sector bounces back but inflation looms as demand outstrips supply

Dublin’s construction industry is back to strong growth, fired in part by the capital’s success at positioning itself as a global technology city. That’s the conclusion of our international study of construction costs.

The international construction market survey 2015 analyses input costs – such as labour and materials – and charts the average construction cost per m2 for both commercial and residential projects in 35 markets around the world.

It found that Ireland’s construction industry is now worth €11bn a year, and contributes seven and a half percent of the Republic’s GNP. While this is still well below the long-run average of 12 percent of GNP, the sector is firmly back to growth.

Much of that growth has come from the private sector, with both residential and commercial sector builders seeing a rise in demand.

Dublin has been at the centre of the action, with the city’s push to position itself as a global technology hub paying dividends for the construction industry.

The report predicts that demand for data centres and new premises for technology and pharmaceutical companies will continue to rise, but there is evidence of some strain in the supply chain as it struggles to meet growing demand.

That strain has driven up average construction costs by five percent in the past 12 months, giving Dublin the seventh highest inflation rate in the 35 global markets surveyed.

We expect that overall construction costs will continue to rise at the same rate over the next 12 months as some areas struggle with skills shortages.

At over 2,100 EUR per m2, Dublin’s construction costs were the 12th most expensive of the 35 regions compared by the survey. They were significantly lower than those of London (2,954 EUR per m2) and the world’s most expensive city in which to build, New York (3,069 EUR per m2).

Mark Kelly, Managing Director, Healy Kelly Turner & Townsend, commented:

“After several lean years, Ireland’s construction industry is finally showing strong signs of recovery. The return to form has been steady rather than stellar, and there has been no repeat of the unsustainable rates of growth seen in the run up to 2007.

“The sector is creating jobs as construction firms ramp up their capacity – and headcount – to meet the rise in demand.

“Dublin in particular is poised for further growth, led by overseas investors in the technology and pharmaceutical sectors, which will put further upward pressure on tender prices.

“For investors and developers with global expansion plans, having accurate construction cost data from international markets is key to identifying where the opportunities lie. Our research shows that in Dublin, construction demand has already begun to outstrip supply.

“As a result there will be no let up in the capital’s construction cost inflation, with prices set to rise by a further 5 percent over the next year.”