Constrained supply chains threaten buoyant construction market in Northern Ireland
A combination of material price volatility, labour shortages and limited visibility for capacity planning risk undermining Northern Ireland’s buoyant construction market as the country’s econaomy rebounds from the COVID-19 pandemic.
Materials and labour drive cost inflation
Our latest Northern Ireland Market Intelligence Report (NIMI) points to rising delays in materials and projects and programmes overall. All contractors responding to our survey were experiencing increases in lead times and delays to original programmes with more than 40.0 percent reporting delays of over four weeks within the last six months.
Globally, material shortages are being driven by disruption to supply chains in the aftermath of the pandemic, combined with soaring demand. Based on a basket of goods methodology, our responding contractors suggest that, on average, material costs could increase by 7.9 percent in the next twelve months. This would be on top of the 15.9 percent increase contractors say they have experienced over the last twelve months.
Labour availability also remains a critical challenge. Shortages and high demand have contributed to labour cost inflation of 3.8 percent over the last 12 months. This is now forecast to increase to 5.4 percent in the next year.
Feedback from contractors suggests that these pressures on the construction industry will result in significant tender price inflation as key programmes and supply chains compete for resource. As a result, contractors anticipate that inflation could reach 11.3 percent through 2021, before falling to 7.4 percent in 2022 and 6.2 percent in 2023.
Productivity and planning ahead
These pressures are impacting programme schedules as a whole. 93 percent of contractors stated that construction programme durations have increased in the last six months. While delays vary depending on project type and scale, 20 percent suggest delays of more than five weeks are being experienced.
Our survey found that 40 percent of respondents are now operating within 10 percent of pre-COVID-19 levels. However, a significant proportion of contractors (62 percent) expect that it will take a further six to twelve months before productivity returns.
While order books have remained buoyant over the last six months, a lack of visibility on major programmes is a key concern for contractors, with uncertainty around the procurement and timetabling for what should be a positive pipeline of major public sector projects. Within the private sector the report points to early signs that investment could be delayed as developers seek to wait out the current high prices being seen across the country.
Commenting on the report’s findings, Andy Outram, director, said that cautious optimism seen during 2020 has been replaced with concern over future stability within the sector:
Rising cost inflation is becoming a major challenge for contractors and in turn, clients, as the Northern Ireland construction sector works to improve overall productivity.
“While a growing pipeline of work within residential development, infrastructure and the re-evaluation of city centre real estate brings opportunities for the industry, visibility over workloads and capacity will remain critical to ensuring that projects remain on track.”
For further analysis and insight on the Northern Ireland construction industry, download the full report.