Republic of Ireland market intelligence survey

Transcription

1 Republic of Ireland market intelligence survey Autumn 2018 making the difference

2 1 Introduction The cost of labour, indicated by contractor perceptions, has inclined when looking back over the past six months Over the past six months, average contractor sentiment indicates that material costs have increased marginally The construction sector in the Republic of Ireland is currently experiencing increased levels of activity and overall the market looks with positivity towards the future. Results from our latest Republic of Ireland Market Intelligence Survey echo this sentiment with a majority (63.6) of contractors we surveyed expecting the market to warm in the short to medium term. According to surveyed contractors the market in the Republic of Ireland is competitive, but with a good steady supply of tender opportunities coming through contractors are keeping their order books relatively filled for 18/19. The sectors contributing to these statistics and performing notably well are student accommodation, residential apartments, office developments and housing. With the increased focus on housing both by the private sector and government, contractor sentiment expects this area to be a top performer alongside other commercial work in the future. Despite the positive outlook there are still challenges on the horizon. Margins appear very tight and are constantly being squeezed across the country. Reasons for this include rising labour and material costs, as well as a tendency of some main contractors to reduce their margins to significantly low levels in order to win work. One of the most common supply chain challenges facing surveyed contractors in the Republic of Ireland is a shortage of skilled labour. Contractors are noticing a shortage of trades including block layers and plasterers, as well as a shortage of sub-contractors for glazing, specialist windows and concrete works among others. Contractors have also expressed difficulties in gaining approvals as well as excessive red tape in the market. Average contractor sentiment indicates that overheads have increased marginally when looking back over the past six months Turner & Townsend tender price inflation In the past six months, average contractor sentiment indicates that profits have stayed the same 7.0 Republic of Ireland Republic of Ireland Republic of Ireland 2020 Background to this report Preliminaries have increased marginally according to contractor sentiment over the last six months Turner & Townsend regularly interact with the supply chain in order to better understand the market dynamics which are fundamentally affecting construction price and cost movements in the Republic of Ireland. Every 6 months we collate survey responses from Irish contractors, allowing us to glean a snapshot of the local market place. This enables us to provide our clients with the most relevant and up to date market intelligence. 70 St. Stephen s Green

3 Republic of Ireland market intelligence survey Autumn Tender and market conditions Warmer market conditions and rising prices cause and effect Over 63 of respondents consider current tendering conditions to be warm, indicating a plentiful supply of work but not yet reaching maximum industry capacity. The relative figure 6 months ago was 57, confirming that data shows the market has heated up. Currently over 51 of projects are procured through either a 2 stage process or by negotiation; this reflects a need for many clients to get to site quickly, while also adding a more collaborative approach to procurement. When asked their preferred procurement route contractors overwhelmingly favour negotiated tendering as their preferred route as this allows for less risk and reduced price sensitivity with the market. Latest contractor feedback suggests tender price inflation will increase by 6.3 in 2018, 6.0 in 2019 and 4.8 in Turner & Townsend forecast tender price inflation of 7.0 in 2018, 6.0 in 2019 and 5.0 in 2020, also reflecting market sentiment from our peer group Current tendering conditions n Cold Intense competition, not much work, prices low. n Lukewarm Strong competition, moderate tender prices. n Warm Moderate competition, moderate tender prices. n Hot Little competition, work easy to get, tender prices high. n Overheating Shortage of builders, minimal competition, prices very high Current contract or tender route Preferred contract or tender route 29.2 n Single stage n Two stage n Negotiated n Framework n Other 81.8 n Single stage n Two stage n Negotiated n Framework n Other Tender price inflation overview n Turner & Townsend n SCSI n AECOM n Linesight n Average contractor forecast Average Consultant TPI Source: SCSI and Assorted consultants, available data reported as of Q3 2018

4 3 Commercial and residential sectors warming the market It is no real surprise that contractors consider commercial projects to be the top preforming sector in the construction market. Aligned to this, after a decade of inactivity, the housing sector is making a comeback with 30 of respondents indicating residential as their main focus. Optimism for the immediate future remains strong, with a vast majority of contractors predicting either a warming of the market or more of the same. As of the second quarter of 2018 surveyed contractors have recorded significant order books for 2018/19, which are on average 71.4 full. Likewise, for the 2019/20 financial year, order books are strong at 35.2 full. These figures are very similar to those recorded 6 months ago, indicating continued optimism in short term outlook although with capacity running at 83.5, there is room for additional work. Despite the recent upsurge in activity margins still remain low at 2.5, reflecting a possible industry hangover from the preceding decade and running contrary to public perception. Top performing sector Private commercial 36.4 Regional construction market outlook 63.6 Housing Public works Private industrial Warmer Staying the same Cooler Margins, preliminaries, overheads & profit of contractor order book filled 71.4 Margins Preliminaries Overheads & profit 2018/ / /21 Average contractor current operating capacity (100 = full capacity) 83.5 In terms of the Irish Construction sector, the market is busy with fewer sub-contractor resources available, hence the increased level of tender pricing.

5 Republic of Ireland market intelligence survey Autumn Regional output summary Total construction output in the Republic of Ireland in the second quarter of 2018 increased by 1.9 percent compared with Q and was 13.9 percent higher compared to the same quarter in Civil engineering Non-residential building Residential building Building (excluding civil engineering) All building and construction All building and construction (value index) 2010 = Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2 Source: Central Statistics Office (ROI) Currently the market is buoyant in Dublin and the immediate surrounding areas, with little activity outside Dublin, though there are some signs of increased activity in cities such as Cork, Limerick and Galway. There are still some main contractors tendering at below costs, causing unhealthy pressure on tender prices/margins. Dorset Point Student Accommodation

6 5 Labour and material inflation Percentage increase of construction costs in the last 12 months and the next 12 months - 12 months + 12 months Reinforcement bar Aluminium curtain walling Sheet metal Structural steel Concrete Copper cable Plumber/Electrician Site Foreman General Labourer Aluminium composite panel Carpenter/Bricklayer Carpet layer, Tiler, Plasterer t crane The supply chain in certain sectors is reaching capacity and will pose future challenges for the industry

7 Republic of Ireland market intelligence survey Autumn Key challenges In terms of key challenges facing contractors in the Republic of Ireland, skilled labour shortages and too many contractors chasing too few projects are the two categories having the largest impact on surveyed contractors. Conversely, political instability and insufficient credit availability are the two key challenges to have the least impact on surveyed contractors as of the second quarter of The highest ranking key challenge, skilled labour shortages, is not unexpected and reflects a major challenge facing the industry presently. The second largest impact category, too many contractors chasing too few projects, is unexpected and on face value points towards too little available work; upon a more detailed examination of responses received it would however appear that the medium sized contractors view this as a larger risk/challenge than do the larger contractors, indicating strong competition and available capacity in that sector of the market. Skilled labour shortages 3.5 Too many contractors chasing too few projects 3.1 Rising costs of construction 2.8 Excessive lead times 2.5 Difficult contractual and legal conditions 2.4 Government red tape, bureacracy, delayed approvals 2.2 Adverse weather 1.8 Lack of confidence in the market to invest in new projects 1.6 Low workplace productivity, inefficient and outdated work practices 1.5 The market is oversupplied, e.g. too many vacany appartments and office space 1.3 Insufficient credit availability 1.2 Political instability Challenges are ranked on a scale of 1-5 according to their response n Little impact n Fair impact n Medium impact n Large impact n Major impact The costs of supervision staff is currently spiraling and the retention of staff is an issue, there is a shortage in this area and key people are being constantly chased by recruitment agencies.

8 About Turner & Townsend Turner & Townsend is an independent professional services company specialising in programme management, project management, cost and commercial management and advisory across the real estate, infrastructure and natural resources sectors. With 108 offices in 45 countries, we draw on our extensive global and industry experience to manage risk while maximising value and performance during the construction and operation of our clients assets. We have been working in Ireland for over 50 years. From our Dublin office our project, cost and advisory specialists work across the island applying our global expertise on local projects. Our People Mark Kelly Director, Strategic Lead Mark Coady Director, Cost Management Philip Matthews Director, Project Management Tom Hamilton Director, Project Management e: e: e: e: Brian Thompson Director, Infrastructure e: John Robinson Director, Infrastructure Cost Management e: Kris Hudson Economist t: +44 (0) e: Dublin office: Ashford House Tara Street Dublin 2, D02 VX67 t: +353 (0) Turner & Townsend Limited. This content is for general information purposes only and does not purport to constitute professional advice. We do not make any representation or give any warranty, express or implied, and shall not be liable for any losses or damages whatsoever, arising from reliance on information contained in this document. It must not be made available or copied or otherwise quoted or referred to in whole or in part in any way, including orally, to any other party without our express written permission and we accept no liability of whatsoever nature for any use by any other party.