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Construction to grow 15% but still far behind bubble levels, says consultant

The construction industry’s rebound is set to deliver growth of up to 15% this year and talk of a bubble is premature, according to a leading construction sector consultancy firm.

The strong growth patterns of the past 12 months are likely to continue this year with growth accelerating as a result, AECOM predicts in its annual review.

This strong pick-up will deliver growth of 12% to 15% following a rise in volume of 12% last year.

Despite the predicted rise, AECOM head of cost consultancy John O’Regan warned against labelling the recovery a bubble, saying that output still lags considerably behind peak levels.

“Growth in activity was experienced by most sectors, with the Dublin commercial sector being the most active,” said Mr O’Regan. “While certain sectors of the market are hot, speculation of a bubble is premature. The industry is still at around 50% of the level of output that would be expected in a properly functioning mature economy.”

It is beyond doubt that the sector is going to experience a skills shortage as activity continues to rise, he added.

Opportunities abroad, coupled with an all-time low level of graduates and apprentices are behind the shortage.

Providing salaries and working conditions comparable to those in other countries is crucial to attracting emigrants home to alleviate the problem, said Mr O’Regan.

A two-tier recovery is also evident in AECOM’s research with the east of the country — driven by activity in the greater Dublin area — streaks ahead of the rest of the country.

“If we draw a comparison between the east of the country — particularly the Greater Dublin Area (GDA) — and the west, and look at employment statistics for the industry, we find that the eastern region has shown a 10% increase since 2012 compared to only a 1% increase in the rest of the country,” said Mr O’Regan.

“Similarly, planning permission approvals and house completions in the GDA are well ahead of the rest of the country in the same period. On the other hand, there is increased optimism that during 2015 some of the impetus that started in Dublin in 2013 will spread to other urban areas and their surrounding regions.”

While the public capital programme has been reduced by government over the past number of years, it has nonetheless remained crucial to keeping the industry ticking over during that period.

Budget 2015 signalled a reversal of this trend, however, with a 6% rise in the capital programme announced.

AECOM claims that, once tender price increases are factored, in the investment will yield just a 1%-2% rise in public construction.

Mr O’Regan said that a look back at tender prices over the last 20 years, reveals that they have followed the trend of most boom/bust cycles, with accelerated inflation followed by severe deflation.

“Supply costs are likely to maintain a modest upward trajectory in 2015,” he said. “These price increases are tracking above cost inflation and are an indication of contractors recovering some margin which had disappeared in the downturn.”

Article Source: http://tinyurl.com/kbwqb42

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