AECOM, the infrastructure consulting firm, has published its annual Irish construction industry review, which states that Ireland will not experience any industry growth in 2023 but should remain on par with 2022 levels. The review states that while the value of construction output in 2023 will be in the region of €34bn, with €32bn recorded in 2022, the marginal gain will be affected by inflation.

Record year for inflation for the sector

While inflation will remain a challenge next year, with AECOM predicting a 5% tender price inflation rate across the industry, it is significantly lower than the 12% that was recorded in 2022, resulting in a record year for inflation for the sector.

In relation to the residential sector, AECOM says there is a significant risk that the ‘Housing for All’ target of 29,000 completions this year may not be met due to inflation, interest rate rises and market uncertainty generally, impacting on viability.

Last year saw the number of house completions increase significantly compared to 2021. The current projected total of about 27,000 completions in 2022 exceeds the government’s goal of 24,600 for the year.

The government’s average annual target is 33,000 to 2030. The rolling 12-month average number of residential commencements peaked at 35,000 in March 2022 and have been declining since. AECOM is warning that there are signs that the viability challenge, which has been on a cliff edge, has in some instances tipped into negativity, as inflation and interest rates have risen. 

Skills shortages continue to affect many sectors, including the construction sector, and in particular the retrofit sector. However, the numbers employed in the construction sector increased to 171,000 in the third quarter of 2022, an increase of 16.5% from pre-pandemic levels in 2019.

'Political, social, and economic shocks resulted in more unpredictability'

Director of AECOM Ireland John O’Regan said: “2022 represented an important step towards recovery for the construction sector as it was the first full year of activity since the Covid-19 pandemic however political, social, and economic shocks resulted in more unpredictability.

"The single biggest issue and subject of discussion and debate within the industry over the past 18 months has been in relation to energy, materials and labour costs inflation and their impact on tender prices. We are forecasting a 5% increase in tender prices for this year which is a national average and will vary according to location, sector, scale, and complexity, amongst other factors.

“Given everything that has happened over the past three years, we have come to expect the unexpected. However, one trend we can be certain of is the continued rise in prominence of environmental, social, and governance issues at home and across the world.

"Having transparent, externally validated, science based ESG targets is central to what we do at AECOM. However, investment in the multibillions will be needed to transition Ireland from fossil fuel dependence to renewable power and to ensure the current transmission infrastructure is upgraded significantly.”

AECOM’s Review comes weeks after the Climate Action Plan 2023 was published with specific industry targets and importantly includes sectoral emissions ceilings.

The transport and built environment sectors will be required to make a significant contribution to achieving the overall target and CAP23 sets important milestones in the roadmap to achieving the same.

It states core to the delivery of these targets will be joined up thinking from the sector and the department, sufficient investment, an overhaul of planning legislation, and behaviour change across industry and society.