The Irish construction sector is presenting a mixed picture, with commercial building activity on the rise yet facing a significant pullback in new office projects, according to the latest reports from BNP Paribas (OTC:BNPQY) Real Estate Ireland. Despite a softening of inflation to a four-month low, the industry is grappling with increased operating expenses and a global economic slowdown that's impacting investment levels.
In October, the construction total activity index marked its fourth straight month of decline, as reported by S&P Global (NYSE:SPGI). This trend was driven by a contraction in the residential construction subindex, where housing completions surpassed commencements. Nonetheless, the first nine months of 2023 saw the completion of a record 22,443 homes, keeping the Government on track for its Housing for All initiative. Apartment finishes also saw a notable uptick.
Commercial construction activity has seen marginal growth due to project completion delays and an additional 75,000 square metres of space expected to be delivered in the fourth quarter. However, BNP Paribas Real Estate Ireland cautioned about a sharp decrease in new office projects starting next year, attributing this to market oversupply and a lack of large-scale developments. This comes even as significant office space in Dublin faces delayed completion.
Despite these headwinds and the lowest confidence levels since last November, firms are maintaining optimism for future projects. Over 18,000 new dwellings are currently under construction in Dublin alone, suggesting a positive outlook for housing delivery in 2024. The construction sector also marked its tenth consecutive month of employment growth.
CBRE Ireland has forecasted a 50% drop in investment compared to the ten-year average due to challenges posed by rising interest rates and the global economic slowdown. Speculative office starts have dwindled in response to these market signals, with a sharp decline anticipated in supply pipelines from next year onwards.
In summary, while certain segments like commercial activity are expanding, the overall sentiment is cautious as firms navigate through rising costs and economic uncertainties. The contrasting outlooks for residential and commercial construction signal a period of adjustment as the sector aligns with evolving market conditions.
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