SCSI / PwC Construction Survey

May 04, 2017

PwC's Niall Cogan (Director), Claire Solon (SCSI President) and Ivan Gaine, Head of New Homes launch Construction Industry Survey 2017.

Pictured launching the 2017 SCSI / PwC Construction industry (l-r) are: Niall Cogan, Director, PwC Real Estate Practice; Claire Solon, SCSI President and Ivan Gaine, MSCSI MRICS Head of New Homes, Cushman & Wakefield.

The survey reveals that three out of four industry leaders expect construction output to rise in the year ahead, but a skills deficit could hamper activity.

Three-quarters of Ireland's construction industry leaders expect output levels in the sector to rise in the coming year, according to the 2017 PwC / Society of Chartered Surveyors Ireland (SCSI) Construction Industry survey.

The survey highlights some of the challenges facing the construction industry. These include rising costs, the lack of suitable skills and trades and Brexit, which are impacting contract pricing.

The survey gathers the views of 248 participants representing all sectors of the construction industry. These included building surveyors, project managers and quantity surveyors as well as 35 property developers across the country.

Speaking about the survey findings, Michéal Mahon, Chair of Quantity Surveying, SCSI said: "The survey highlights that we can expect significant increases in construction activity across Ireland in the year ahead. Much of the increased activity is attributed to new office construction and fit-outs. Residential development which is likely to be ramped up over the next 12 months."

Skills deficit is hampering activity

The survey highlights that the skills gap is an acute issue in the construction industry. 73% confirmed that they experienced difficulties recruiting individuals with specific skills in 2016. Particular skills shortages were present when trying to locate craft workers such as plumbers and plasterers as well as quantity surveyors and engineers.

At the same time, two-thirds of respondents said they still plan to expand their workforce in the year ahead. Top challenges to filling available posts are lack of available workers due to emigration, unrealistically high remuneration expectations and a lack of skilled subcontractors.

Michéal Mahon said: "To cater for increased activity, we see a number of short term solutions such as sourcing labour from abroad for qualified trades. We see supply chain managers trying to recruit specialist trades from Eastern Europe and some gypsum product manufacturers providing a facility in Ireland to train new trades. With the increased demand for private sector works, coupled with forecasted plans to increase refurbishments in the public sector, survey respondents are particularly concerned about the scarcity of skills and all trades will be in high demand at varying levels of urgency."

Residential

Respondents to the survey (90%) indicate that they expect output in the residential sector to increase in the next 12 months with 87% of respondents expecting increases in activity for social housing in 2017. Given the acute housing shortage in the country, the anticipated increase in residential construction and the recent announcement on the release of local authority land for housing, is hugely positive and welcomed. However, the underlying issues still remain such as the high costs of delivering housing to the market.

An SCSI report published in 2016 highlights that 55% of the overall delivery cost of housing, is made up of ‘soft costs’ such as levies, VAT, Part IV and other connection charges, and these still need to be addressed. In relation to house completions, Mahon said that “using ESB connections to measure new house numbers has provided very unreliable results and we need a better way to accurately measure new house completions to plan for the future. For example, the Building Control Management System is not being used to its full potential and could deliver much more accurate data, if its development is escalated now.”

Niall Cogan of PwC said: "The projected increased activity in the Irish construction industry is principally driven by the residential sector where a number of plans have been announced, particularly in the area of social housing. According to the survey, however, the Government's plans to deliver 47,000 social housing units over the next six years is not yet being experienced on the ground. Respondents say the the lack of investment and delays with public procurement are the main reasons for low unit numbers being currently completed."

Non-Residential

Sixty-five per-cent of respondents expect output levels to increase for non-residential construction in the year ahead with access to finance and the availability of trade labour being the top two challenges in this sector.

Seventy-two per-cent of respondents in the infrastructure construction sector confirmed that they expect output levels to increase in the year ahead. This expected increase may be partly due to the Government's plans, as set out in the Infrastructure and Capital Investment Strategy 2016-2021, for €27 billion investment over this period. The lack of investment, principally public expenditure, is the key challenge in this sector.

Niall Cogan added: "It is critical for the continued competitiveness of our economy that the right construction investment, whether residential, non-residential, or infrastructure, happens in the right places at the right time and at an affordable cost. It is also important for Ireland's ability to continue to attract foreign direct investment particularly in this era of global uncertainty."

Construction costs increasing

Overall, 75% of respondents across the country confirmed that construction costs have increased in 2016 which is reflective of the recent SCSI Tender Price Index. Michéal Mahon says that, “much of this increase is driven by increased demand for construction services, rather than specifically increases in the costs of materials”.

Brexit

A third (34%) believe that Brexit will have a negative impact on their businesses. A further 36% of respondents are unclear as to how Brexit will impact their businesses. Of those who said that Brexit will have a negative impact, three-quarters (73%) said that if the UK were to exit the EU it will increase uncertainty generally on investment decisions; 21% said that revenues from UK projects will be impacted; others believe Brexit will reduce market sentiment and result in delays in decision making.

On a more positive note, some said that they expect an increase in demand for office space in Dublin as a result of Brexit, while others
said it would increase foreign direct investment to Ireland and potentially lower materials costs on goods imported from the UK.

Niall Cogan said: “Brexit is putting pressure on Irish construction businesses in the UK and is causing uncertainty in the industry. There are very practical examples of the cost implications on the Irish construction industry following Brexit. For example, if you take construction contracts in the UK, tariffs could range from 1.7% to 7%; VAT may be payable on imports to the UK and the ability for Non-EU nationals to continue to work in the UK may be an issue. Therefore, with all of these uncertainties, it will be difficult to price contracts for work in the UK."

ENDS


About the survey

This is the first survey carried out amongst members of the Society of Chartered Surveyors Ireland in association with PwC. The survey took place in February / March 2017 having 248 participants representing all sectors of the construction sector including building surveyors, project managers and quantity surveyors including 35 property developers across the country.

Respondents operate in the property and construction market in large corporate firms, construction agencies, government bodies and financial institutions.

 

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Niall Cogan
Director
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Johanna Dehaene
Corporate Communications
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