Tender pricing cooling but forecast to remain on the rise.

During 2021 and 2022, the Irish construction sector has seen unprecedented levels of tender price inflation, with SCSI indices recording 13.5 percent and 11.5 percent respectively, but with 7.5 percent of 2022’s increase in the first half of the year, the second half saw a reduction to 4 percent. While there is still some material price volatility, the reduced level of tender price inflation in the second half of the year suggests either reducing levels of concern about further increases, or, recognition of the cooling tendering market and an increase in competition to try to secure work.

Despite the forecasted inflation levels being down over the last two years, tender prices are still predicted to increase, by 5 percent in 2023 and 4 percent in 2024. The expectation of a return to more typical inflation levels was also present in our Q3 2022 survey, and shows continued expectation of greater stability, but still with an expectation that some of the current challenges remain.

While the conflict in Ukraine continues, the impact on lead times and material pricing will remain uncertain. On average, the contractors expect material prices to increase by 6 percent in 2023, with concrete the highest expected at 8 percent, followed closely by aluminium composite panels and curtain walling at 8 percent and 7 percent respectively.

Labour is also expected to increase, by modest levels of 4 percent on average, reflecting continued pressures from the cost of living, but also the difficulty in securing experienced individuals with high-end skills to deliver the projects.

With the expectation of continued cost increases alongside the cooling of tendering, contractors will have difficult decisions to make and fear that ultimately it is their margins that will be impacted in order to secure workload and cash flow to support their business.

Market conditions reaching a plateau

Current market sentiment is that tendering conditions are plateauing, with the majority of respondents stating conditions are warm (44 percent) or lukewarm (44 percent) with only 11 percent suggesting the market was hot. Furthermore, 56 percent of the responses suggested conditions likely to stay the same whilst a further 33 percent felt it would be cooling, indicating a turning point in tendering conditions.

The surveyed contractors also reported the levels of preliminaries, overheads and profits had only moved very marginally in the period, and some felt that margins will be squeezed as the increased need for competitive pricing whilst still expecting to encounter some price increases.

Order books are reported as being strong during the past 6 months, with the surveyed contractors reporting order books at 83 percent capacity for 2022/23 and 46 percent for 2023/24. The operating capacity of the surveyed contractors currently stands at 83 percent.

Residential development remains strong, with 33 percent of the respondents stating it to be their top-performing sector, although this has fallen from the previous survey’s 57 percent. Public Works has joined residential as the joint top-performing, also with 33 percent of the response. This is up from 50.0 percent from 12 months ago. The private commercial sector increased back up to 22 percent having fallen to 14.3 percent 6 months ago, reflecting the changing market with the fall away of tech sector demand being replaced by higher demand from professional services and banking sectors.