The latest findings from the BNP Paribas Real Estate Ireland Construction Purchasing Managers' Index (PMI) reveal a subdued end to 2023 for the construction industry, with December marking the sixth consecutive month of declining activity. The PMI recorded a figure of 45.1, a marginal improvement from November's 44.5 but still well below the critical 50 mark, indicating a contraction in activity.
Commercial Sector Hit Hard: The commercial sector experienced the most significant decline, with a PMI reading of 42.8. This plunge in commercial activity is noted as the weakest in a decade, excluding the impacts of COVID lockdowns and the downturn in August last year. John McCartney, Director and Head of Research at BNP Paribas Real Estate Ireland, attributed the downturn in commercial values to higher interest rates and soft demand in certain sectors, particularly offices.
Residential Activity and Hiring Trends: Housing activity, though still declining with a PMI of 45, showed a less steep contraction compared to November. Employment in the construction sector rebounded in December, marking a return to growth after falling for the first time in 11 months in November. McCartney indicated that the hiring of additional staff reflected confidence in the industry's outlook for 2024.
Business Sentiment and Future Outlook: Despite the overall weakness, the report revealed a positive turn in business sentiment, reaching a seven-month high. Respondents expressed hopes of securing new projects in 2024, with over 34% predicting a rise in activity over the next 12 months, compared to 15% who held a pessimistic view.
Input Costs and Margins: December saw a sharp increase in input costs due to higher charges by suppliers. While inflation rates eased compared to November, they remained below the 2023 average. McCartney emphasized that rising input costs, coupled with a decline in commercial activity, have squeezed development margins, impeding the initiation of new projects.
Positive Outlook for Residential Sector: Despite the challenges, McCartney highlighted an encouraging 18% rise in housing starts between January and November, signaling a positive outlook for the residential sector. This surge in residential activity suggests resilience and potential growth opportunities within the housing segment of the construction industry.
As the construction sector navigates challenges and seeks recovery, industry experts anticipate a nuanced trajectory in 2024, driven by various factors, including economic conditions, interest rates, and the evolution of demand patterns across different segments of the construction market.
