Building for a strong future

Building for a strong future

By: Damien
18 Jun, 2021
The Irish construction sector is set to bounce back during the course of 2021 as the economy reopens – which is good for investment opportunities.

In common with much of the Irish economy, the construction sector came to an abrupt halt in April last year after the government ordered the first lockdown due to Covid-19.

Almost overnight many sites around the country were left in stasis, an eerie image of a country – and a world – on pause. Only construction works deemed essential were able to continue.

Before the pandemic the sector had been performing strongly. In 2019, the construction industry in Ireland expanded by 5.8% in real terms, driven by public and private sector investment in building and civil engineering works, according to the Central Statistics Office (CSO). [www.businesswire.com/news/home/20200915005899/en/Construction-in-Ireland—Key-Trends-and-Opportunities-to-2024-Post-Covid-19—ResearchAndMarkets.com]

At the time the Irish Government predicted total investment in building and construction in Ireland would increase to €30 billion in 2019. In the first quarter of 2020, the sector experienced 15.4% year-on-year growth and the production volume index grew by 14.9%, the CSO reported. Then came lockdown.

Hopes for 2021

After a few months’ pause the sector reopened in late May 2020 and in the second half of that year the market warmed slightly with 90% of respondents considering current market conditions ‘lukewarm’, according to professional services company Turner & Townsend. [www.turnerandtownsend.com/media/5570/tt-roi-spring-21-final.pdf]

The best performing sectors were housing, private commercial and public works projects, each representing on average 30% of the workload of the surveyed contractors.

Overall, the volume of building and construction dropped by 6.5% in 2020, Turner & Townsend reported. This would be exacerbated in 2021 by the lockdown affecting the early part of the year, where construction sites had again been closed.

But there is hope for the remainder of the year. The sector bounced back in the second half of 2020, showing a 45% increase in volume in Q4 as compared to Q3. Turner & Townsend said this shows the resilience and confidence in the industry. It is expected that a similar rebound will occur now construction sites are re-opening.

Nevertheless, there are challenges facing the industry that include: too many contractors chasing too few projects, a lack of confidence to invest in new projects, shortage of skilled labour and the impact of government red tape, bureaucracy and delayed approvals.

The lack of confidence is expected to ease as it is anticipated that Ireland will return to some form of normality later in the year once the rollout of the Covid-19 vaccine has been largely completed.

Indeed, there are already signs of confidence returning in the housebuilding sector. In late February, Dublin-based housebuilder Glenveagh Properties said it is seeing huge demand for new homes. In addition, data showed that mortgage approvals in Ireland increased in January despite the country being back in a strict Covid-19 lockdown. Glenveagh said in a statement to the stock exchange that there had been a limited impact on housing demand as the pandemic disproportionately hit younger, low-income workers, which led to a record spike in savings among those still working.

Green lights

There have also been several nine-figure housing developments given the green light recently. For instance, in February Cork-based builder O’Flynn Group received permission from Dublin City Council to build a €625 million development at Southwest Gate on the Naas Road in the city.

O’Flynn’s planned development includes 1,123 apartments, a 148-bedroom hotel, as well as commercial units and amenities. Some of the apartments will be for sale, others rent and a portion will be affordable housing, O’Flynn said.

The development will be on a site formerly occupied by car dealer Nissan. O’Flynn is also building developments in Leinster and Munster.

Commercial property

Infrastructure consulting firm AECOM reported a mixed picture for commercial property building in Ireland. Private investment in building premises and sites is continuing for sectors such as data centres, where Ireland is a world leader. Other strong performing sectors include industrial, logistics – which has boomed during the pandemic, largely on the back of increasing use of internet shopping – and storage sites. [ireland.aecom.com/industry-spotlight-2021]

However, other sectors are continuing to decline. Private sector capital investment in areas such as commercial and hospitality will be particularly hard hit, according to AECOM. Another area struggling is retail construction, which has not kept pace with other sectors in recent years and will likely struggle in 2021 as the move to online shopping continues.

Acquisitions and investments

While the number of investments and acquisitions of construction businesses declined during the past year, understandably due to the pandemic, some deals were made.

For instance, in December, Gallagher Holdings acquired the 4.4% of the shares it didn’t already hold in housebuilder Abbey plc, which valued the company at £328.8 million.

Gallagher, a holding company specialising in estate and property management, has been buying up shares in Abbey, which was listed on Euronext Dublin, for some years and triggered a mandatory takeover bid in 2012 when its holding exceeded 50%.

Why invest in Irish construction companies?

The Irish economy proved to be one of the most resilient through the pandemic and when industry did get to open up business in many sectors recovered quickly.

Ireland is also part of the euro, which has proved to be a stable currency during the past few years, and not prone to spikes and troughs, so investments are solid.

In the commercial sector, Dublin continues to grow and there is ongoing demand for new offices in the capital, but also around the country as businesses in provincial towns and cities receive investment and grow.

The sector is also backed by the government. For instance, in May 2020, as the first lockdown was starting to ease, Home Building Finance Ireland (HBFI) announced a range of measures to help small and large housebuilders in the country. This included a €200 million “step-in” fund for housebuilders where funding from banks may not be available, a “Momentum Fund” designed for large developments in prime locations that were previously funded by banks and addressing any potential post Covid-19 gaps in funding to enable housebuilders to commence or complete developments.

Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, said: “Housebuilding firms need access to finance to deliver the new homes our society needs. The measures announced by HBFI today will help large and small firms resume housebuilding activity quickly and bring new developments to completion as soon as possible.”

The government also remains committed to Project Ireland 2040 and prioritising infrastructure investment. Public investment is expected to reach 4% of national income in 2020, compared with the EU average in recent years of 2.6%.

Prospects

As outlined above, the housebuilding sector in Ireland is optimistic for the immediate future, especially as lockdown measures are coming to an end and a return to more normal working conditions is imminent.

This optimism was further backed up in March, when it was announced that, for the first time in Ireland, in 2020 there were more planning permissions granted for apartments than houses. In all, 26,224 apartments were granted planning permission, a rise of more than 33% year-on-year, according to the CSO.

Property prices also continue to grow, despite the pandemic, up 2.6% in the year to January, the CSO reported.

Advice

Malone & Co Accountants https://www.maloneaccountants.ie/ work with many construction businesses and we can assist companies in the sector on all the relevant aspects from setting up a company to providing support with development finance or loan applications. We also provide tax advice to ensure developments and transactions are structured in a tax efficient manner.

  • get a quick quote

  • Post Category

  • Recent Post

    A guide to investing in property through your pension in Ireland
    19 Jul, 2022
    Irish pharma firms provide shot in the arm for investors
    24 Sep, 2021
    New legislation helps Ireland’s status as the place to establish funds
    22 Dec, 2021