Dublin Office Slowdown May Not Pick Up Until 2027, BNP Paribas Real Estate Warns
The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index showed the biggest reduction in construction activity of the year so far, with the prospect of office delivery not gathering pace until 2027.
The adviser’s survey posted a value of 44.5 in November, down from 47.3 in October, the fifth successive month of activity decline. Respondents pointed to a slowdown in the economy, the completion of projects and delays in decision-making as contributing to the fall.
Firms recorded declining activity across the three different construction categories as commercial real estate posted a renewed reduction midway through the final quarter of the year. The sharpest fall was for housing activity, which decreased by the widest margin since April.
However, business confidence strengthened in November, as 32% of respondents predicted a rise in activity over the coming 12 months. Positive sentiment reflected hopes for an improvement in economic conditions and the start of new projects, although lessened workloads led constructors to scale back employment for the first time in almost a year.
Companies experienced a sharp rise in input prices, the fastest since August. The rate of inflation remained much weaker than seen during 2021 and 2022, however.
“November saw sharp contractions in both commercial and residential activity,” BNP Paribas Real Estate Ireland Director & Head of Research John McCartney said. “On the commercial side, 2023 will be a record year for Dublin warehouse completions, with significant development also occurring in Cork.
“However rising interest rates and construction costs have made developers more cautious, therefore the 2024 pipeline is weaker and early-stage activity is being impacted. In Dublin’s office market, developers have heeded the signals of rising vacancy and softening lease terms to turn off the supply tap.”
He predicted that completions will fall by 25% to 30% this year, with the 2024 pipeline lower again, with few speculative commencements meaning that the slowdown in office-building may persist until 2027.
“Continued weakness in the residential PMI is more surprising,” he added. “The latest national accounts indicate that investment in new dwellings has risen by 8.4% compared with the first three quarters of 2022. Completions are up by 8.8% in the same period and, with commencements rising even faster, the longer-term trend is also positive.”
He said that the most likely explanation is that activity has temporarily slowed in October and November because of projects being completed toward year's end, but McCartney warned that national accounts data revealed the home improvement market has contracted over the last six months as build costs rise.
