New orders are falling as construction costs continue to rise to record levels

Construction costs rose to record levels in April, causing orders to fall for the first time since March 2021.

BNP Paribas’ seasonally adjusted home construction index fell to 52.5 in April from 53.9 in March, the second straight monthly decline.

Readings above 50 signal activity growth month-on-month, although April saw the weakest rise in a year-long string of monthly growth.

Residential activity picked up, with the index reading 56 in April, and commercial activity also rose to 55.7 as the pipeline of office and logistics properties due for delivery in 2022 hit the highest level since 2008. However, civil engineering activity declined in the second month running until 43.6.

Price increases are hitting demand, BNP Paribas said in its Real Estate Ireland Construction Purchasing Managers Index (PMI) today.

Firms reported the second-fastest increase in input prices since the survey began in June 2000, just behind the October 2021 record, driven by rising energy and fuel prices and commodity shortages due to the conflict in Ukraine.

New orders fell for the first time in just over a year, although the decline was “only marginal,” BNP Paribas said, with some managers saying there was still demand for housing projects.

Both employment and purchases increased, albeit at a slower pace than at the start of the year, and purchasing activity rose at the slower pace so far in 2022.

Business confidence remained subdued as purchasing managers expressed concerns that prices will continue to dampen demand. Although sentiment rose from the 17-month low in March, it was still the second lowest in the past year and a half and below the series average.

“The latest PMI confirms that construction activity continued to pick up in April but varied by sector,” said John McCartney, Director and Head of Research at BNP Paribas Real Estate Ireland.

“The housing sub-index shows that the strong housing activity seen in the first quarter continued into April, despite headwinds from supply chain disruptions and increased costs.

“However, civil engineering was particularly weak, with the April reading showing a complete drop in activity for the second straight month.

“This is consistent with reports that rising energy and material prices are making contractors less willing to accept public works contracts.”

Source: independent

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