National annual commercial construction inflation is now rising at the rate of 8.3%, almost double pre-Covid levels, new research by the Society of Chartered Surveyors Ireland (SCSI) has found.

The new SCSI Tender Price Index, which is based on non-residential projects, also shows national construction tender prices rose by 7% in the first half of this year, up 1.3% on the previous six months.

The society claims pent-up demand, supply chain constraints, exceptional increases in materials and labour shortages have all contributed to the upward pressure.

It has also warned that while the index refers only to commercial construction projects, the increases will also impact the delivery of new homes.

“Following the reopening of sites on April 12th it was generally expected tender price inflation would rise as the economic recovery gained momentum,” said Kevin Brady, Chair of the Quantity Surveying Group in the SCSI.

“However, the scale of the increase is much greater than anticipated due to supply chain issues and intense competition internationally for building materials.”

“This has led to exceptional increases in the cost of widely used materials such as steel, timber and insulation products. These increases, coupled with serious labour shortages in the domestic market, have led to unprecedented disruption and the current increase in overall tender price inflation.”

The rate of increase varied considerably across regions between January and June, with the highest rate of 7.8% in Leinster and Connacht/Ulster.

In Munster the rate was 6.3% while the lowest rate of 6% was seen in Dublin.

“The last time we saw comparable rates of tender inflation was in 2000, at the height of the Celtic Tiger,” said Kevin James, Vice President of the SCSI.

“While that highlights the seriousness of the current situation, we believe underlying market conditions are fundamentally different from that era and that as the global recovery gains pace post Covid, the cost of materials should ease.”

“Given they account for up to half of overall delivery costs in some instances, a return to more normalised costs for key construction inputs such as timber, insulation, glazing, piping/ducting and steelwork appears likely and will be very welcome.”

The society also said that it anticipates that as the recovery gains pace and manufacturers build capacity, supply chain bottlenecks will ease.

“While the hope would be that international shipping charges will also come down and that logjams associated with Brexit will be sorted, labour shortages will take longer to address,” said Mr James.

“So, although we expect a correction, it is very difficult at present to predict the extent of it and that is why the overall outlook remains uncertain.”

The index relates to non-residential developments and is based predominately on new build projects with values in excess of € 0.5m.

By Will Goodbody

Business Editor