Commercial construction increased in Ireland in September, but residential activity declined in spite of increased housing starts.

The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index dropped to 47.3 in October, down from 48.6 in September, driven by a reduction in activity on housing projects.

This signalled a fourth consecutive monthly reduction in construction activity, with the pace of decline faster than that seen in September.

In contrast to the overall picture for the sector, commercial activity returned to growth in October, thereby ending a three-month sequence of decline, although the rate of expansion was marginal.

Companies also maintained an optimistic outlook for the coming year amid hopes that new projects would be secured, with employment increasing for the tenth successive month.

However, sentiment dropped sharply over the month and was the lowest since November last year. There were some concerns about the potential impact of a weaker economic climate on activity in the sector, BNP Paribas reported.

Rising prices for a range of inputs meant that overall expenses increased markedly again in October, although there were some signs of prices for certain items easing.

“The slowdown in residential activity during October seems surprising given the continued growth in housing commencements and completions this year,” BNP Paribas Real Estate Ireland Director and Head of Research John McCartney said. “But the explanation is simple — completions have been rising faster than commencements in recent months, causing the number of units under construction to edge lower.

“The medium-term outlook for residential and commercial construction is quite contrasting. Over 18,000 new dwellings are currently underway in Dublin alone, and 2024 should be another strong year for housing delivery. However, speculative office starts have dried up in response to market signals, and the supply pipeline falls away sharply from next year.”

McCartney said that although the expansion in commercial activity “might also seem surprising,” as there has been little large-scale retail development and as the office market is already oversupplied, nearly 280K SF of Dublin office space that was earmarked for completion in the third quarter was delayed until Q4.

“With a further 807K SF already scheduled for Q4 delivery, there is now a strong push to get projects completed by year-end,” he said.