Activity in the construction sector largely stabilised in February and new orders increased for the first time in a year, the latest BNP Paribas Real Estate Ireland construction purchasing managers' index (PMI) has found.

The headline seasonally adjusted construction total activity index remained slightly below the no-change mark of 50.0 last month at 49.8, up from the January reading of 47.7.

The reading indicated the fifth successive reduction in total activity, but the decline was only fractional and represented the slightest decline in the current period of contractions, which panel members linked to subdued market conditions.

“The ‘green shoots’ in our last PMI strengthened further in February. The pace of contraction continued to slow leaving construction effectively unchanged in the month," said John McCartney, director and head of research at BNP Paribas Real Estate Ireland.

"More importantly, the forward-looking data are pointing in a distinctly positive direction. New order books are expanding and, through their words and actions, building firms appear to be confident that this will be sustained."

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Firms registered strong employment growth, and input buying rose for the first time since last May, while input costs and sub-contractor rates increased at faster paces than in January.

Decreases were seen in both housing and civil engineering activity in February though rates of reduction eased to four- and 11-month lows, respectively. Bucking the wider trend, commercial activity increased modestly for the first time since September.

The slight uptick in new orders provided further signs of market improvement, and panel members credited stronger project pipelines and better underlying demand conditions.

Irish construction firms responded to expanding order book volumes by adding to their staffing levels for the second consecutive month and increasing purchasing activity in February.

Firms continued to face delivery delays, and supply chain disruption remained the main factor in lengthening lead times, although the latest deterioration in vendor performance was the least pronounced since January 2020.

Growth forecasts across the Irish construction sector were positive for the six month running, and the degree of optimism was the brightest for a year amid improving project pipelines and client engagement.

"The proportion of construction companies saying that they expect to be busier in 12 months’ time is at its highest level since Feb 2022 – a trend that is also evident in the manufacturing and services PMIs," McCartney said.

"Consistent with this, materials purchases have picked up markedly and builders are taking on additional staff at the fastest pace in a year."

Overall sentiment remains below the long-run average though, and cost pressures worsened following two months in which inflation eased. Sub-contractor rates also increased at the fastest pace for three months amid reduced availability and quality.

McCartney concluded by saying that 2023 would be the biggest ever year for warehouse construction, and perhaps the biggest year for office building since 2008.

"Although residential activity eased slightly, the pace of contraction has softened considerably. This aligns with other positive indicators in the sector," he said.

"The Dublin Housing Supply Coordination Task Force counted 18,600 new dwellings under construction in the capital at the end of September 2022, and a further 3,488 have been commenced in the capital since then – a 42% year-on-year increase."