Ireland has largely overcome the fallout of the financial crisis and the burst housing bubble. Low corporate taxes are drawing international firms to Dublin, the office market is booming, and Brexit is ensuring that banks are increasingly relocating departments from London to the Republic.
It’s a situation that the states of southern Europe can only dream of: last year Paschal Luke Donohoe narrowly missed balancing Ireland’s budget. Government spending of €79 billion was almost matched by tax revenues of €78.4 billion. And this year the Irish finance minister might succeed in balancing the books; it would be the crowning achievement in the Emerald Isle’s economic success story of recent years. In 2008, the financial crisis hit Ireland particularly hard because – as in Spain – it was accompanied by the bursting of a housing bubble. In 2010, the government in Dublin had to spend €110 billion bailing out banks and propping up the economy, while only €56 billion of taxpayers’ money flowed into the state coffers. However, far-reaching austerity measures and economic reforms have put the country, which has a population of 4.8 million, back on course for growth much more quickly than the crisis-hit states of southern Europe. In 2011 the gross domestic product, the total value of all goods and services produced, grew again by almost three percent; and by 2018 the figure reached €337 billion – an increase of 4.5 percent compared to the previous year.
Nowhere in Ireland is this economic miracle more apparent than in Dublin’s real estate market. For years now, construction cranes have been a familiar sight in the capital, which has 553,000 inhabitants according to official figures. New office buildings are being completed all the time and run-down commercial neighbourhoods are becoming viable investments again. Especially in the North and South Docklands of the city, construction activity is proceeding apace.
“In the third quarter of last year alone, new buildings offering a total of 75,358 square meters of office space were completed,” reports John McCartney, Director of Research at property agents Savills in Dublin. However, despite the construction boom, the proportion of unlet office space in the capital has, according to McCartney, fallen from more than 20 percent in 2011 to just 6.1 percent. “The vacancy rate has even fallen to 4.3 percent for the high-quality Class A category,” explains Marie Hunt, Head of Research at real estate and investment firm CBRE in Dublin. This is because extremely low corporate taxes are leading more and more international firms that want to do business in the EU to set up their European headquarters in the Irish capital. Other advantages that make Ireland, and Dublin in particular, attractive include a young and highly educated workforce and pre-clearance for US entry at Dublin airport.
Recent figures from global real estate service provider JLL also confirm that end-user demand is buoyant. “In the fourth quarter of 2018, 141,677 square meters of new office space were leased – more than two and a half times as much as the 55,091 square meters over the previous three-month period,” says Deirdre Costello, head of JLL’s Dublin branch. Companies that have recently rented space include international firms such as Airbnb, Facebook and Google, IT marketing specialist Hubspot, the co-working provider Iconic Offices, and Allied Irish Banks. The commercial banking group, one of the four largest financial service providers in the country, is just one of several financial institutions that have leased new premises in Dublin over the past couple of years. One of the most spectacular leases was signed by London’s Barclays Bank in 2017, an early indication of the impact of Brexit. It has secured two and a half storeys for twenty years at an annual rent of €2.35 million in a new office building completed last year in Molesworth Street by Irish investor Green REIT. There were also headline-grabbing new leases to Salesforce for more than 40,000 square metres of space in Spencer Docks with a term of 20 years, and to Facebook in Ballsbridge for a 25-year lease.
Brexit is prompting banks such as Barclays and Canada’s Toronto-Dominion – as well as US financial services firm JP Morgan – to move some of their operations across the Irish Sea. “By relocating specialist personnel from the UK to another English-speaking EU member state, they can continue to offer services to Europe without any disruption after Britain’s departure from the community,” explains Günter Vornholz, Professor of Real Estate Economics at EBZ Business School in Bochum. “The Dublin office market is one of the winners of Brexit.”
Thousands of well-paid bankers and IT experts are coming to the Republic as employees of financial service providers and internet companies. According to a study by estate agents OwenReilly, the average annual income in Dublin’s modern business district is €117,095. This is driving the housing market, which is still very strained. Before the crash there was a lot of construction, but buildings often shot up in the wrong locations. Reports in the Irish media talk of hundreds of “ghost estates”. Land for building is scarce and regulatory hurdles are high; this has a dampening effect on construction activity on the housing market. Flats are in short supply. The average monthly rent for a one-room apartment near the Docklands rose by 11 percent to €1,850 in 2018, says owner Owen Reilly. “For three rooms tenants are now paying as much as €4,166 a month – 12 percent up on one year ago.”
International investors interested
Retail space is also in demand. “International fashion and shoe retailers and food & beverage chains are increasingly leasing store space,” says CBRE researcher Hunt. Not only in Dublin, but also in Cork, the second largest city in Ireland with 125,700 inhabitants, there is hardly any free retail space in the high streets. Having a physical presence in the shopping districts is paying off for the tenants, says Hunt: “In the first nine months of 2018, turnover in bricks-and-mortar retail increased by four percent compared to the same period last year.”
It is hardly surprising that Ireland is increasingly attracting the attention of international investors. Funds, pension schemes and insurance companies from Europe, North America and Asia, as well as from Ireland itself, have acquired €3.6 billion in commercial real estate in the country in the last year. According to John Moran, CEO and Head of Investment at JLL in Dublin, transactions last year were up €1.3 billion or 56.5 percent compared to 2017.
One of the early buyers was Union Investment, which in May 2015 acquired the fully leased 4-5 Grand Canal Square for €230 million for its UniImmo: Europa open-ended real estate fund. The office complex, which is located in the heart of the Docklands, was designed by Daniel Libeskind. The recent sale of the Infinity Building at Smithfield Square shows just how much property values in Dublin have risen. In April 2015, this glass office building in the centre of the capital changed hands for €28.65 million. Following a refurbishment, it was sold in January of this year for €57 million to a real estate fund at major Swiss bank Credit Suisse. Also in 2015, Union Investment acquired the Burlington House project development in a speculative move. The building has 16,000 square metres of office space and is LEED certified to Gold level. It is located on Burlington Road in a popular and well-established business district that is also home to the Bank of Ireland and major tech companies and service providers. The property was fully let to Amazon on a long-term basis before completion. Amazon has since renamed the property the Shannon Building and uses it as its European headquarters. Martin Schellein, Head of Investment Management Europe at Union Investment, believes that Dublin continues to offer good potential for real estate investments: “We are actively acquiring new properties in Dublin and are considering further project developments. If the conditions are right, speculative developments will continue to be an option.”
And it’s not just property owners who are pleased about developments in Ireland – Finance Minister Donohoe is also benefiting from property price appreciation and the growing transaction volume on the real estate market. After all, land transfer taxes flow into the state treasury with every real estate deal, bringing Ireland ever closer to balancing its books.
From Birgitt Wüst