What does it mean for the real estate sector in Ireland?
Padraic Whelan considers what the Brexit vote in the UK means for the Irish real estate sector.
We awoke on Friday 24 June to learn of the UK’s profound decision to leave the European Union after 43 years of membership, alongside Ireland. The vote was very close and it’s fair to say the impact it will have isn’t really known with any certainty as business reflects on the ramifications.
In the aftermath, UK Prime Minister David Cameron made the sensible choice of buying some time before the formal exit is triggered. Commentators have tabled whether there might be a call for a second vote, whether indeed there might be a General Election, and of course Scotland has clearly voted to stay in the EU and wants to remain part of it, with implications for another potential referendum there on becoming independent. Northern Ireland has benefitted greatly from the EU, and also voted to remain, so its position will need to be addressed with deftness. Further announcements have noted there will be a need for spending cuts and tax increases and the central banks will have a major role in terms of doing what is necessary to help maintain financial stability.
The Irish real estate market
In terms of timing, the Irish market has largely returned to a more stable footing, particularly over the last three years following the melt down experienced almost a decade ago. The commercial property market, primarily in Dublin, has gone from strength to strength with underlying demand being driven by occupiers locating in the city and expanding their employment base. The unemployment rate is now 8.7 per cent and has been falling year on year for the past number of years, with further falls forecasted.
Pre-Brexit, the discussion has also focused on financial services companies and tech, seeing that these businesses need or want to be located in an EU location. This could create considerably more demand for office space in Ireland, and Dublin in particular, should we gain a large share of foreign direct investment that otherwise might have gone to the UK and of UK companies looking to relocate to remain in the EU. The shift in location for tech companies isn’t a done deal as a lot of their employees are multilingual and often from mainland Europe, so there will be competition and consideration of location.
We do face a challenge in bringing the supply of residential property back to a normal level and there is serious recognition at Ministerial level in Ireland, with the appointment of Minister Simon Coveney, and it is hoped that a number of key measures will be put in place in the very near term to assist in making progress even though it will take time for them to come to fruition. The knock-on effect in terms of job creation here should be positive, but also challenging given the demands on tradesmen as activity ramps up.
Three large real estate investment trusts have expended considerable sums on well-let portfolios, so again this has brought stability to the market, though further investment is likely to be lower for the moment.
Some of the funds are in development and asset management mode following a period of intense activity and there is still a level of property deals to be transacted particularly outside of the capital, which should happen in time.
So, while there are a lot of positives with the economy at the moment, there will be challenges for businesses both in the tourism sector and, particularly, in the export sector. These challenges stem initially from the currency impact and, longer term, from the challenge of supplying product at an agreeable price; and of course, demand could go either way depending on the implications for Ireland of Brexit on foreign direct investment and jobs here.
The Irish economy has come through one of the most difficult periods over the past decade and has come back strongly so no doubt we are ready for this new unexpected challenge.