Brexit & the Irish Commercial Property Sector

 

In this week’s edition of our Member & Expert Opinion Series, Marie Hunt; Executive Director, Head of Research, CBRE Ireland & Member of the British Irish Chamber of Commerce Brexit Subcommittee examines the impact of Brexit on the Irish commercial property sector.

More than two years ago and well in advance of the Brexit referendum, I participated in a British Irish Chamber breakfast event looking specifically at the potential challenges and opportunities Brexit might create for various sectors of the Irish commercial property market. Many of my observations on that day still ring true. I acknowledged that there were some sectors of the commercial real estate market in Ireland that would potentially emerge as net beneficiaries of Brexit, namely the office and logistics sectors of the market, but pointed out that there were other sectors of the property market that would suffer if Britain opted to leave the EU. My conclusion was that anything that is negative for the Irish economy in turn ultimately proves negative in some shape or form for the commercial property market, which has tentacles in a myriad of different sectors of the economy. Some additional demand for office and industrial accommodation aside, Brexit would ultimately be bad for the Irish economy and in turn bad for Irish commercial property market in my view. While I and most people in attendance didn’t foresee the ultimate outcome of the Brexit referendum vote, many of the anticipated outcomes of a Leave vote have been borne out in the commercial property market since while others have yet to fully materialise as the market waits for certainty.

Although Brexit hasn’t happened yet, given that the unexpected result led to such a dramatic swing in Euro-Sterling exchange rates, some sectors of the Irish economy took an immediate hit and this in turn had negative implications for some sectors of the Irish commercial property market with the most notable being the hotel & tourism sector. Indeed, the number of UK visitors to Ireland was down more than 5% year-on-year in 2017 despite an overall increase of 3.6% in visitors to Ireland in the period.

It is important to point out that despite the negative newsflow that has dominated the UK retail market over the last 12-18 months, the pace of retail sales activity in the Irish market has remained solid over the last two years in comparison. However, as is evident from both value and volume measures of retail sales activity in the Irish market, the extent of annual growth has eased since the Brexit referendum vote, with leakage to UK websites and physical stores in Northern Ireland clearly evident as a result of Euro-Sterling exchange rate movements. Ireland is home to many UK retailers including Boots, Debenhams, House of Fraser, Argos, B&Q, Homebase and Marks & Spencer to name a few. Some UK retailers have halted their expansion plans in the Irish market in the last two years until such time as there is more clarity on the ultimate direction of Brexit. Others are reviewing their supply chain models and are considering locating more of their distribution in-country as opposed to bringing most goods into the Irish market through Dublin Port and across the border from Northern Ireland. In an effort to avoid the potential threat of customs, tariffs and associated delays in the supply chain model in an era when consumers are expecting ever quicker delivery timeframes, a move to creating more in-country distribution could prove beneficial for the industrial & logistics sector of the Irish commercial property market in due course.

The IDA recently announced that there have been 42 Brexit-related mandates enacted in the Irish market during the last two years, which has added a welcome layer of additional demand to an office market that is already performing strongly. 13% of all take-up in Dublin last year was accounted for by UK companies, some of whom were opting to relocate from the UK as a result of Brexit. In our opinion, this trend will escalate over the next few years with only a handful of the many companies that have expressed an interest in relocating activities to Ireland having bought or leased premises to date. While this Brexit-related activity is not the primary driver of office-based activity in the Irish market at present, it has boosted the market somewhat over the last two years and will continue to deliver an extra layer of demand to an already healthy market for the foreseeable future.

Similarly, demand for Irish real estate investment opportunities has been boosted in the last two-year period by investors who are keen to avoid hedging risk by investing in Euro-denominated jurisdictions.

However, in summary, my 2-year-old thesis still rings true. Although there are sectors of the Irish commercial property market that have already experienced or are expected to experience a benefit because of Brexit, if the overall impact of Brexit for Irish economic performance is negative, the same is true for the real estate sector. Hopefully, over the coming months, the situation will become a little clearer and this sector of the economy, like many others, can plan accordingly.

 

Marie Hunt; Executive Director, Head of Research, CBRE Ireland & Member of the British Irish Chamber of Commerce Brexit Subcommittee. 

Marie Hunt is an Executive Director at property services firm CBRE Ireland. Marie manages various databases tracking trends and transactions in each sector of the Irish commercial property market, writes a series of property market publications and regularly presents on Irish economic and property-related matters. Marie advises many of the public and private sector occupiers and investors that are active in the Irish real estate market and has been a member of the British Irish Chamber of Commerce Brexit committee for the last two years.

 

The views and opinions expressed by authors are their own and do not reflect the official position of the Chamber but are simply an illustration of the various opinions reflective of the diverse Chamber membership. Should you wish to contribute to the Member and Expert Series, please contact neil.dee@britishirishchamber.com for further information.

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