Bankers Get $4,700 Car Parking Spaces as Ireland Roars Back
(Bloomberg) -- Across Dublin, signs of a new boom are everywhere.
Cranes again pepper the city center. Celebrity restaurant hot spot The Ivy has opened close to parliament, hoping for an influx of bankers fleeing Brexit. In the same complex, Barclays Plc is paying 4,000 euros ($4,704) a year apiece for car parking spaces and 2.36 million euros annual rent at its new offices.
Barclays’s rent is 13 percent more than the most recent estimate for the property, Green Reit Plc, which owns the building, said last week. Stoked by demand from finance, technology and legal firms, rising prices are helping push office construction back to Celtic Tiger levels. Then, the boom collapsed, with devastating consequences. A decade on, the market is being closely watched for signs of overheating, as economic growth hits 9 percent.
“It’s inevitable that when we have an upswing in the cycle, construction gets going and generally overreaches itself, so that when there’s a downturn there tends to be an oversupply,” said Tom Dunne, a real-estate lecturer at the Dublin Institute of Technology. “So what we’re really talking about is the extent of that oversupply, and that’s really difficult to predict.”
More than 4 million square feet (371, 612 square meters) of offices are under construction around Dublin, according to real estate broker HWBC. Demand for office space is at its highest level, with companies looking for more than 6 million square feet, Savills Plc, a broker, said on Wednesday.
Facebook Inc. is in talks to take over a campus development in the south city of about 450,000 square feet, while Alphabet Inc.’s Google has agreed terms for 234,000 square feet in the city’s docklands, the biggest single deal in the first half of this year. Salesforce Inc. is in talks to lease dockland offices with space for as many as 5,000 workforce, the Irish Independent has reported.
“In absolute terms, yes construction now is comparable to the previous boom, but in proportion to the size of the overall market it is much smaller,” Colm Lauder, an analyst at Goodbody Stockbrokers in Dublin, said.
“We’re adding about 15 percent to the size of the market in net terms when you take into account offices being replaced or refurbished,” Lauder said. ”Between 2004 and 2007, the market grew by about 50 percent, so in relative terms it’s much smaller.”
After the 2008 crash, top Dublin office rents fell by as much as 55 percent. Loans to developers soured, almost toppling the nation’s financial system. In 2009, the Irish government set up a so-called bad bank to purge the country’s banks of more than 70 billion euros of risky commercial real estate loans.
The key driver of unsustainable credit growth before the bust was “the speculative nature of lending, which left projects reliant on strong final prices rather than a more prudent approach that would have relied on pre-sales or pre-letting,” the nation’s central bank said in a report earlier this year.
Office buildings now tend to be pre-leased and funded. More than 40 percent of offices expected to be completed next year are already leased, according to Jones Lang LaSalle Inc. Barclays, Bank of America Corp. and Toronto-Dominion Bank are among the firms that have settled on Dublin as European hubs after Brexit.
“Investment funds and REITs are financing much of the construction today, compared to bank debt in the past,” said Marie Hunt, director of research at CBRE Group Inc.’s Ireland unit. “They are less likely to back a development without a tenant so that in itself acts as a brake on the market.”
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