Ireland's two office-focused real estate investment trusts, Hibernia REIT Plc and Green REIT Plc, are the landlords best placed to profit from the relocation of companies to Dublin from London as a result of Brexit, according to local industry analysts.
The companies, both founded in 2013 as Ireland began to recover from a deep recession triggered by the collapse of its real estate market, own many of Dublin's prime office properties and are among the few developers to have fresh stock approaching completion.
As many as 19 of the U.K.'s largest financial services companies — JP Morgan Chase, Bank of America Corp. and Legal & General Group Plc among them — have mentioned a move to Dublin following the U.K.'s decision to leave the European Union, according to a report from Ernst & Young, making it the most popular destination under consideration.
TD Securities (USA) LLC is the latest company to choose Dublin as its new EU hub, announcing Aug. 21 that it will begin operations in the Irish capital in 2018. This followed Green REIT's announcement Aug. 2 that it had signed an agreement with Barclays Plc to let the bank 3,437 square meters of space for 20 years at its One Molesworth Street development, which is set for completion by the end of 2017.
"[Green and Hibernia] are perfectly positioned because of the timing of the cycle," Marie Hunt, head of research for CBRE Ireland, told S&P Global Market Intelligence.
"We are in an environment now where getting funding for speculative development is just pretty much impossible, whereas the REITs have had cash at their disposal. They've been able to get on site and start developing buildings, so they were first out of the traps in terms of this particular development cycle."
Barclays has leased more than 3,000 square meters of space at Source: Green REIT |
While Green REIT is the first of the two companies to secure a lease as a result of Brexit, Hibernia's development pipeline is the more attractive for companies relocating to Dublin from prime office stock in London, said Ronan Corbett, head of offices and director at the Irish division of real estate services firm Cushman & Wakefield Ireland.
"Hibernia REIT in particular will benefit very well. They have some of the best sites that still haven't developed out yet," Corbett said. "These companies [relocating from the U.K. are] likely going to want prime [city center] locations, and of the two REITs, Hibernia REIT has more of that type of product and sites."
Concerns over a shortage of office space in the city voiced in some media reports are unfounded, Hunt said. As of the beginning of 2017, Dublin had 250,000 square meters of available office space, with more than 360,000 square meters under construction, according to a 2017 Dublin Office Supply Update from CBRE. Annual average office take-up in Dublin in the last 10 years is around 180,000 square meters, the report added.
Dublin office take-up during the first half of 2017 reached 128,050 square meters, marking the strongest letting activity in the market since 2008, according to the latest quarterly report on the sector from Cushman & Wakefield. The six-month period saw several deals upward of 5,000 square meters, primarily involving office buildings that have been recently completed and pre-leased for some time, the report said.
The relocation of companies from the U.K. to Dublin is unlikely to "turn the dial" for the Dublin office market, Corbett said. Dublin is more reliant on the growth of its technology sector, as it hosts the European headquarters of many of the world's largest tech firms, thanks to its low corporation tax, skilled workforce and English-speaking population.
"What's driving the market are the technology companies — really, U.S. technology companies," said Corbett. "And it's not just the big ones. Obviously you have the big names like Google Inc., Facebook Inc., Amazon.com Inc., but it's all the other ones underneath, the smaller ones who are really making up the take-up."
The number of leasing commitments from companies relocating from London to Dublin should pick up in the coming months, said Hunt, whose company has fielded several inquiries from interested firms.
"Once September kicks off, it wouldn't be surprising to see another couple of big mandates arriving again," she said.
"And some of those will be Brexit-related. I think we're just going to continue to see these new announcements being drip-fed out over the coming months."