Irish Property Market 2020 Part 2

PropQueries · 10-10-2020 03:45PM

Graham wrote: »

IIRC they've only recently signed for 1 - 4 Wilton Park on 25yr leases with a break at year 12.

Yes, reported back in January, pre-covid, pre the large scale move to WFH.

"The news of Iput’s pre-let of Two, Three and Four Wilton Park to LinkedIn on a 25-year lease with a term certain of 12 years comes just over two months after The Irish Times reported that discussions on a potential deal were under way between the parties."

Did they continue with this lease? Maybe.

But. I'm sure you will agree that a lot has changed since then. Do you believe they would enter into such a lease today? If not, that's where the problems start to arise for the commercial real estate market.

What value was placed on this property back in January 2020? What value would someone place on it now, even with such a lease (with a break clause in year 12) in place? The difference in valuations is where the problems begin.

P.S. What does IIRC stand for?

Bubbaclaus · 10-10-2020 03:45PM

HotDudeLife wrote: »

Exactly this, these "experts" rarely predict anything, they just conduct post mortem economic analysis.

The bellweather will always be the word on the street, i used to gauge this by people i know in the restaurant and hotel industry, if they told me business was slumping, a downturn usually followed.

Fast forward to 2020, 90% of every industry is in serious decline or hit a screeching halt but somehow some think Irish house prices will be immune to this, "this time it's different" etc, lol. Complete deniers will be in for some shock when reality hits.

I'm actually convinced most people are not that ignorant and those claiming everything will be fine and prices won't fall off a cliff have vested interests and are just trying to push an agenda (as could be said for those saying prices will crash). From a neutral standpoint the writing is on the wall for this dysfunctional market, it's long been due a correction.

"90% of every industry is in serious decline or hit a screeching halt" lol what utter ****e.

Graham · 10-10-2020 03:50PM

PropQueries wrote: »

Did they continue with this lease? Maybe.

Last I heard (a few weeks ago) yes unless things are being renegotiated behind closed doors.

Hubertj · 10-10-2020 03:54PM

PropQueries wrote: »

Thanks for the link. But I think what many people forget is that the office space currently being built by both Google and Facebook in Dublin will most likely result in them moving their staff currently working in their leased space within the city into their new owned office space.

The Google and Facebook buildings will both be completed over the next couple of years (I think the Google space is probably nearing completion at this stage), so it will be interesting to see who takes up the space they previously leased within the city.

Here's an interesting one in relation to Google's leasing of space in Dublin from 2019. Take note of the lease break options:

"Google is to increase its already-massive footprint in the capital following an agreement to lease more than 7,000sq m (75,000sq ft) of office space at Central Park in Sandyford, Dublin 18.

It is understood Google has agreed a rent of around €30 per sq ft on a lease of 10 years with a break option in the fifth year for six of the eight floors at the property."

Link here: https://www.irishtimes.com/business/commercial-property/google-strikes-deal-for-new-sandyford-offices-1.4042868

A large number of leases have breaks at 5 years. To say this is unusual is a lie or to point it out is pointing out the obvious

Healy_Rayban · 10-10-2020 03:59PM

If companies are going WFH and think they'll be as productive as in the office then the leases don't matter, they'll WFH. What they do with the lease will be a negotiation with the landlord on what they want to do

But companies are not going to even think about their long term decisions until the middle of next year at the earliest.

No office will ever close completely. There will always be a need for some employees depending on their role.

PropQueries · 10-10-2020 04:02PM

Hubertj wrote: »

A large number of leases have breaks at 5 years. To say this is unusual is a lie or to point it out is pointing out the obvious

If I was an investor thinking of buying a similar office block nearby with a similar 5 year office lease in place, I would take Google's 5 year break option very seriously when making my decision on whether to proceed with the purchase or not.

I would definitely be factoring in the very real risk that Google's office space will come back into the market at the same time I would be negotiating a new lease agreement with my tenant.

But, maybe other investors think differently? But, I never said 5 year leases were unusual. Maybe they are. Does anyone else have any insight? If they are the norm, the Irish commercial real estate market is in serious trouble in 5 years time.

Graham · 10-10-2020 04:05PM

PropQueries wrote: »

If I was an investor thinking of buying a similar office block nearby with a similar 5 year office lease in place, I would take Google's 5 year break option very seriously when making my decision on whether to proceed with the purchase or not.

You think the current investors have forgotten to factor in risks associated with break clauses?

PropQueries · 10-10-2020 04:08PM

Graham wrote: »

You think the current investors have forgotten to factor in risks associated with break clauses?

Do you not believe the increased use and proven potential of WFH hasn't opened up a whole new risk factor for when negotiating leases at the break clause stage?

Timing belt · 10-10-2020 04:18PM

PropQueries wrote: »

Do you not believe the increased use and proven potential of WFH hasn't opened up a whole new risk factor for when negotiating leases at the break clause stage?

Yes it will help with negotiations but does not mean they are exiting properties. Yes a % of office space will become available due to WFH but it is not on the scale you talk about.

To be honest any movement on commercial real estate will be determined more by what is happening with funds as the majority are owned by funds and if these see a lot of investors making redemptions will need to sell at at discounted prices to get cash. There is little evidence of this happening on the market and if anything find they have access to more credit thanks to the QE.

10-10-2020 04:22PM

PropQueries wrote: »

Isn't the Facebook campus at the Bank Centre the location of their new headquarters? Isn't that currently under construction and where they probably plan to move their existing staff working in leased office space in other parts of the city?

Yes they will obviously move all their existing staff there, but it's going to be far larger than just accommodating existing staff.

According to Facebook, the move sees it quadruple its current floorspace to 870,000 sq ft across a number of buildings. The company said it would also open up capacity for an additional 5,000 employees. At present, Facebook employs more than 4,000 people in Ireland

In relation to LinkedIn: "LinkedIn’s Irish workforce braces for cuts as company to lose 960 jobs globally". Yes, they did state in 2019 that were going to beef up their Irish workforce in 2019, but I would guess that's probably not likely at this stage. LinkedIn is also owned by Microsoft and we now know of their WFH strategy which one would assume may also be applied across LinkedIn.

As said, they will most likely honour their Irish leases until the time of their next lease break clause. The cost of their Irish leases are minimal relative to their overall revenues so they can afford to implement their WFH strategy and potentially keep their leased spaces vacant until their next lease break. They can also sell or lease out any space they already own.

Whether they own or lease office space in Dublin, it doesn't appear to impacting on the implementation of their WFH strategy.

Link to LinkedIn here: https://www.irishtimes.com/business/technology/linkedin-s-irish-workforce-braces-for-cuts-as-company-to-lose-960-jobs-globally-1.4309669

"Probably not likely", well alright. There's no point in discussing on that basis, we have no idea if it's less likely or not. I'm aware of their layoffs, they were global and not focused on Dublin.

PropQueries · 10-10-2020 04:33PM

Timing belt wrote: »

Yes it will help with negotiations but does not mean they are exiting properties. Yes a % of office space will become available due to WFH but it is not on the scale you talk about.

To be honest any movement on commercial real estate will be determined more by what is happening with funds as the majority are owned by funds and if these see a lot of investors making redemptions will need to sell at at discounted prices to get cash. There is little evidence of this happening on the market and if anything find they have access to more credit thanks to the QE.

Never mentioned 'on the scale'. But, of course it's not having an impact on existing leases as these companies are only deciding on and implementing their WFH strategies at the moment or will be over the next few months.

It's what happens when the lease break clauses come into effect that will have a very real impact.

You also appear to believe that pension funds and other investment funds have plenty of cash to keep the market moving.

Today in the Financial Times, an article was titled 'Private equity-owned companies in intensive care due to pandemic'. It's an interesting read. Link below.

Pension funds may also not be that interested in office buildings with 5 year lease break options as they primarily invest in such assets in order to align their assets to their long-term liabilities i.e. they're primarily looking for 20 year leases. They will most likely not be very interested in purchasing office buildings with break clauses in 5 years time due to the risks that are now very evident.

Back in July: 'Ronan and Colony selling majority stake in Facebook and Salesforce offices'. Link below.

Back in August: 'Blackstone and AIB in standoff over Blanchardstown Shopping Centre debt'. Link below.

Link to FT article here: https://www.ft.com/content/e47090e0-282f-4cfa-a82f-f3b2d4223072

Link to Colony Capital article here: https://www.irishtimes.com/business/commercial-property/ronan-and-colony-selling-majority-stake-in-facebook-and-salesforce-offices-1.4310910

Link to Blackstone/Blanchardstown article here: https://www.independent.ie/business/irish/blackstone-and-aib-in-standoff-over-blanchardstown-shopping-centre-debt-39463682.html

PropQueries · 10-10-2020 04:40PM

Kathryn Sweet Yawn wrote: »

Yes they will obviously move all their existing staff there, but it's going to be far larger than just accommodating existing staff.

According to Facebook, the move sees it quadruple its current floorspace to 870,000 sq ft across a number of buildings. The company said it would also open up capacity for an additional 5,000 employees. At present, Facebook employs more than 4,000 people in Ireland

The article you posted to support your viewpoint is from November 2018. Do you not believe much has changed in the interim?

PropQueries · 10-10-2020 04:43PM

Kathryn Sweet Yawn wrote: »

Yes they will obviously move all their existing staff there, but it's going to be far larger than just accommodating existing staff.

According to Facebook, the move sees it quadruple its current floorspace to 870,000 sq ft across a number of buildings. The company said it would also open up capacity for an additional 5,000 employees. At present, Facebook employs more than 4,000 people in Ireland

"Probably not likely", well alright. There's no point in discussing on that basis, we have no idea if it's less likely or not. I'm aware of their layoffs, they were global and not focused on Dublin.

Wrong post

10-10-2020 04:44PM

PropQueries wrote: »

The article you posted to support your viewpoint is from November 2018. Do you not believe much has changed in the interim?

What are you suggesting here, Facebook aren't expanding their footprint in Dublin? Have you an iota of evidence to support that, beyond you thing it probably unlikely or somesuch?

But what point are you trying to make about Facebook exactly?

PropQueries · 10-10-2020 04:54PM

Kathryn Sweet Yawn wrote: »

What are you suggesting here, Facebook aren't expanding their footprint in Dublin? Have you an iota of evidence to support that, beyond you thing it probably unlikely or somesuch?

But what point are you trying to make about Facebook exactly?

The same point I was making about Google. Yes, Facebook did expand massively over the past several years (but mostly between 2012 and 2016).

In the meantime, while they were waiting for their new purpose built office spaces to be built, they were leasing office spaces throughout the city. It is my belief that once their new purpose built office spaces are built, they will move their existing employees from the leased office spaces they're currently occupying into their new purpose built office spaces.

As you said, I'm probably wrong in my assumption. Actually, you're most definitely probably right. My assumption is actually moronic. Makes absolutely no sense. That lease Google signed with a 5 year break option is most likely meaningless and such leases are very very common.

My Apologies.

10-10-2020 04:56PM

PropQueries wrote: »

The same point I was making about Google. Yes, Facebook did expand massively over the past several years (but mostly between 2012 and 2016).

In the meantime, while they were waiting for their new purpose built office spaces to be built, they were leasing office spaces throughout the city. It is my belief that once their new purpose built office spaces are built, they will move their existing employees from the leased office spaces they're currently occupying into their new purpose built office spaces.

Of course they are going to do that. That isn't a secret. The head of FB Ireland is even quoted in the article linked above saying it's going to happen.

Graham · 10-10-2020 05:07PM

PropQueries wrote: »

Pension funds may also not be that interested in office buildings with 5 year lease break options as they primarily invest in such assets in order to align their assets to their long-term liabilities i.e. they're primarily looking for 20 year leases. They will most likely not be very interested in purchasing office buildings with break clauses in 5 years time due to the risks that are now very evident.

I suspect you'll find that type of risk is more mitigated via a portfolio than unrealistic lease terms on a single building/asset.

PropQueries · 10-10-2020 05:11PM

Kathryn Sweet Yawn wrote: »

Of course they are going to do that. That isn't a secret. The head of FB Ireland is even quoted in the article linked above saying it's going to happen.

Good to know we're probably in agreement after your post "What are you suggesting here, Facebook aren't expanding their footprint in Dublin? Have you an iota of evidence to support that, beyond you thing it probably unlikely or somesuch?"

So, I guess the question now is, if we are indeed in agreement, who will lease all that leased office space (and it's substantial) that Google and Facebook will most likely be vacating over the next few years?

PropQueries · 10-10-2020 05:20PM

Graham wrote: »

I suspect you'll find that type of risk is more mitigated via a portfolio than unrealistic lease terms on a single building/asset.

Well, pension funds can invest in government/company bonds, shares, real estate or leave it on deposit. If on deposit or invested in government bonds, they're probably not going to make much of a capital loss.

If they invest in commercial real estate today based on January 2020 prices, do you not believe they would make a substantial capital loss over the next five years?

If you do believe that, then at what discount to January 2020 values should they pay today? 20%, 30%, 40%?

They probably can't value commercial real estate. If they can't value it, they won't (or shouldn't) be purchasing much of this asset class over the next few years.

Graham · 10-10-2020 05:22PM

PropQueries wrote: »

Well, pension funds can invest in government/company bonds, shares, real estate or leave it on deposit. If on deposit or invested in government bonds, they're probably not going to make much of a capital loss.

Such investments would typically be across a range of asset classes, to spread risk.

Hubertj · 10-10-2020 05:29PM

PropQueries wrote: »

Well, pension funds can invest in government/company bonds, shares, real estate or leave it on deposit. If on deposit or invested in government bonds, they're probably not going to make much of a capital loss.

If they invest in commercial real estate today based on January 2020 prices, do you not believe they would make a substantial capital loss over the next five years?

If you do believe that, then at what discount to January 2020 values should they pay today? 20%, 30%, 40%?

They probably can't value commercial real estate. If they can't value it, they won't (or shouldn't) be purchasing much of this asset class over the next few years.

If the ant cake real estate why are transactions taking place? Yet another stupid post

10-10-2020 05:32PM

PropQueries wrote: »

Good to know we're probably in agreement after your post "What are you suggesting here, Facebook aren't expanding their footprint in Dublin? Have you an iota of evidence to support that, beyond you thing it probably unlikely or somesuch?"

So, I guess the question now is, if we are indeed in agreement, who will lease all that leased office space (and it's substantial) that Google and Facebook will most likely be vacating over the next few years?

Alright, but

PropQueries wrote: »

The article you posted to support your viewpoint is from November 2018. Do you not believe much has changed in the interim?

What has changed for them exactly? What's the suggestion here?

VegggieMonster · 10-10-2020 07:32PM

Hi there. Throwing my 5 cents in. If I am told I can work 3 days a week WFH we will most likely move and I can sacrifice 10-12 hrs on commute a week if spread (i.e Tue and Thurs). So I would say a good few people will look to move further out relieving the pressure on Dublin and within 1 hour commute radius. Still waiting to hear re WFH post 2020 but company has already asked about wfh preferences in a survey recently. Fingers crossed.

hometruths · 10-10-2020 07:37PM

VegggieMonster wrote: »

Hi there. Throwing my 5 cents in. If I am told I can work 3 days a week WFH we will most likely move and I can sacrifice 10-12 hrs on commute a week if spread (i.e Tue and Thurs). So I would say a good few people will look to move further out relieving the pressure on Dublin and within 1 hour commute radius. Still waiting to hear re WFH post 2020 but company has already asked about wfh preferences in a survey recently. Fingers crossed.

Do you have an idea what the feeling is amongst your colleagues and friends? i.e are you an outlier or is this widely viewed as an attractive option?

HotDudeLife · 10-10-2020 07:49PM

TheSheriff wrote: »

But 90% of every industry are not in serious decline ? That's the whole point. Many industries are doing quite well, some doing better than before (pharm, tech, med device, grocery, delivery etc etc.: All big employers in Ireland.

I would imagine we'll move more towards a two tier recovery, those completely shielded from all of this (financially) and those in hospitality /tourism.

It will impact nearly everyone at some point

OwlsZat · 10-10-2020 07:49PM

Hubertj wrote: »

If the ant cake real estate why are transactions taking place? Yet another stupid post

You should take a little more care with your language. The irony is most people would see your own post as pretty moronic.

Hubertj · 10-10-2020 08:03PM

OwlsZat wrote: »

You should take a little more care with your language. The irony is most people would see your own post as pretty moronic.

Just like your post about Donaghmede then. Good lad.

jill_valentine · 10-10-2020 08:04PM

VegggieMonster wrote: »

Hi there. Throwing my 5 cents in. If I am told I can work 3 days a week WFH we will most likely move and I can sacrifice 10-12 hrs on commute a week if spread (i.e Tue and Thurs). So I would say a good few people will look to move further out relieving the pressure on Dublin and within 1 hour commute radius. Still waiting to hear re WFH post 2020 but company has already asked about wfh preferences in a survey recently. Fingers crossed.

I'd say a great many people are making the same calculations.

I know I've already posted my personal take, but I happened to be involved in the Covid WFH rollout in my (pretty large old) company and it's hard to emphasise enough how much of this feels one-way.

We had been gradually introducing WFH for selected employees who could make a strong case for it, as a pilot, for a few days a week - now, almost overnight, it's done, for almost everyone bar a skeleton crew, for 5 days a week. It's not an experimenal little pilot any more, it's how we've been working as a company for six months, the psychological threshold for management is crossed.

More than that, the IT time and investment into making it possible - which was previously the big barrier - is already done, all the processes have already been changed to facilitate it, the offices themselves have even been physically rearranged with the expectation our onsite presence will stay this small or smaller. The laptops and headsets are paid for, the meeting rooms are repurposed. We own this building, but the external desks and parking spaces we rent in addition are sitting empty. From a staff point of view, the childminders and taxsaver tickets are cancelled, and people have gotten used to wearing what they want, sitting where they want, and eating from their own cookers at lunch.

It would be more disruptive to go back than to retain this way of working now it's here. And all the costs are already sunk - if it turns out the day to day costs are significantly cheaper, which they very surely are, what incentive is there to revert? WFH isn't the question now, it's how much WFO might come back some day, and for what reason.

Hubertj · 10-10-2020 08:16PM

jill_valentine wrote: »

I'd say a great many people are making the same calculations.

I know I've already posted my personal take, but I happened to be involved in the Covid WFH rollout in my (pretty large old) company and it's hard to emphasise enough how much of this feels one-way.

We had been gradually introducing WFH for selected employees who could make a strong case for it, as a pilot, for a few days a week - now, almost overnight, it's done, for almost everyone bar a skeleton crew, for 5 days a week. It's not an experimenal little pilot any more, it's how we've been working as a company for six months, the psychological threshold for management is crossed.

More than that, the IT time and investment into making it possible - which was previously the big barrier - is already done, all the processes have already been changed to facilitate it, the offices themselves have even been physically rearranged with the expectation our onsite presence will stay this small or smaller. The laptops and headsets are paid for, the meeting rooms are repurposed. We own this building, but the external desks and parking spaces we rent in addition are sitting empty. From a staff point of view, the childminders and taxsaver tickets are cancelled, and people have gotten used to wearing what they want, sitting where they want, and eating from their own cookers at lunch.

It would be more disruptive to go back than to retain this way of working now it's here. And all the costs are already sunk - if it turns out the day to day costs are significantly cheaper, which they very surely are, what incentive is there to revert? WFH isn't the question now, it's how much WFO might come back some day, and for what reason.

Sounds very positive. In our office, we are all wfh until new year. Many are very happy with it. But we have a lot of single non nationals working for us and they do feel socially isolated. Going to the office and sport and Sofia events were pretty much their only outlets. HR is working on helping them (developing a buddy system) in parallel to what sort of wfh / wfo mix there will be.
I really struggle wfh as much prefer face to face interaction.

hometruths · 10-10-2020 08:16PM

jill_valentine wrote: »

I'd say a great many people are making the same calculations.

I know I've already posted my personal take, but I happened to be involved in the Covid WFH rollout in my (pretty large old) company and it's hard to emphasise enough how much of this feels one-way.

We had been gradually introducing WFH for selected employees who could make a strong case for it, as a pilot, for a few days a week - now, almost overnight, it's done, for almost everyone bar a skeleton crew, for 5 days a week. It's not an experimenal little pilot any more, it's how we've been working as a company for six months, the psychological threshold for management is crossed.

More than that, the IT time and investment into making it possible - which was previously the big barrier - is already done, all the processes have already been changed to facilitate it, the offices themselves have even been physically rearranged with the expectation our onsite presence will stay this small or smaller. The laptops and headsets are paid for, the meeting rooms are repurposed. We own this building, but the external desks and parking spaces we rent in addition are sitting empty. From a staff point of view, the childminders and taxsaver tickets are cancelled, and people have gotten used to wearing what they want, sitting where they want, and eating from their own cookers at lunch.

It would be more disruptive to go back than to retain this way of working now it's here. And all the costs are already sunk - if it turns out the day to day costs are significantly cheaper, which they very surely are, what incentive is there to revert? WFH isn't the question now, it's how much WFO might come back some day, and for what reason.

thanks, very interesting to hear from someone so involved with the transition. What industry is this in?

Irish Property Market 2020 Part 2

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