Irish Property Market 2020 Part 2

David McWilliams is a pop star economist.

He is there to sell a story...not deliver any meaningful economic advice.or insights.

PropQueries wrote: »

How will this impact the cohort of first-time buyers reliant on the bank of mom and dad for deposits?

?

They are going to have to do as other people do, stand on their own two feet!

PropQueries wrote: »

How will this impact the cohort of first-time buyers reliant on the bank of mom and dad for deposits?

If the parents pension fund is invested in property funds and their pension fund is now expected to worth much less than they thought and then the Government starts to take an ever bigger share of the family home under the fair deal scheme, which means little left for an actual inheritance, will the parents become more reluctant or unable to help out their kids going forward?

The argument to support commercial property price falling supports residential property rise.

People will need bigger spaces to WFH (so if you have a spare room your going to keep it instead of renting it out), better broadband... this creates demand...

Cyrus wrote: »

Are we even technically in recession yet ? Didn’t think we were.

If so to refer to it as the mother of them all is a little hyperbolic imo.

Well according to the FED it’s the worst recession since the crash of 1920
The central Bank of England is saying it will be the worst recession in 300 years
The Irish Central Bank says the worst recession since the foundation of the state
The ECB saying the worst recession in peacetime in the last 100 years
Someone somewhere is doing the maths and is either totally off the mark or bang on the money.

Claw Hammer wrote: »

They are going to have to do as other people do, stand on their own two feet!

I agree with you but I can see how this is going to come back and bite me and other older people. As all pension funds (public and private), are basically PAYG ponzi schemes, if the younger cohort must save more for a deposit on a home as we can't or become more reluctant to help them out, they will obviously cut their own pension fund contributions, which means less current cash in my pension fund to meet my payments.

brisan wrote: »

Liverpool Docklands ( including the new 500 million pound football stadium ) will provide a lot of construction jobs over the next 5 years.
Johnson has publicly stated he wants to get the construction industry going again

I hope you are right. We need HS2, Hinkley Point, Sizewell and a while host of urban regeneration.

Bass Reeves wrote: »

WFH may be more of a reconfiguration than a reduction in office space. Traditional companies often tend to own there own office space. People will still be expected to go into the office 2 days a week any people I see WFH are doing this. This will not equate to a 40% reduction in office space.

If you are WFH in general you will not want to attend Monday or Friday, most will veer towards Tuesday to Thursday in the office. While room for desks may reduce there will be a bigger demand for meeting rooms.

Companies will not want young sales people.meeting customers in there dingy two bed apartment.

But wouldn't that mean that all the small businesses (e.g. shops, restaurants, pubs etc.) that are reliant on the workers in these office spaces see a reduction in 'potential' customers in the order of 30% - 50%.

If the footfall on Grafton Street fell permanently by 30% - 50%, I'm sure the retailers on that street would start to demand significant reductions in rent.

This would impact rental yields and then the capital values of those premises. That then impacts on the ability of those landlords to meet any loan repayments on those properties or if it's a pension fund, it's ability to meet their obligations to their pension fund holders.

PropQueries wrote: »

But wouldn't that mean that all the small businesses (e.g. shops, restaurants, pubs etc.) that are reliant on the workers in these office spaces see a reduction in 'potential' customers in the order of 30% - 50%.

If the footfall on Grafton Street fell permanently by 30% - 50%, I'm sure the retailers on that street would start to demand significant reductions in rent.

This would impact rental yields and then the capital values of those premises. That then impacts on the ability of those landlords to meet any loan repayments on those properties or if it's a pension fund, it's ability to meet their obligations to their pension fund holders.

Yes it may during the day, but workers working from home may start earlier in the morning finish earlier and go go into town early in the next evening to mix socially. Workers may have more spending power due to less travel expenses. There day in the office may be only 3-5 hours with a few hours shopping in town. To every action there is an equal and opposite reaction.
Neither did I say there would not be reductions in rent yields but rather that the reduction in space for commercial activities in the city center may not be as large as many think

PropQueries wrote: »

That's true. But I think a lot of the discretionary spend in the City is from a spur of the moment decision e.g. after work drinks, lunch with the team etc. In relation to retailers, the main benefit of shopping in a city is a lot of local shops in close proximity to each other so you can browse many different products fairly quickly and choose which one to buy.

If more people are WFH, they're more likely to order any products they require through Amazon etc. than increase their spending in their local e.g. handbag or perfume shop.

Clothes etc tend to be more browse and spend, white goods tend to be more focused on value and Amazon is more electronic and small good's

Part of the attraction of clothes online is the ability with established shops to return free if charge to the local store. Therefore you can order 3-4 items of different sizes or similar types and drop back the ones you do not want. These shops live with the return costs With complete online shopping return costs are a factor that have to be allowed for by the consumer.

WFH will require more living space. A young couple if both are working from home will no longer be happy with a one bed apartment with a single dining/living space. Dermot Bannon's open plan designs will be a thing of the past. If you are on the phone to a customer or manager, your partner/flatmate having a chat and going through the gory details with a workmate on the phone about the last night out will be an issue.

More space equals more costs. The high flying legal eagle may be happy to work from home 1-2 days a week but he still want his office when he goes in. No hotdesking for him

Bass Reeves wrote: »

Clothes etc tend to be more browse and spend, white goods tend to be more focused on value and Amazon is more electronic and small good's

Part of the attraction of clothes online is the ability with established shops to return free if charge to the local store. Therefore you can order 3-4 items of different sizes or similar types and drop back the ones you do not want. These shops live with the return costs With complete online shopping return costs are a factor that have to be allowed for by the consumer.

WFH will require more living space. A young couple if both are working from home will no longer be happy with a one bed apartment with a single dining/living space. Dermot Bannon's open plan designs will be a thing of the past. If you are on the phone to a customer or manager, your partner/flatmate having a chat and going through the gory details with a workmate on the phone about the last night out will be an issue.

More space equals more costs. The high flying legal eagle may be happy to work from home 1-2 days a week but he still want his office when he goes in. No hotdesking for him

All good points. But even if there's only a 10% permanent drop in the daily footfall, that impacts the value of all properties in the city, office, retail etc.

More importantly, for my perspective anyway, the banks and pension funds seem to have significant funds invested in this space and I'm just concerned for my pension, as I don't see suburban properties making up the shortfall.

Even if suburban properties increased in value, the pension funds probably don't have the equity in their existing city centre property portfolios to gear up and invest in them. Instead of investing in more property, they're more likely to be taking losses in the near future as they will probably need to offload their prime properties to meet redemption requests etc.

If all pension funds are in a similar situation and the banks are not in a position to lend, who will take them? Maybe the so-called vulture funds, but I read that many of them are already looking to get out of this space. Even if they did enter, the pension funds and banks will most likely take a significant hit either way.

For example, back in January, Aviva stopped investors from taking money out of their Irish property funds with a "combined value of €940 million", and that was pre-covid:

https://www.irishtimes.com/business/commercial-property/aviva-stops-investors-from-taking-money-out-of-irish-property-funds-1.4157574#:~:text=Aviva%20Life%20%26%20Pensions%20Ireland%20moved,investor%20seeking%20their%20money%20back

PropQueries wrote: »

All good points. But even if there's only a 10% permanent drop in the daily footfall, that impacts the value of all properties in the city, office, retail etc.

More importantly, for my perspective anyway, the banks and pension funds seem to have significant funds invested in this space and I'm just concerned for my pension, as I don't see suburban properties making up the shortfall.

Even if suburban properties increased in value, the pension funds probably don't have the equity in their existing city centre property portfolios to gear up and invest in them. Instead of investing in more property, they're more likely to be taking losses in the near future as they will probably need to offload their prime properties to meet redemption requests etc.

If all pension funds are in a similar situation and the banks are not in a position to lend, who will take them? Maybe the so-called vulture funds, but I read that many of them are already looking to get out of this space. Even if they did enter, the pension funds and banks will most likely take a significant hit either way.

For example, back in January, Aviva stopped investors from taking money out of their Irish property funds with a "combined value of €940 million", and that was pre-covid:

https://www.irishtimes.com/business/commercial-property/aviva-stops-investors-from-taking-money-out-of-irish-property-funds-1.4157574#:~:text=Aviva%20Life%20%26%20Pensions%20Ireland%20moved,investor%20seeking%20their%20money%20back

The reason IL and other property funds closed withdrawal's was a prices were quite strong and assets were leaverged withdrawal's was going to the encompass more leaverging to pay for withdrawals.

This was one of the reasons for the 2007-12 property busts there was a lot of highly leaverged funds which when pressure came on had to be hand d back to the banks.Everything is cyclical to am an extent. If outflows are exceedingly inflows I. Property you have to take action, it much the same with in any fund.

Now may be a bad time to change the nature of you.pension fundost factors are factored in already

Bass Reeves wrote: »

The reason IL and other property funds closed withdrawal's was a prices were quite strong and assets were leaverged withdrawal's was going to the encompass more leaverging to pay for withdrawals.

This was one of the reasons for the 2007-12 property busts there was a lot of highly leaverged funds which when pressure came on had to be hand d back to the banks.Everything is cyclical to am an extent. If outflows are exceedingly inflows I. Property you have to take action, it much the same with in any fund.

Now may be a bad time to change the nature of you.pension fundost factors are factored in already

Good point. It probably is a bad time to change the nature of a pension fund.

But, if this is a fundamental shift in the nature of the economy and WFH does become a significant component of the workplace in the near to medium term, would it be like sticking with the investment in the horse and cart company just as Henry Ford is revving up production of the Model T?

Is there more to lose by sticking with a pension fund that has a significant percentage of its investments in such an asset class or getting out now and taking that loss instead of a potential wipeout in the medium term?

mcsean2163 wrote: »

I've been hoping to find commercial space in Dublin for an office/ workshop and there's little or nothing available. Does anyone know when all this cheap office space is going to hit the market that McWilliams is talking about?

https://www.irishtimes.com/opinion/david-mcwilliams-it-is-time-for-a-major-property-reset-1.4329527?mode=amp

Try down the IFSC. There is nothing but small empty retail / office spaces there for the past 10 years. I think the problem is that if the owner is highly leveraged or is using that property as security for another loan, they can't reduce the asking rent as then they would crystallize a loss on the value of their investment property.

My understanding is that most investment properties are valued at their rental yield (real or perceived). If they reduce the rent, the value of the investment property automatically drops and they may be breaking loan covenants etc. It's kind of a pretend and extend game played by the banks and pension funds. They would rather keep them empty and pretend the value on their books is the real world value.

I'm not sure they can keep this game going forever, kind of like all those empty apartments in Ballsbridge with an asking rent of €4,000 a month but mostly empty. Maybe this Covid thing will force them to open up about the true value of their investment properties?

PropQueries wrote: »

Try down the IFSC. There is nothing but small empty retail / office spaces there for the past 10 years. I think the problem is that if the owner is highly leveraged or is using that property as security for another loan, they can't reduce the asking rent as then they would crystallize a loss on the value of their investment property.

My understanding is that most investment properties are valued at their rental yield (real or perceived). If they reduce the rent, the value of the investment property automatically drops and they may be breaking loan covenants etc. It's kind of a pretend and extend game played by the banks and pension funds. They would rather keep them empty and pretend the value on their books is the real world value.

I'm not sure they can keep this game going forever, kind of like all those empty apartments in Ballsbridge with an asking rent of €4,000 a month but mostly empty. Maybe this Covid thing will force them to open up about the true value of their investment properties?

There are currently 22 apartments in Ballsbridge on daft for 4000 plus.

Some are like 15,000 which makes me think that there is something very different about some of them! There wont me alot of demand for some of these even at the best of times

JJJackal wrote: »

There are currently 22 apartments in Ballsbridge on daft for 4000 plus.

Some are like 15,000 which makes me think that there is something very different about some of them! There wont me alot of demand for some of these even at the best of times

Saw one for 10k a rental. Its been there for maybe 10 months. Over time we may see the day when its 5k