The Irish government is seeking to borrow millions of euros to develop commercial property outside Dublin through its development arm.
Ireland’s Investment and Development Agency, which is currently fully government-funded, requires a change of legislation in order to borrow from the private market. It is in the process of drafting an amendment to the country’s Industrial Development Act to allow it do so.
The agency, which is tasked with attracting foreign investment to Ireland, is looking to borrow €10m (£8.7m) over a two-year period. This will be used to fund two pilot projects, starting with a 35,000 sq ft advanced manufacturing centre in Limerick, for which it has planning permission.
Damien Kilgannon, head of property at IDA Ireland, said: “There is a deficit of quality offices in the regions. We want to borrow funds from the banks to address this. The private market looks after the supply of quality buildings in Dublin. We want to utilise the borrowed funds in the locations where they are most needed.”
Prudent borrowing
Kilgannon said the IDA will approach borrowing “with caution”. He added: “We are starting with just two pilot projects initially because we are relying on investment funds. We will borrow at a very prudent level. The proportion of funds used for the projects won’t exceed 50%-60%.”
IDA is also working with the Ireland Strategic Investment Fund, a €8.9bn sovereign development fund, on the projects.
IDA owns more than 2,500 acres of land across the Republic. Its property division is primarily focused on the development of property outside Dublin to attract foreign direct investment.
The agency aims to deliver serviced land, with all the relevant infrastructure in place, as well as science and business parks. For instance, Chinese firm WuXi Biologics announced plans last year to invest €325m in a new state-of-the-art manufacturing facility at IDA’s Dundalk Science and Technology Park, in the North East.
Strategy shift
Moves to borrow from the private market come as the IDA draws up a fresh strategy which will see it pursue private partnerships for the first time.
Between 2019 and 2022 its capital budget spend is €210m, including €90m this year. The four-year spend breaks down into €90m for strategic sites, €80m for the delivery of 11 new buildings and €40m for business park and client solutions.
Its budget has increased significantly over the years, from just €10m in 2015 when the Irish government announced a five-year plan for the IDA to accelerate economic recovery in the country.
But Kilgannon argued the budget is still relatively low, hence why it is seeking to borrow from the banks. “As an agency our capital budget is quite low considering what we are trying to achieve. We want to deliver more regional property solutions where we see a gap exists.”
UK council borrowing
The IDA’s interest in borrowing funds comes after a marked rise in UK local authority borrowing for property investments. However, while the shift in thinking is similar, UK councils have spent considerable greater sums than the IDA plans to initially.
Overall, total public sector spend on property peaked at £1.9bn last year, according to Radius Data Exchange, beating the 2017 record of £1.8bn.
Spelthorne Borough Council is the top local authority investor in UK commercial real estate, investing close to £950m over the past five years, including BP’s business campus in Sunbury-On-Thames in 2016 for £360m.
The Surrey council is not alone. Other big spenders include Woking, which bought Aviva Investors’ 66,415 sq ft Victoria Gate building in Woking for around £40m, and Warrington, which acquired business campus Birchwood Park for £211m in 2017.
These efforts by UK councils have increased in recent years as central government funding has fallen. Almost half of all councils (168) will no longer receive any core central government funding in the 2019/20 budgetary year, according to the Local Government Association.
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