With the Dublin economy cooling down, what effect will this have on the development pipeline?
For 10 years, Dublin has been riding the crest of a wave – culturally, commercially and economically.
However, things have cooled recently. House price inflation has burst the residential bubble. And for businesses and residents alike, it cannot claim to be the low-cost base it once was.
Nevertheless, development in the city still abounds. But now questions are being raised as to what extent the cooling will affect the development pipeline, and whether some schemes will become white elephants.
Dr Clare Eriksson, head of research at Jones Lang LaSalle in Dublin, says: “General concerns about the economy – inflation and rising interest rates – are affecting consumer sentiment and attitude to saving and spending. In terms of the performance of the market, there is anecdotal evidence that people are cutting back on spending, which will affect retail in the first instance.”
Residential sales have slowed dramatically as house-price inflation has peaked, and once-viable locations slip out of the reach of the average Dubliner. This has happened in tandem with – and in corollary to – eight European Central Bank interest-rate rises in two years. The prospect of another interest-rate rise later in the year will do nothing to alleviate the cooling market.
Equally, Ireland’s lenders were hit hard by the ECB’s decision to pump €94bn into the European Economic Area following the recent USsub-prime mortgage collapse. This has affected developers’ ability to raise debt as banks tightened the reins and a general air of caution has descended.
Paul McDonnell, deputy head of public finance at the Bank of Ireland, is responsible for the multi-million euro debt provided to many of Ireland’s major developments, including Dundrum town centre and the Pavilions shopping centre in Swords. He says: “We have seen some evidence of timescales getting stretched. But it depends on the mix of the scheme. If residential is only a small part of a scheme with a decent commercial element, developers are going ahead.
“I have seen some evidence of developers looking to change the content of schemes, but the biggest effect has been a slowdown in production.”
This trend must be put in the context of a continuing rise in residential rents, McDonnell adds.
Despite residential and commercial developers taking their foot off the gas, there is no slowdown in commercial rents or even investment yields. However, most developers concede that this will not be the case indefinitely. The Dublin market is now mature and, while no one predicts a downturn, the likelihood of similar growth in the future is slim.
McDonnell highlights the strength of demand from retailers and points to take-up being particularly strong among overseas occupiers.
However, there are jitters about retail schemes being built close to existing ones. This is demonstrated by the Irish government’s objection to the 1.4m sq ft Nesbitt Acquisitions’ and Centros Miller’s Arnotts Northern Quarter scheme.
Despite getting planning permission from Dublin council, the developer’s application will now go to appeal.
The objection has come from the department of communication, which wants to redevelop its famous GPO building – the centre of the 1916 Easter Rising – in time for the rising’s centenary in 2016. It is near to Arnotts’ proposed scheme.
Plans have not yet been submitted for the GPO, and there is a degree of uncertainty as to what precisely will be proposed. While the bullet-pocked marble columns will undoubtedly remain untouched, plans have been mooted for a museum to mark the rebellion, other cultural uses and, significantly, a retail element.
The government’s objection was made on the grounds that the Arnotts’ scheme will reduce pedestrian flow, although several property consultants believe this is a smokescreen to protect the retail element of the GPO development. One says the Arnotts’ scheme would improve pedestrian flow by linking the city centre to the north.
If the latest planning hurdle is cleared, the €700m scheme, on Prince’s Street and Henry Street, will include 700,000 sq ft of retail, 250,000 sq ft of that being an Arnotts’ department store, plus another 47 shops, 17 cafés and bars, a 152-bed hotel and 189 flats. Completion is scheduled for 2012.
Market jitters
Chartered Land is also expected to submit an application for a 6-acre site off O’Connell Street. The site is on the other side of Henry Street from the Arnotts’ proposal, but Chartered Land seem undeterred by market jitters and planning hurdles.
In fact, it is not the company’s only retail scheme – which indicates a bullish mood.
Dominic Deeny, chief executive of Chartered Land, is developing two significant retail schemes in the city centre (see panel, p176). He says: “All our research suggests that the market can support the levels of retail development we are talking about. Neither is there any overhang of commercial spac. Everything being developed is either prelet or in discussions.”
He maintains that retail demand remains strong, albeit conceding that the stratospheric levels of growth Dublin has seen in the past cannot continue. Nevertheless, he says that department stores are keen to break into the Irish market, and is “confident” that significant deals will be announced in the next six months.
This reflects the sentiment of many developers, who are generally unconcerned about the effect a downturn may have on their schemes. “It is not a case of anything already started not coming to fruition,” says JLL’s Eriksson. “But things that are not under way may be put on hold.”
The Bank of Ireland’s McDonnell maintains that it has not made any blanket announcements on changes to lending conditions.
This confidence could be accounted for by a relatively strong rental environment. The improving picture of retail, in terms of refurbishment, upgrades and the general desire of secondary retail landlords to not fall behind with prime or modern schemes, has kept rents buoyant.
The phenomenal take-up of office space in Dublin this year – 2.7m sq ft – also means office rents have 12-18 months of growth left.
“The office sector looks to be the strongest sector for a long time,” says CB Richard Ellis research director Marie Hunt. “There is good control of supply from planners, and developers are acting very prudently. Coupled with strong demand, this makes the pipeline sustainable.”
Where there is oversupply – or rather the prospect of it – developers are scaling back. Residential completions are 15% down on this time last year. The improving picture is best illustrated by falling vacancy rates in the office sector – despite the volume of development in the pipeline – much of it in the suburbs where there have been a significant number of voids.
JLL’s Eriksson concludes: “We are getting mixed messages, but we have not reached crunch point in any sectors. But there will be an air of caution over the next few months.”
| Dublin schemes in the pipeline or in initial construction stagesSchemes still in the pipeline or phased schemes in the initial stages are most likely to be affected by a slowing economy | |||
| Scheme/location | Size | Developer | Status |
| Burlington Hotel, Upper Leeson Street/Sussex Road | 3.8-acre site | Bernard McNamara | Expected to be rezoned for retail/hotel, offices, as well as residential |
| John Player Factory, Dublin | 107,700 sq ft retail 21,500 sq ft offices 484 residential units 32,300 sq ft of community facilities | Bee Bee Developments | Consent granted for the ¤192m scheme in December 06 |
| The Point Village, Dublin docklands southside | 230,000 sq ft shopping centre 130,000 sq ft offices hotel, apartments and cinema. Includes 120m “Watchtower” | Harry Crosbie | Consent for the ¤740m scheme granted November 06 |
| No 1 Ballsbridge, Dublin 4 | 430,000 sq ft mixed residential office and leisure | Glenkerrin | HKR Architects lodged planning application in August |
| The Square, Tallaght, SE Dublin | 250,000 sq ft retail 44,000 sq ft offices 57,500 sq ft leisure, 384 flats plus hotel, | Alburn | Consent approved by South Dublin planners last September for the ¤370m scheme |
| Santry Demense, Santry, north suburbs | 128,000 sq ft office scheme | Cosgrave | Due to start this year, completion of all phases 2014 |
| Allegro Site, Carmanhall Road, south suburbs | 123,500 sq ft office scheme | Fleming Construction | Practical completion 2009 |
| Beacon – South Quarter, Sandyford Industrial Estate | 107,600 sq ft office scheme | Landmark Developments | Due to complete 2009 |
| City North, Balbriggan | 107,600 sq ft office scheme | Alcove Properties | Due to complete 2009Source: EGi, CBRE |
The rise of Chartered Land to become “formidable player” in Dublin
Construction tycoon Joe O’Reilly’s relatively new development company Chartered Land has emerged as a formidable player on Dublin’s development scene.
It was set up 18 months ago, after commercial development became more than just a sideline to the firm’s residential construction business. Dominic Deeny was appointed as chief executive.
Over the past few years, O’Reilly has bought the Dundrum shopping centre in the south of the city, the ¤500m Pavilions shopping centre in Swords, north of Dublin, and a 50% stake in the ILAC shopping centre off Henry Street in Dublin’s city centre.
Moves are under way to refurbish or extend these, and various land options are being examined for development potential. An announcement on a 6-acre site off O’Connell street, earmarked for a mixed-use scheme, is imminent.
“On the retail front, we have been identifying and securing positions in regional centres with development opportunities,” says Deeny. “That is a medium-term strategy as there will be fewer opportunities to support that scale of development. In coming years, we will look to the UK and Europe. Dundrum and Swords will be repositioned as town centres.
In Swords, Chartered Land intends to expand the 300,000 sq ft Pavilions centre to 1.1m sq ft. Its 65,000 sq ft second phase, 70% prelet and due to open before Christmas, will link the centre to the High Street and have more of a fashion rather than convenience offer.
The developer is undertaking research to assess the level of retail growth the town can sustain.
“We have aspirations to bring it up to regional status and create a Dundrum of the north,” says Deeny. The developer aims to have a proposal on the table withinthree years.
In Dublin city centre, the developer has a couple of schemes under way. It is developing an 80,000 sq ft, ¤100m retail-led scheme on South King Street. Two of the three shops in the scheme have been prelet to H&M and Zara, with terms agreed for the third, although Deeny will not divulge who this is.
Great potential
The rest of the scheme consists of 30,000 sq ft of offices. It is due to be completed in spring 2009.
A short distance away, the ILAC centre is undergoing a ¤60m refurbishment, due to be completed in the next five months. It will see the former Dunnes food store split into three shops.
However, Deeny adds: “We see great potential for re-engineering that scheme, and the potential for expansion there. It is an under-developed site, and we are working on how to unlock that.”
Chartered Land’s largest office proposal is the 400,000 sq ft Grand Canal Street scheme in the south docklands. It will form the linchpin of the Grand Canal Basin regeneration and should replicate the commercial scale of the north docklands when it is completed in 2009.
Terms have been agreed with two occupiers to take 50% of the offices. The scheme is anchored by a2,000-seat theatre designed by world-renowned architect Daniel Libeskind. A sale agreement is in place with local entrepreneurHarry Crosbie.
“Growth is still pretty strong in the Irish economy, but commentators wonder how long this can go on, and if the Celtic Tiger is beginning to tire,” says Deeny. “But, fundamentally, in terms of employment and investment, it all looks positive. Retailer demand looks quite strong, and there are not a lot of voids on the high street. There is no sense from retailers that there is any downturn in consumer spending.”
