Cantillon

Inside The World Of Business

Auctioneers’ rent-review anguish misplaced

THE DECISION by the Government to go ahead with a ban on upward-only rent review clauses in commercial leases has provoked howls of outrage and accusations of bad faith by auctioneers

A dispassionate observer would have to conclude their anguish is misplaced and that the banning of upward-only rent reviews is pretty close to being the least of the sector’s problems. Prospective tenants are such a rare commodity at the moment that anyone who signs a lease with an upward-only clause in the current market is nothing short of a fool or in receipt of bad advice. Mind you, there was no shortage of either commodity in the last few years.

The main concern appears to be that Ireland will now be less attractive than the UK in terms of commercial property investment, because the UK retains upward-only reviews. Indeed, even the French with their indexed rents will be more competitive.

This may be so, but at the same time the absence or otherwise of upward-only reviews must pale into insignificance in any comparison of the merits of the Irish market versus the UK’s. Unemployment of 7.8 per cent versus 12.5 per cent is just one slightly more relevant factor. What is far more revealing about the reaction of the industry to the move is what it says about the continued existence of a belief – or perhaps a hope – that the commercial property market in Ireland can return to being primarily driven by investors rather than underlying demand from business.

A commercial property market in which companies can enter into leases in the knowledge that rents will come down if the economic circumstances dictate is far more conducive to fostering low inflation, competitiveness and economic recovery. And that – rather than incentives for investors – is what will underpin a stable and viable commercial property market. However, if the auctioneers’ reaction is anything to go by, it is a lesson some do not seem to be able learn even the hard way.

The Dear Leader speaks

Colm Doherty’s manifesto for his first 1,000 days in office, which was communicated to the cadres in AIB yesterday, is long on rhetoric and short on specifics, as becomes such missives.

The new managing director has set himself and his management team the not-too challenging objective of making “real progress” on six issues by the middle of March. The issues themselves are suitably vague and thus the danger of not delivering on them is relatively slight. Pyongyang would approve.

Carefully worded though it may be, the document does amount to the best effort yet by AIB to both acknowledge its own role in its downfall and also the extent to which the organisation is now under a very significant obligation to the State and taxpayer to sort itself out and act in the wider national interest. Dublin will approve.

There is however, one significant hostage to fortune in the document. It is the promise – at at least the appearance of a promise – of zero tolerance for people in the organisation who are in breach of the spirit of its ethical and business policies, rather than merely the letter of the policies.

Zero tolerance is a somewhat devalued and inexact term. But given that AIB is currently investigating the extracurricular business activities of at least two of its senior managers, it is likely that Doherty may have to stand over this particular assertion sooner rather than later.

Clock ticking at Aer Lingus

Christoph Mueller’s apparent hard stance with the Aer Lingus unions on cost savings contrasts with that of Brian Cowen and the public service unions.

But is it a game of bluff? Aer Lingus executives say they are serious about plans to ground aircraft, close routes and lay off more than 1,000 staff.

Yet at the same time, they are negotiating with cabin crew in the Labour Relations Commission and inviting the pilots to further talks.

It’s worth remembering that the State owns 25 per cent of Aer Lingus and the workers hold almost 19 per cent.

It is hard to implement cuts unilaterally against that backdrop, crisis or no crisis. And would Minister for Transport Noel Dempsey be prepared to stand idly by while management sacks staff at its three airports here? We think not. Aer Lingus wants to have nailed down its plan by the end of January, by which time Ryanair will be free to bid again for its rival. The clock is ticking.

Today

The European Central Bank’s governing council holds its monthly meeting in Frankfurt today. Economists are unanimous in their view that the ECB will keep interest rates at their historic low of 1 per cent.

Instead the focus will be on what ECB president Jean-Claude Trichet says about scaling back the emergency lending it has used to get the euro zones financial system through the credit crisis and limit the recession.

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