Banking inquiry told property costs endangering investment

An acute shortage of office space and affordable accommodation in Dublin is posing a threat to foreign direct investment in Ireland, the Committee of Inquiry into the Banking Crisis has heard.

John Moran, managing director of Jones Lang LaSalle Ireland, a large commercial property estate agency, agreed with Fianna Fáil TD Michael McGrath the situation represented a threat to foreign direct investment (FDI). He said a parallel lack of affordable accommodation was an aggravating factor.

“Unfortunately real estate is a bit like a supertanker: it takes a long time to stop it and it also take a long time to start it,” he told the inquiry.

“Until such time as we get our supply situation organised, which will probably be 2017, I think we are going to see those inflationary pressures in the office market.”

Mr Moran said that in Dublin today there was just one available “grade A” office building of more than 100,000sq ft.

As to whether Ireland was already heading into another property bubble, he said while current conditions appeared reasonably stable, “should those change, should there be an economic shock, should there be significantly increased interest rates for example, values will decline. Are we at a bubble stage? Not just yet but am I concerned that we might be getting there? Quite possibly.”

The inquiry heard almost €8 billion worth of commercial investment property was sold in Ireland between 2004 and 2008, with €3.6 billion invested in 2006 alone. The previous record for investment in a single year was €1.2 billion in 2005 with an average of €768 million invested annually between 2001 and 2004.

Market forces

Mr Moran said clients his firm advised on acquisitions often added between 20 and 50 per cent to the value of properties. “Frankly we were always quite unsure how they came to these decisions themselves,” he said.

Jones Lang LaSalle operates in 80 countries, employing 58,000 people, and specialises in commercial real estate services and investment management.

Mr Moran said he would not apologise for its role as joint agent in the €412 million sale of the Irish Glass Bottle site in 2006, saying the company’s function was to maximise potential sales value. Ultimately, this was dictated by the market.

The high profile deal probably had very little impact on the overall market as it preceded the sale of a “certain well known hotel in Dublin 4” which was the last of such high level deals, he said.

Kieran O’Donnell TD asked him if he felt he had a “moral” responsibility in relation to its value.

“We don’t have a moral obligation to the buyer, absolutely not,” replied Mr Moran.

His concerns regarding office space were echoed by Marie Hunt, head of research at CBRE Ireland, a commercial real estate services company.

“I suppose what’s unusual about Ireland is that for five years we built nothing so we now have this scenario where we have a huge surge of FDI coming in and effectively very little office stock for them to locate in. There is office availability but it’s dotted in different places,” she said.

Ms Hunt said a lack of Government investment in a national property register, unlike other countries, made tracking trends, a “significant challenge”.

Breaking down capital flow at the peak of the market in 2006, she said 36 per cent of investment spending in Ireland came from developers; 26 per cent from syndicates, 20 per cent private investors and 10 per cent institutional buyers. The remainder was attributable to investment funds, pension funds, occupiers and others combined.