Hibernia Reit says building materials squeeze could last nine months
Portfolio revaluation leads to €67m markdown, dragging company to €25.2m net loss
Full planning is now in place for Hibernia Reit’s Harcourt and Clanwilliam schemes
A squeeze on building materials that is driving up construction costs could last up to nine months, Hibernia Real Estate Investment Trust (Reit) chief executive Kevin Nowlan predicts.
A €67 million fall in the value of its properties on the back of the Covid-19 crisis left office developer Hibernia Reit with a €25.2 million loss for the 12 months ended March 31st, its last financial year.
The company earned a €61 million profit in the financial year ended March 31st, 2020. Rental income from the offices it leases to tenants and movements in those properties’ values determine Hibernia’s profits and losses.
Speaking after it published the results, Mr Nowlan confirmed that Hibernia was monitoring a shortage in key building materials, including steel, timber and insulation, that has pushed up prices by as much as 20 per cent.
“Supply chains are all messed up at the moment – it’s going to take six to nine months for this thing to regularise,” he said.
Mr Nowlan added that it would be a short-term phenomenon, pointing out that there were similar shortages and price inflation in 2012/13 when construction began recovering from a sustained recession.
Hibernia is finishing construction of its Cumberland Place office complex in central Dublin, where it has agreed to let the top three floors to US conglomerate, 3M, which will base part of its healthcare business there.
The company agreed to lease the offices to Minnesota-based 3M in April 2020, shortly after the Government locked down the Republic to combat Covid’s first wave. Mr Nowlan said there was good interest in the remaining four floors.
Hibernia hopes to begin work early next year on its planned 14,120sq m (152,000sq ft) project at Clanwilliam Court, for which it has received planning permission from An Bord Pleanála .
Mr Nowlan said that the company would begin redeveloping the regional Garda headquarters at Harcourt Square, which it bought for €70 million in 2015, in early 2023.
Hibernia focuses on developing and letting offices in central Dublin, where its high-profile tenants include technology companies Twitter, Hubspot and Riot Games.
Mr Nowlan argued that the pandemic could leave the capital with a two-tier office market. He predicted that newer buildings, which meet companies’ environmental and sustainability demands, would attract tenants. “But I think you are going to see older buildings struggling unless landlords are prepared to invest heavily in them.”
Overall, he said that the next 12 months would be challenging for the Dublin office market as vacancies have ticked up through the pandemic.
Mr Nowlan maintains that Hibernia had anticipated tenants’ demands for sustainable buildings in its developments. For example, Cumberland Place would be a “near-zero carbon” office.
He also believes that companies will predominantly stick with providing a desk to each worker rather than cutting back on space as employees require these facilities.
The value of Hibernia’s properties fell 4.4 per cent to €1.43 billion in the 12 months to March 31st.On that date the company had annual contracted rent of €67.1 million, an increase of 2.2 per cent, after agreeing six new leases during the financial year.
Hibernia said on Wednesday that 99 per cent of rent due had been received or agreed terms by the end of March.
“With Ireland’s vaccination programme gathering pace and a Government roadmap for the easing of lockdown restrictions, optimism is growing, and this is starting to be seen in active demand for office space and tenant inquiries,” said Mr Nowlan in a statement.
Hibernia Reit has proposed a final dividend per share of 3.4 cent, taking the total in respect of the financial year to 5.4 cent.