Ulster Bank, which required a £15 billion (€17 billion) bailout from its UK parent during the financial crisis, has cautioned about the "downside risks" to the Irish commercial property market amid a surge in office development in Dublin and hopes of a Brexit dividend.
"At present, we are satisfied that the fundamentals of the [commercial property] market in Ireland remain sound, particularly in urban locations," Ulster Bank, a unit of Royal Bank of Scotland, said in questionnaire responses submitted in the past week to an Oireachtas committee, obtained by The Irish Times.
“But with significant supply in new office space due to come on stream over the next two to three years, uncertainty in relation to the potential impact of Brexit on the wider economy and changes in tax legislation for property investment vehicles, we are cognisant of potential downside risks.”
Ulster Bank, AIB and Permanent TSB have each filed responses to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and the Taoiseach in the past month, even though planned appearances by executives from the groups have been put back until the autumn.
There is currently about 4.2 million square feet (390,000 square metres) of offices space currently under construction in Dublin, three-quarters of which is being built in the city centre, according to real estate agents and research firm Jones Lang LaSalle.
Dublin and Frankfurt have emerged as the main winners so far as UK-based financial firms plan to move either their European base or parts of their business from London as a result of Brexit, according to a report by EY this week. Some 19 of 59 companies that have indicated they are moving staff or operations have chosen Dublin, marginally ahead of Frankfurt, at 18, it said.
Ulster Bank is known to be active in the commercial property lending space at the moment and told the Oireachtas committee that Brexit may benefit the sector in the short term “particularly in the Dublin office market, as some businesses look to relocate from the UK”.
However, longer term, the impact “remains uncertain”, it said.
Meanwhile, Ulster Bank, which is currently in the process of closing 22 branches in the Republic to continue a trend from the height of the financial crisis, hinted that the remaining 88-location network may shrink further in time.
“Branches will always be an important part of our business,” the company said. “However, as customers continue to do even more transactions and day-to-day business online, we will make further investment in our direct and digital capabilities.”
Some 10 per cent of customer transactions are currently carried out in the bank’s branches.