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Building sector slowdown threatens recovery

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Building sector slowdown threatens recovery

Building sector slowdown threatens recovery
March 31
10:35 2015

A slowdown in the growth of construction activity here could end up hurting Ireland’s ability to attract foreign direct investment, Davy stockbrokers has warned.

It said there is not only a lack of housing, but also of prime office space in Dublin.

Experts blame lack of finance as a main cause of the slowdown in the pace of growth in commercial development.

The most recent data for the construction sector signalled a slowdown in the pace of growth of construction of housing, as well as in the commercial sector.

Davy yesterday described the construction sector as “the one black spot” in terms of the recovery, noting that the purchasing managers’ index for the sector had fallen rapidly, although it remains in growth mode.

“Given its relatively small size, the construction sector on its own is unlikely to hurt our headline GDP growth forecasts significantly in 2015,” Davy economist Conall Mac Coille said.

“However, the lack of construction activity could signal the emergence of bottlenecks that could ultimately hurt Ireland’s competitiveness and attractiveness as a location for foreign direct investment (FDI).

“For example, there is now clearly a lack not only of residential property but also prime office space in the capital.”

A number of technology companies based in Dublin have said that the lack of office space in some areas is reaching critical levels and could hamper their investment plans.

The IDA has in the past repeatedly warned the lack of suitable space may cause Ireland to lose out on valuable foreign direct investment.

Late last year, data from property agent Savills forecast that rents in high quality office blocks in the likes of Dublin 2 and Dublin 4 will rise sharply this year as supply starts to squeeze. Savills’ head of research, John McCartney, told the Irish Independent yesterday that rents are forecast to rise to €61 per square foot at the end of this year, increasing to €66 next year and €70 by the end of 2017. That compares to €30 in 2011 and 2012.

He said access to development finance is one of the main reasons why commercial construction activity is not stronger.

“I think the development finance is a big part of it. And then in other areas there are planning issues,” Mr McCartney said.

“In the traditional core Central Business District (CBD), you can’t always build what you would like to build, there are height restrictions and all sorts of restrictions that means redevelopments can be slow. All of these things are a factor but I would say that development finance is really the biggest factor.” And he said Savills is already seeing rents of €50 per square foot.

The National Asset Management Agency (Nama) has been tasked with identifying grade A office space within the Dublin Docklands.

In December, the agency said that it had chosen Singapore’s Oxley Holdings as the preferred bidder for a 2.35-hectare site at 72-80 North Wall Quay, next to the proposed new HQ of the Central Bank.

Nama said Oxley was planning a development of more than 645,000 square feet of grade A office space, with capacity for up to 5,500 employees, as well as the delivery of more than 200 apartments.

Meanwhile, Davy also said the 2014 out-turn for the economy bodes well for the year ahead.

“Short-term indicators are positive and economic conditions in both the euro area and the United Kingdom have improved since the beginning of the year,” Mr Mac Coille added.

“This gives us confidence that Irish GDP will continue to grow at a sharp pace in 2015, close to our forecast of a 3.7pc expansion.”

Irish Independent


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