Investment is key to the recovery of our economy
Published 29/01/2012 | 05:00
Continuing our series where business leaders suggest ways of kick-starting the economy, Guy Hollis of CBRE says it is not possible to stimulate growth with tax increases and cutbacksA BRIGHT FUTURE BECKONS: Managing director of CBRE, Guy Hollis. Photo: Gerry Mooney
In order to stimulate and develop a sustainable jobs market and to continue to attract high-level employers to Ireland, it is imperative that the Government takes decisive, immediate steps to invest in the domestic economy and the talent that exists here.
It is not sustainable to stimulate real, long-term growth with cutbacks and increased taxes -- remember, no economy in the world has ever recovered without investment.
I worked in Asia at the time of the crash in 1997 and, while it was set against a different global economic background than the one which challenges us today, the governments there -- albeit IMF forced -- took radical (and drastic) action that focused on inward investment and job creation.
As a result, within three years of these policies being implemented, the countries that were effectively bankrupt (including South Korea, Indonesia, Malaysia and Thailand) experienced a return to real growth.
In Japan they had a massive property bubble in 1992/'93, similar to that which was experienced here. Twenty years on and Tokyo land values have yet to reach 30 per cent of the values achieved during their boom period.
We need to accept that the situation in Ireland will be the same -- we will not return to the heady levels of the property boom.
The sooner we accept that and move on, the sooner we can think about ways in which we can regenerate employment. Decisive action and leadership are required to generate and stimulate real recovery here.
Over the course of the last three years, we have been reminded on many occasions that "markets don't like uncertainty". The uncertainty that prevailed last year, particularly around the Government's proposals to retrospectively reform rent review provisions in existing business leases, proved to be a major impediment to performance.
It severely impacted the volume of transaction activity in the Irish commercial property market. Although there is no doubt that the ongoing Eurozone debt crisis, financial uncertainties and market volatility will continue to dominate over the course of the next 12 months, local economic and political decisions will be the primary drivers of pricing and transaction volumes in the Irish real estate market in 2012 and beyond.
Confirmation from the IPD (the Investment Property Databank -- a leader in performance analysis for the property sector) that Irish commercial property values actually increased in Q4 2011 is hugely important -- copper fastening the decisions made on Budget day.
Office take-up in 2011 was on a par with the 10-year average -- and even more encouraging is the fact that the majority of this was by large multinationals. Some 38 of the 176 office lettings in Dublin last year were to US companies. However, the outlook for 2012 is not as positive. In the occupier sectors of the market, we expect to see modest increases in rents for prime properties over the medium term. Though rental growth is not likely to materialise in any sector in 2012.
In fact, while rents for prime properties are expected to stabilise this year, rents on secondary properties -- both in terms of location and specification -- will more than likely continue to deteriorate over the course of the next 12 months.
With occupier sentiment across all markets deteriorating in response to a weaker economic outlook, it is expected that some multinational occupiers will delay, or put strategic location decisions on hold, in 2012. New development will only take place where pre-lettings have been secured and at rents that are above those prevailing at present.
On the other hand, during 2011 Irish tourist numbers increased and there was significant activity in the hotel transactions market. All of these assets were bought by solvent international investors -- because they can see value and a strong future for tourism growth here which, ultimately, will generate jobs and lead to property transactions.
As the tourism industry continues to strengthen and as banks and Nama initiate disposal strategies, we expect to see a notable increase in the number of transactions in the investment, development land and hotel and licensed sectors in 2012.
Although yields for prime properties are expected to strengthen this year, weaker-than-expected economic conditions, scarcity of funding and the fact that demand will be primarily focused on prime assets could see further deterioration in yields for secondary properties over the course of 2012. Overseas investors are likely to be the most dominant purchasers of prime assets in the investment sector this year.
Through our CBRE global platform we see many US companies reporting strong financial results -- they are all holding a lot of cash on their balance sheets and are willing to invest if the right opportunity presents itself.
At one stage, CBRE's Europe, Middle East and Africa (EMEA) teams were fielding at least two instructions a day from American companies all looking for office space across the EMEA region -- demonstrating potential investments do exist and Ireland needs to be sure that we are in a position to take advantage of, and benefit from, these opportunities.
It is clear that Ireland faces a tough challenge in dealing with the Troika and the terms they have laid out in our bailout. But, in order to source funds to reinvest in the economy, in the sectors that offer real potential, the Government will need to be unrelenting in its negotiations and outlook rather than unquestioningly supporting other countries' banks who also undertook reckless lending.
For Ireland to recover, we need to ensure that the procrastination and indecision that was demonstrated with the upward-only rent review legislation is avoided, as this damages our reputation and heightens the country's political risk.
We must accept that both the financial services and banking sectors still have a considerable amount of jobs to shed to regain competitiveness -- and delaying action around this in the short-term is creating further uncertainty and long-term problems.
Ireland represents value. We have an educated, English-speaking workforce. But in order to capitalise on the opportunities that exist globally, the Government needs to refocus the education system on what is important to the modern, global jobs market.
We have demonstrated that we have the capabilities to become a hub for multinational technology companies -- but in order to make sure our reputation in this area is secured, there needs to be further emphasis placed on technology and on languages in Irish schools.
Ireland and the Irish people have shown remarkable strength and resilience in the face of economic adversity. We are now into our fifth year of recession but I believe that there is a bright future for the country . . . but only if we have strong leadership and decisive action to stimulate growth and job creation, attract investment and drive recovery.
Guy Hollis is managing director of CBRE, Ireland's largest commercial real estate service firm
Sunday Indo Business