Tuesday 18 June 2019

Strong lease of life in market

Fresh from the huge Salesforce deal, Marie O'Riordan discusses the letting market with Fearghal O'Connor

Marie O’Riordan, a real estate partner at the international law firm Eversheds Sutherland
Marie O’Riordan, a real estate partner at the international law firm Eversheds Sutherland

The prospects for Ireland's commercial real estate market sits right between the sunny uplands of a booming multinational sector that some have described as Ireland's version of an oil bonanza and the dark looming clouds of Britain's potentially messy Brexit divorce.

So what are the prospects for the sector and where is it all heading? The Sunday Independent asked Marie O'Riordan, a real estate partner at the international law firm Eversheds Sutherland.

She recently acted for a joint-venture company of Ronan Group Real Estate (RGRE) and Colony Capital in their pre-let deal of its Spencer Place office development to the US software giant Salesforce, the largest-ever office letting in Ireland.

She believes that the deal is a further example of the confidence that US tech companies have in the Irish market and its workforce, coming soon after the announcement of Facebook's move to its new campus on the site of AIB Bank Centre in Ballsbridge, which also involved RGRE, Colony Capital and on which she and her Eversheds Sutherland team also worked.

Q: What is the appetite like at the moment for Irish commercial property from overseas?

We are seeing a steady flow of investment from outside of Ireland into the market currently. Many indigenous developers are now active once again, some of whom are supported by overseas investors. European funds are very keen to acquire Irish real estate and lease returns in Ireland are seen as very appealing to, for example, German, Swiss and Luxembourg based funds.

Q: What effect is Brexit having on different asset classes?

Dublin has seen an increase in US and UK companies setting up operations in the city in recent months, with over 20 companies having declared Dublin as their post-Brexit base. As a compact city, Dublin offers the advantage of proximity to almost everything a business and its employees will need.

Many of the world's leading financial institutions have offices in the International Financial Services Centre (IFSC), while Silicon Docks is home to many of the world's leading technology companies.

The strong market and continued deleveraging has given rise to a large number of high profile real estate deals, such as those involving Salesforce, Facebook, Barclays and LinkedIn. A move to Ireland is likely to involve the acquisition of Irish real estate, either by way of lease or outright ownership.

We have seen a return to 10-year leases, sometimes with the benefit of break options (being a right to terminate the lease earlier, in some cases subject to payment of a penalty). Larger tenants or multinationals often prefer to sign 15- or 20-year leases, also with break options, to ensure the continued availability and control of space.

On any new lease deal, other tenant-friendly inducements may also be available such as rent-free periods, rent holidays, capital contributions and fit-out allowances.

Q: Do you expect to see the same level of activity and quality of transactions that Ireland has experienced over the last few years, being sustained into 2019/2020?

While we see the level of activity staying strong in 2019, particularly in the Dublin office market where demand for space remains high, it is hard to look beyond that at this point given how dynamic the market is and the many external global factors at play.

Q: What are the main challenges you face today? How will Brexit impact your business?

The challenge is to always stay ahead of clients' needs across all sectors and to leverage the international expertise of our colleagues based in the Eversheds Sutherland offices around the world to maximum effect. With Ireland as a hub for many multinationals, and described as the "tech capital of Europe with Dublin at its heart" by Taoiseach Leo Varadkar at the recent Salesforce announcement, we anticipate more international firms will look to establish a position here. Brexit will, of course, pose major challenges for all of us over the coming months and years, but it also presents opportunities.

Our clients are very pragmatic and we are working closely with them on how to future-proof their businesses and to anticipate, as best we can in these uncertain times, what lies ahead.

The position with the Irish Border and cross-border trade with Northern Ireland and the rest of the UK has created significant business uncertainty. We are seeing a surge in demand for services across the board from real estate, employment, trade, competition through to IP and data protection and beyond. It really is a time of all hands on deck for our clients.

There is some speculation in the industry that Dublin has the potential to become a global centre for commercial dispute resolution in the wake of Brexit. It remains to be seen if that will come to pass. However, it is fair to say that Dublin has much in its favour - such as it will be the main EU common-law country post-Brexit and it has a very pro-business government.

The wider Irish legal sector generates an estimated €2.3bn annually in revenue, and contributes €1.7bn to the Irish economy, employing in excess of 18,000 people. With Brexit, we anticipate big changes in the sector.

Q: Has your client profile changed over the last 10 years, and in what ways? Who are you seeing coming into the market?

There has been a lot of change. We are experiencing intense activity in the Irish real estate market, particularly the Dublin real estate market in the areas of office/commercial real estate and private rented sector developments (PRS schemes). A lot of this growth is being driven by foreign investors, with tech companies in particular looking to occupy large office space in Dublin.

Q: What are the trends in leasing? Are leases/licences being adapted to facilitate flexible office providers such as We Work?

There is flexibility for the right deals. We have worked on a number of very high-profile lease deals recently where the tenants are planning to occupy significant space in Dublin.

In these deals the tenants are very involved in the design and layout of the space and the landlords are willing to work with their tenants to help them achieve their goals.

Q: What types of US/UK institutions are looking at Dublin as an alternative - who is looking to expand their footprint in Dublin and what are they doing?

There is more activity from US and European institutions rather than UK investors in the Dublin real estate market and our client profile has evolved over recent years to reflect this.

Sunday Indo Business

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