Economic uncertainty is never a positive for any market, and in the short-term Brexit adds a considerable helping of uncertainty which will act as a drag on activity over the summer months. Looking beyond the short-term, the longer-term impact is more nuanced with both downside and upside forces at play.
For the office market, we should expect international occupiers with bases across the UK and Europe delay committing to new office moves as they take stock of what the new landscape means for their businesses. The effect of this uncertainty is mitigated by the fact that corporations have had plenty of time in advance to consider their strategy in the event of Brexit. Occupiers that require an operation within the EU will no doubt begin casting their eye towards Dublin given the geographical proximity and cultural similarities with London.
For example, London represents the largest market for euro-denominated trading, and major banks with euro trading desks in London may find that they need to relocate some of these functions to office markets within the EU. While this does not necessarily mean a wholesale relocation, a significant portion will have to move, with Dublin, Paris and Frankfurt among the prime contenders to take this business. Dublin’s considerable existing back and middle office financial services infrastructure will be a positive in attracting this higher value front office business.
A BBC report following Brexit stated that Morgan Stanley is looking at relocating 2,000 investment banking jobs to Dublin, a report that the bank later denied. Such a move would be a game changer for the Dublin office market as one would expect that attracting an institution of the stature of Morgan Stanley would be a catalyst for others to follow suit. Credit Suisse’s creation of 100 trading floor positions earlier this year can certainly be pointed to as a precedent for this front office migration, albeit on a smaller scale.
It would be envisaged that an investment bank like Morgan Stanley would be relatively cost insensitive when it comes to rent if they were to move to Dublin due to the high-value nature of their operations. This is not to say, however, that Morgan Stanley currently rent in excess of Dublin’s prevailing prime rent in London. Morgan Stanley’s main London offices are located in Canary Warf at 20 Bank Street and 25 Cabot Square, the latter at which they rent at an estimated £36 psf (€43) based on figures relating to a 2014 sale and lease back transaction with Hines.
The biggest factor counting against Dublin is the lack of residential stock available to house these firms’ employees. However, it should also be remembered that other candidate cities such as Paris and Frankfurt are also experiencing a housing shortage while London itself is a notoriously difficult city to find housing. For Dublin, the opportunity exists for developers to offer an integrated residential and office product that caters for the relocation of a firm’s office space and employee’s housing need together. Dublin’s north docklands, the last significant city centre quantum of undeveloped land close to the IFSC, appears to be the natural location for such development although expect some lift also in the better located suburban locations like Central Park in Leopardstown and some of the larger prime sites in Sandyford. It is worth noting also that the docklands has “fast track” planning which will facilitate any of the inevitable changes some of these companies might need to tailor buildings to their specific requirements.
On a related point, Dublin City Council is currently engaging in public consultation for its Development Plan 2016-22. It is of utmost importance that restrictions limiting the height of city centre office and residential buildings be reviewed so as to enable developers to construct buildings of the scale and density London occupiers require to accommodate their considerable workforces’. Without this, Dublin will be limited in its ability to capitalise on the economic opportunity presented by Brexit.