Commercial real estate in Dublin 2003-after the boom.

SECTION 1

INTRODUCTION AND MARKET CONTEXT

The demand for commercial real estate in the Dublin market in recent years has been driven by several main factors--continued strong growth in the general economy, high levels of inward investment particularly in the IT sector, expansion of the financial services sector and growth in urban tourism. The dominant role of Dublin and its surrounding Greater Dublin Area (GDA) can be illustrated by a comparison of the GDA to the rest of Ireland. The GDA, incorporating Dublin and surrounding counties of Kildare, Meath and Wicklow contains 1.53 million inhabitants, representing almost 40% of national population (CSO, 2002). Approximately 47.5% of all immigrants into Ireland come to this region and 49% of all employment growth in Ireland is located there (Williams and Shiels, 2002). This growing dominance of the Greater Dublin Area and Dublin city in particular places particular pressures on urban land markets and is clearly evidenced in emerging constraints in the GDA including problems of accessibility and congestio n, infrastructure constraints and affordable housing difficulties.

A critical appraisal of the Dublin urban land development pattern indicates a major surge in outward infrastructure led development with a notable absence of inter-suburban transport links and essential services infrastructure. In summary, the Dublin urban land market is a clear example of the difficulties involved in managing rapid economic growth in an urban area in a sustainable manner. The analysis, which follows, includes research conducted under the European Union Group for European Metropolitan Areas Comparative Analysis, Second Project (EU GEMACA II, 2001) and the Quarterly Reports on Property Investment undertaken by the Dublin Institute of Technology (DIT) and Lambert Smith Hampton (LSH) during 2001 and 2002.

The structure of this article comprises of an introduction and analysis of the Dublin market context in Section 1, an examination of the changing economic driving forces for real estate demand in Section 2 and an overview of current sectoral investment patterns in Section 3, followed by conclusions.

DEMAND FOR REAL ESTATE

There is clearly a strong correlation between economic growth, employment trends and demand for real estate. Over the period 1990 to 2002 the economic profile of Dublin has changed from one of the weaker urban economies of Northwest Europe to one of the strongest. Growth in Dublin currently accounts for over 38% of Irish GNP, which has been increasing by approximately 8% per annum in the years to 2001. This compares with the stagnant economy of the middle to late 1980s and an emergence from recession in the early 1990s. Employment trends show that employment growth of 34% or 127,000 new jobs was evidenced over the period 1995 to 2000 (Dublin Chamber Of Commerce, 2000). Unemployment has reduced from 12% in 1996 to 4% in 2000. Financial services, the IT industry, construction and general business services have shown the strongest growth over the period. The weakening international and local economy is reflected in the more modest growth rate of 3% expected in 2002.

RESULTING COMMERCIAL DEMAND

As a result of the region's economic activity there are over 40,000 businesses in the city, 37,000 of which are service companies, and 1,300 manufacturing companies along with the state and semi-state sector (GEMACA II, 2001). Commercial activities in the city are centered on the old commercial business district, the new urban renewal areas adjacent to the commercial core and the new peripheral areas particularly to the west of the city. Examples of traditional industry in Dublin included the Food and Drinks Sector such as Guinness, Irish Distillers and Cadbury while a dominant force in new demand has been inward investment in the Electronics/Computer Software Sector whose significance to the region is illustrated by their employment levels (e.g.: Intel 4,000+ and IBM Ireland 3,500+).

The Financial Services sector has experienced strong growth in demand for Real Estate over the 1990s with over 30,000 employed in the sector compared to approximately 15,000 in the 1980s. These activities are centered on Dublin's International Financial Services Centre developed with the assistance of urban renewal incentives and preferential taxation regimes. Projects in this scheme qualified for a 10% rate of corporation tax until the end of 2005 after which they will be subject to the new standard 12.5% Corporation Tax Rate. This low tax system has been considered essential in the attraction of foreign direct investment of all types. Other strong growth sectors include telecommunications, teleservices and pharmaceuticals.

THE ROLE OF PUBLIC POLICY

The Regulatory and Public Policy framework within which real estate development operates is an essential contributory factor to shaping urban land markets. Since 1963, a statutory planning process has evolved in Dublin which involves the responsible local authority (e.g. Dublin City Council) preparing a legally enforceable development plan for the area under its responsibility. Such development plan includes zoning and segregation of various land uses and proposals for infrastructure including roads, water and sewage. Each development plan includes a policy statement and a set of land use maps. Once adopted, all proposals for development other than exempted development (below certain sizes etc.) must be approved by the local planning authority and must conform to the development plan. The local planning authority does not have the financial resources or powers to implement the development plan. It is dependent on its regulatory function to ensure that developer proposals comply with its requirements. The exis ting financial basis of urban government gives a dominant role to central government agencies with regard to public infrastructure provision. Essential infrastructure development in the urban areas, while planned at local level, can only be implemented with the commitment of central government resources. This effectively produces a planning system, which is regulatory and reactive to development proposals rather than proactive. A speculative market approach to urban development dominates in all sectors with developers and investors anticipating future demand within the regulatory constraints of the development plan.

A significant aspect of the Dublin policy experience, which is viewed as innovative and relatively successful, is urban renewal policies. In the Planning Act of 1963 powers were given to local authorities to identify obsolete areas or areas in need of renovation. Special powers including the right to compulsorily acquire land interests were available to achieve renewal of such area. While initial schemes met with limited success, only since 1986 and the introduction of specific urban renewal areas have serious policy initiatives in this area been launched. It can now be seen that such polices, adapted over time in view of the cyclical movement in economic trends, have contributed to the modem development of Dublin in a significant manner.

URBAN RENEWAL AND LAND MARKETS IN DUBLIN

Globalization and the economic restructuring of the 1970s and 1980s necessitated the development of a variety of urban management and renewal initiatives over the period to 2002. Urban development and renewal programs in Dublin have developed from taxation-based programs encouraging development activity to a broader integrated area plan approach encompassing social and economic objectives. Grants and complex fiscal incentives guide land uses towards specific forms of development. This stimulation of construction and investment in a stagnant economy resulted in the successful physical redevelopment of designated inner-city areas, albeit with problems in displacement and a narrow scope of social and economic benefits.

The major successes of the designated area schemes are often cited as: The International Financial Services Centre developed at the Custom House Docks and the Temple Bar Project. The Temple Bar project involved the conservation and renewal of a historic district of the City with a land use emphasis on cultural, leisure and tourism uses. This pattern of successful physical redevelopment contributed to, and was assisted by, the major improvements in economic confidence in Dublin during the 1990s.

The new approach to urban renewal since the 1998 urban renewal guidelines involves a more holistic approach to urban development with integrated physical, social and economic regeneration. Integrated Area Plans are prepared by local authority targeting areas in need of renovation in consultation with local representative groups. Such plans include issues such as urban design, local economic development, education and environmental improvements. A selective use of incentives and public funding can be used to assist implementation and progress is monitored on an annual basis to ensure physical, economic and social progress.