As the Omicron wave of COVID-19 spreads throughout Ireland, 2022 has commenced on somewhat of an uncertain footing. However, despite record levels of new daily cases reported, thankfully a high vaccination rate and relatively low hospitalisation rate, restrictions imposed late in 2021 are not as severe as previous periods, nor expected to last as long as previous waves.
Hospitality and F&B is once again facing increased limitations, with bars, restaurants, and entertainment venues to close at 8pm, with social distancing guidelines and Covid passes required during opening hours. Work from home unless necessary to attend in person is advised, while positively all retail remains open.
COVID-19 restrictions aside, the Irish commercial property market has begun 2022 on a positive footing. Preliminary data reveals the final quarter of the year recorded strong activity levels across the investment and office occupier markets. Beginning with the investment market, the final quarter of the year saw just shy of €2 billion worth of commercial property trade hands. This brings total investment volumes in the year to an impressive €5 billion across 173 deals. This level of turnover is second only to 2019’s volume of €6.1 billion and represents a significant increase from the €2.9 billion achieved in 2020.
Unsurprisingly, logistics, residential and offices make up the vast majority of this activity, with logistics in particular reaching new record levels. Total capital inflow to industrial & logistics assets reached just over €1 billion in 2021, surpassing all annual records for the asset class since Cushman & Wakefield’s detailed series began.
On the office occupier side, again a strong end to the year saw leasing activity reach its highest level since COVID-19 began. The much quoted ‘flight to quality’ trend is becoming more apparent, as the CBD accounted for over 70% of leasing activity in the final quarter. The CBD has claimed, on average, 54% of take up annually over the past decade, however this proportion now looks set be higher as we emerge from COVID-19.
Vacancy rates in the office market rose substantially since Q2 2020, however the rise is leasing activity is now causing this to taper off. In fact, net vacancy rates have declined for two consecutive quarters, with again the CBD witnessing the largest decline, declining to 5.5%.
COVID-19 will continue to create questions for the market in 2022, however inflation, interest rates and ESG will all be at the fore front of discussions also.
In line with other markets around the globe, inflation continues to be a key talking point for those in the real estate industry in Ireland. Most recent Ireland Consumer Price Inflation (CPI) figures released by the Central Statistics Office for October, show an annual increase of 5.1%. This is the largest annual change since April 2007.
Inflation levels in Ireland have averaged at 0.3% over the past figure years, with deflation of -0.3% recorded in 2020. However, as the economy rebounds at a faster pace than anticipated and supply bottlenecks internationally continue, input prices have increased.
This inflation is also evident in construction indices. For example, the SCSI’s Tender Price index recorded growth of 7% in the first half of 2021, a rise from 1.3% in the previous six-month period. Similarly, Eurostat in their Construction Cost Index (for residential properties) recorded annual growth of 7.4% in Q3 2021 for Ireland.
All eyes will now turn to inflation forecasts for 2022 and beyond and also Central Bank policies regarding interest rates. At present inflation is forecast to be above 2% in 2021 and 2022, however commentary continues to suggest an ease in growth as we go beyond that, a view that will be closely monitored as we move through the first half of next year.
Looking elsewhere, availability of residential rental properties continues to plummet. As of 1 November, just 1,460 homes were available to rent in Ireland the lowest figure recorded in the series that dates back to 2006. In an environment of increasing demand, the lack of supply is leading to rental inflation. In an attempt to tame rental growth, Government policy in summer months saw rental increases tied to HICP. However, with HICP now at 5.1% as of October, this policy has been revised to now include a cap of 2%.
Investment in the Residential sector continues to strengthen in Ireland, similar to trends witnessed across Europe. The asset class accounted for 48% of total capital investment in the first three quarters of 2021. Investment in the sector reached €1.5 billion in the nine months to September 2021, with forward style deals leading activity. Investor interest in the asset class is expected to continue, however continued government intervention does create questions for both new and existing players in the market.
The Irish economy is rebounding strongly and at a greater pace than initially anticipated. Monthly unemployment data shows the September unemployment at 6.4%. Including all persons who remain on the Government’s Pandemic Unemployment Payment (PUP) scheme, this figure sits at 10%, down from close to 25% at the peak. This figure is expected to continue to fall as weekly PUP data shows the volume of people in receipt of the payment below 100,000, a first since the scheme was introduced.
Strong personal consumption, driven by improved consumer sentiment and the unleashing of excess savings accumulated during the past 18 months, is a key driver of domestic growth. GDP growth, which remarkably held positive in 2020 as Ireland’s exports in Pharma and Computer Hardware excelled, is expected to record exceptionally strong increases in 2021 and 2022.
Like other jurisdictions, inflationary pressures are evident. As of September 2021, CPI tracked at 3.7% annually. CPI is now expected to surpass a 2% average for 2021.
The economic bounce back led to an interesting Q3 for commercial property. In offices, take up, as expected, remains low, however the volume of space signed and reserved is where the real story lies, with both increasing. Overall, availability sat at 554,900 sq m at the end of September, however, with a rise in the volume of signed and reserved space, net availability declined. This represents the first quarterly decline in net availability since the COVID-19 pandemic began. This is important as it supports our view that the rise in vacancy levels is temporary.
In industrial and logistics, demand continues to excel, evident across all locations, sizes and building grades. However, availability continues to act as a restraint for the market. The vacancy rate now sits at a 20-year low, as limited new supply, low levels of market churn and the redevelopment/rezoning of space has all played a role. Positively, speculative development is underway. Pre-lets of this space is occurring, with pre-lets expected to continue to be a feature.
Lastly, the increased occupier demand for industrial and logistics space is mirrored, if not surpassed by investment activity. Occupiers are facing intense competition from investors across all vacant units, leading to in most cases, occupiers being outbid by investors. Like other markets, yield contraction is evident in prime logistics, with yields set to fall below 4% by year-end, another record for the asset class in Ireland.
This week marks the re-opening of all non-essential retail in Ireland. Following closure on 31 December 2020, in the third large scale lockdown the country experienced, retail opened on 17 May. The re-opening of retail follows the lifting of inter-county travel restrictions and the re-opening of personal services on 10 May.
All eyes will look to footfall, card spending and retail sales data to capture the return of the consumer. The most recent monthly retail data for March 2021 showed the volume of sales, excluding motor trade, marginally up 0.3% annually, following two months of decline.
Commentators will also look to employment and the volume of people on the Pandemic Unemployment Payment (PUP) each week. This figure fell rapidly following previous lockdown lifts in June and December 2020.
Finally, last week the CSO released CPI figures for April. The monthly figure returned an annual rise of 1.1% in April, the first annual increase in the series since March 2020. Prices are also rising in the residential property market, +3.7% annually in March 2021. Incredibly tight supply in an environment of pent up demand, fuelled by increased savings rates during the past 12 months are driving this rise in value.
Ireland remains in level 5 lockdown as COVID-19 cases remain stubbornly high. The current restrictions are in place until at least 5 April. Speculation has begun as to what changes, if any, can be expected post 5 April. Reports have emerged that a phased return of construction activity is being considered by the Government, beginning with residential development. This change would be welcomed by the industry which has been largely closed in 2021 and faces rising labour concerns with active recruitment drives from other jurisdictions taking place.
Elsewhere, the number of active Dublin office requirements tracked by Cushman & Wakefield increased over the past month. Firms in expansion mode are the driver of this increase in activity as positive labour market news is evident. In recent days, Workday announced a 30% expansion of their workforce at their Dublin HQ, while similarly Stripe announced plans to increase its Dublin presence by 1,000 jobs over the next five years.
Lastly, data released by the CSO revealed residential property prices increased 2.6% on an annual basis in January 2021. Pricing data, alongside a range of other market indicators suggests demand remains robust despite the ongoing pandemic.
Attention now turns to quarter-end figures across all sectors.
As Ireland moves towards the one-year milestone of its first restrictions due to COVID-19, it remains in level 5 lockdown. With many questions around the impact of the continuing severe lockdown attention moved to the release of national accounts data for 2020.
2020 data confirmed the contrasting impact of COVID-19 on the Irish economy. Remarkably, GDP growth of 3.4% was recorded, as exports and the international side to Ireland’s economy upheld the headline figure. Irish exports, led by pharma and computer services, increased 6% in the year. Industry, strongly driven by manufacturing, increased 15%, while the ICT sector rose 14%.
In contrast, the negative impact of the pandemic is evident in the domestic side of the economy. Personal consumption and modified domestic demand decreased by 9.1% and 5.4% respectively.
This negative impact is also evident in labour market data released recently. The unemployment rate sat at 6% in Q4, up from 4.7% in 2019. However, including those on the Pandemic Unemployment Payment this figure rises to 19.4%.
Interestingly, Tech and finance, insurance & real estate recorded employment increases, 9% and 8% respectively. This is positive news for the Dublin office market which is largely led by the expanding tech sector.
The commercial property market in Ireland has commenced 2021 in a similar position to many other European countries. A renewed surge in COVID-19 cases has plunged Ireland back into a strict lockdown, with much of society closed. From a property perspective, construction sites have been ordered to close for all bar some exemptions such as social housing, healthcare, education and essential infrastructure. In addition, all non-essential retail is closed, with click and collected operations suspended. Working from home advice also sees offices remain largely shut.
Expectedly, the number of people temporarily unemployed has increased. The most recent figures for the Pandemic Unemployment Payment show just over 398,200 people availed of the payment as of 11 January. This represents a weekly rise of 62,600 people and is expected to grow further in the coming week. Combined with those on the traditional unemployment payment, it suggests the unemployment rate may sit above 20%.
Despite the sharp contraction in some areas of the economy, Q3 National Account figures released this week indicate Ireland’s continuing dual-sided economy. GDP growth of 3.8% was recorded in the first three quarters of 2020, led by the multinational side to the economy; dominated by pharma and IT companies.
Ireland entered a nationwide lockdown on Wednesday 21 October, with the lockdown to remain in place for six weeks. Under the new restrictions, people are advised to stay at home, with only essential workers attending work in person and only essential retail and services to remain open.
In contrast to the last nationwide lockdown earlier in the year, construction and manufacturing is permitted to continue to operate, a positive for the property market. As of the end of quarter three, a total of 490,350 sq m was under construction in the Dublin office market, the majority of which is due to be delivered in the next 18 months.
With forced closures of many retail outlets, the number of people on the Pandemic Unemployment payment is expected to rise again, following a significant decline over the summer months.
Government announced Budget 2021 on 13 October. Unprecedented in its scale, the budget emphasised the government’s continuing goal to provide financial support to businesses and individuals during the crisis.
From a commercial property perspective, a change in VAT from 13.5% to 9% for the tourism sector was a welcomed and vital support for the hotels sector.
COVID-19 indicators, such as hospital admissions and new recorded cases, have deteriorated in Ireland in the past two weeks. This rise has led to Level 3 restrictions for the country. Within this, social gatherings are greatly restricted, working from home is advised unless it is absolutely necessary to attend in person, and restaurants may remain open for take away or outdoor dining only.
Researchers are getting sight on Q3 statistics. In the investment market, a total of €251 million in direct investment sales traded in Q3, bringing the year to date figure to €1.15 billion. This compares to €2.4 billion at the same time period in 2019. Positively, outside of the traditional investment statistics, several forward commit transactions also took place, indicating a resilience in investor sentiment.
In the Dublin office market, activity improved in the third quarter, however cautiousness by occupiers is leading to a delay in decision making. A total of 44,250 sq m was taken up in Q3, bringing the total in the nine months to September to 104,150 sq m, down from 184,800 sq m in 2019. Availability also rose as some new completions hit the market, causing the vacancy rate to reach 10.1%.
Similar to other locations across Europe, the number of new recorded coronavirus cases in Ireland has increased in recent weeks. The increase has led to a number of localised restrictions, with Dublin entering ‘Level 3’ restrictions last week. This has had an impact on the volume of people seeking the Pandemic Unemployment Payment (PUP). A total of 217,142 people availed of the payment in Ireland this week, an increase of 10,000 people on the week previous.
Prior to the most recent set of restrictions, recovery in the Irish economy was evident. Retail sales for August showed an annual increase of 6.5%. Similarly, daily card spending info by the Central Bank, revealed data up to 24 August was 63% higher than its low point in mid-April, while remained 3% below the daily average for August 2019.
In property news, eyes now turn to quarter three statistics which will be available shortly. A number of investment transactions have been reported in recent weeks providing good news for the market. Examples of such include the acquisition of Block 12 at The Campus Cherrywood, Co. Dublin by Corum for a reported €27.7m and H.I.G Realty Partners Europe purchasing 272 PRS units in Dublin also.
Schools reopened in Ireland this week, having remained closed since March, when the COVID-19 crisis began here. The reopening of the schools was also followed by the lifting of the last of the current localised lockdowns in Kildare, one of Dublin’s commuter belt counties.
The 14-day incident rate in Ireland has increased in recent weeks, since its low point in late June, however the rate stabilised and slightly improved in recent days.
This rise, localised lockdowns and mixed news about the pace of recovery played a role in the most recent consumer sentiment index. Figures for August 2020 showed a decline to 58.9. This follows three consecutive monthly increases and perhaps marks the start of volatile readings throughout the winter months.
The reduced level of consumer confidence has led to a rise in savings. Latest data from the Central Bank revealed deposits held in financial institutions rose to a record high in July. Household deposits climbed to €120bn, an annual rise of 11%.
In property news, co-working spaces have reportedly experienced a rise in enquiries. However, the increase is attributed to people who do not wish to, or struggle to, work from home due to space and/or family constraints.
Attention remains focused on the latest COVID-19 new case rates. Similar to the recent uptick in cases reported in many EU countries, Ireland's 14-day average of COVID-19 cases per 100,000 has increased to levels not seen since May. Considering the recent rise in new cases and the re-imposition of certain COVID-19 restrictions across parts of Ireland, the National Public Health Emergency Team (NPHET) will meet this week to consider further recommendations to Government.
Encouragingly, the latest Ulster Bank Construction PMI signalled ongoing positive momentum in the recovery in construction activity. The July PMI rose to 53.2 in July, up from 51.9 in June, marking the second consecutive monthly increase in construction activity. Housing activity continues to lead the recovery, increasing to 57.8 in July, reflecting a sharp increase on June figures, while commercial activity rose modestly in July to 50.2.
According to the CSO, consumer prices on average were 0.4% lower in July 2020 when compared with July 2019. The most notable annual changes were decreases in Communications (-7.0%), Transport (-4.3%), Housing, Water, Electricity, Gas & Other Fuels (-2.2%).
Elsewhere, the latest trade figures from the CSO reveal exports of goods rose 15% year-on-year in June, led by surging demand for medical and pharmaceutical which increased by €1,681 million or 45% and accounted for 39% of total goods shipped in June.
Ireland continues to see further easing of restrictions as confirmed new cases of COVID-19 remains low. As restrictions ease, the economy has seen its first set of statistics which show improvements in spending patterns. Latest retail sales data from the CSO indicate that retail sales increased 29.5% in May compared to the month prior. On an annual basis, volumes remain 26.6% lower than in May 2019, however the data does point to a bottoming out of the current dip in April.
The CSO release also coincides with credit and debit card statistics released by the Central Bank which show that up to 22 June, total card spending (including ATM withdrawals) was 4% below the daily average in June 2019. The lower than average trend is not surprising, however what is positive is that spending has increased 54% since its low point in mid-April.
Lastly, this week markets got the first glimpse at quarter two investment figures. Early estimates suggest investment transactions of €420m in Q2, bringing the year to date figure to €945m. Although subject to change, these initial figures would suggest a better than expected level of investment in the second quarter.
Ireland has been met with more positive news as it was announced that Cabinet has approved the re-phasing of the Roadmap for the reopening of society and business. Originally a five phased approach, revisions see restrictions lifted earlier than originally anticipated and many items moving forward to Phase 3. This is as a result of a continued downward trend of COVID-19 related deaths and new COVID-19 cases being confirmed.
Phase 3 will commence on 29 June with childcare and indoor and outdoor amenities for children reopening. Positive news for the hospitality and leisure sectors also, as well-being services such as hair- dressers, cinemas, museums, hotels, cafés, restaurant and pubs providing food can all reopen.
As the economy entered another week of restrictions easing, the number of persons availing of the Pandemic Unemployment Payment (PUP) declined further. A total of 465,900 persons received the PUP, representing a decline of 32,800 from the week prior. Construction, retail and accommodation & food are the top three sectors where declines have been noted. Since the peak in May, the number of persons in receipt of the PUP has declined 50% in construction and 30% in wholesale and retail trade.
As Ireland commences the second week of the ‘phase two’ plan for reopening the economy, positive downward trends in the number of new cases and deaths from COVID-19 continue.
Most retail operators with street access resumed trading last week, reporting high conversion rates of in-store purchases. Monday 15 June saw the reopening of shopping centres nationwide, with protocols in place aimed at restricting people congregating in malls.
Positive news also came for the commercial property sector as the sports retail specialist, Decathlon, opened its 4,000 sq m flagship store in Dublin on Saturday, 13 June, the first in Ireland. In addition, the office sector welcomed the reported news that Dentons law firm continued with Irish expansion plans, reportedly leasing office space at Joshua House, Dawson street.
As the economy reopens the number of people on the pandemic unemployment scheme (PUP) continues to fall. The most recent data for 15 June shows the figure at 498,700 people. This is down from a peak of 602,100 at the end of April. Although still high, it is expected to continue to fall as more restrictions ease. While lastly, it was also recently announced that the wage subsidy scheme and PUP is to be extended.
Following continued positive downward trends in the number of reported new cases and deaths from COVID-19, Ireland this week, on 8 June commenced its next phase of lifting restrictions. The Irish Government originally produced a five-stage approach to reopening the economy, however revised this last week, and the plan now just involves four phases. As this next stage brings forward some elements of the original plan, it is being referred to as ‘phase two plus’.
As of 8 June, all retail with street entrances are permitted to reopen, while from 15 June shopping centres will be open. Opening times for stores are to be staggered, to prevent crowding on public transport. Working from home is to continue to be encouraged where possible, while people may now meet indoors in limited numbers. Lastly, people can now travel further than 5km from their home, within their county or a 20km radius, whichever is the furthest distance.
In another welcomed move, the hospitality sector, including hotels, guesthouses, restaurants, and bars that serve food are permitted to reopen on 29 June, earlier than previously agreed.
To aid those small businesses restarting, the Government has made available a restart cash grant from €2,000 to €10,000, while the wage subsidy scheme remains in place.
Ireland has entered its third week of Phase 1 of reopening the economy. Phase 1 saw outdoor workers return to work while also a number of retail outlets. With Phase 2 due to commence on 8 June, all eyes turn to the National Public Health Emergency Team (NPHET). Positively, daily confirmed new cases of COVID-19 remains below 100, however NPHET will meet Thursday to decide whether to recommend the step forward as planned.
Elsewhere, data released from the Central Bank suggests retail card spending in Ireland hit its low point of the current crisis in mid-April. Rises were recorded since this point, with the most recent increases up to the 22 May coinciding with phase 1 of reopening the economy and easing restrictions. Interestingly, e-commerce accounted for 49% of all retail card spending in April 2020, the largest proportion on record, however overall, e-commerce declined 4% from April 2019.
Lastly in property, Hines and APG submitted a planning application for the construction of 416 new residential units in Dublin. In light of COVID-19, the plans include a re-specified ‘shared areas’ which allows for social distancing. The submission is good news for the market which saw construction sites reopen on 18 May.
With Ireland almost through its second week of the first phase of the lifting of lockdown restrictions, positive news comes in relation to the reduction of newly recorded cases of COVID-19. The numbers of newly confirmed cases have been almost consistently below 100 for nearly 2 weeks, with Monday, 25 May marking the first day that Ireland has experienced no COVID-19 deaths since 21 March.
Elsewhere, figures released from the Government indicate the number of people seeking the pandemic unemployment payment has begun to decline as some recipients returned to work. For example, some 35,600 people closed their claim last week, stating they were returning to work. The main sector is construction with 12,700 workers.
In a welcomed move for the property industry, the Department of Housing has approved, in principle, guidelines for joint sector protocols for property agents (PSP) and valuers in response to COVID-19. This is a consolidated practical guide, for property professionals, on how to safely manage business continuity during the COVID-19 pandemic to safely engage with clients and members of the public and provides best practice guidance to professions during viewings, inspections and the workplace.
In a positive step, Ireland officially began the first phase of lifting restrictions on Monday, 18 May. This week has also seen outdoor workers, including those employed in construction, landscaping and gardening return to work. In addition, several stores have reopened to resume trade. These include hardware stores, garden centres, farmers’ markets, opticians, electrical, IT and phone equipment providers, motor repair and motor sales outlets.
Elsewhere, the most recent release from the Central Statistics Office reveal Ireland’s exports increased 38% in the month of March, to €15.675 billion. The increase brought exports value to their highest monthly level on record. In total, the value of goods exports in the opening quarter of 2020 rose 13% annually. The increase was largely driven by medical and pharma products, which accounted for 36% of total exports. Other notable increases in the first quarter were for organic chemicals and electrical machinery, apparatus, and appliances.
As a small open economy, trade plays an important role in Ireland’s economic growth. Although substantial, the rise in medical and pharma products is not unexpected. Ireland is one of the world’s top 10 exporters of pharmaceuticals, with substantial operations from the world’s top 10 pharmaceutical companies located here.
As Ireland prepares for the first phase of restriction easing on 18 May, more information has been revealed as to how the roadmap will be facilitated. This includes the Government’s Return to Work Policy Document which sets out a range of measures for employers and their employees to follow over the coming weeks. These measures are to include temperature testing, appointment of personnel with responsibility for implementation of COVID-19 policies, additional sanitary and protective equipment, physical distancing and monitoring of the workforce.
Given the guidelines provided and restrictions on public transport it is anticipated that approximately 25% of the workforce will re-commence from 29 June, increasing gradually over the following weeks. However, it is likely that a large percentage of the workforce will continue to work from home in the short to medium term.
In addition, it has been announced that there are to be further lending supports to aid continued housing supply during this crisis. The lending products will be available through Housing Building Finance Ireland. The new scheme includes:
- a ‘Momentum Fund’, aiming to provide funding to established developers for large-scale developments,
- ‘Apartment Funding Product’, developments consisting mainly of apartments with a maximum funding of €75m and
- ‘Small Development Funding Product’, aiming to provide funding for projects between five and nine units.
Lastly, Monday 11 saw detailed talks on government formation between Fine Gael, Fianna Fáil and the Green Party. Discussions are anticipated to last until the end of May, after which each party will return to its members with the proposed deal.
All eyes were focussed on Taoiseach Leo Varadkar this week. On Friday he announced an extension of the current lockdown until 18 May along with a detailed roadmap for re-opening the economy thereafter. The plan indicates relaxing of restrictions in five stages, at three-week intervals. Included in the first stage are, construction workers and retail outlets primarily outdoors. Small and non-essential retail outlets are included in phase two and three, while hotels, shopping centres and offices are included in stage four and five.
In a much-welcomed move, the Government also signed off on a €6.5bn package to support businesses re-opening. The package includes state backed loans, grants, the deferral of VAT and payroll tax payments and also waiving of commercial rates. A new government is needed to sign legislation to implement the credit guarantee scheme and tax deferrals, therefore attentions will now shift to on-going government formation talks.
Lastly, the quarter one MSCI Ireland Property index shows the initial impacts of COVID-19 are muted, however the second quarter will be more telling. Results were largely in keeping with existing trends. Industrial leads the three core sectors for growth in total returns, with rental value growth still evident in the sector.
Economic Impact of COVID-19 on the economy
This week the Minister for Finance, Pascal Donoghue, released the latest Stability Programme update (SPU), which sets out the Government’s economic and fiscal projections for the year. Mr Donohue re-iterated Ireland enters this crisis from a position of strength and suggested the economy would shrink by 10.5% this year, with a strong rebound of 6.0% in 2020.
COVID-19 & Government Measures
Positive news from the fight against COVID-19; the reproduction number has fallen below zero. This means on average an infected person is passing it to between 0.5 and 0.8 other people. The HSE are now working to ensure an adequate testing and contact tracing system is in place to enable a reduction in restrictions which are due to be lifted by 5 May, however, it is anticipated the changes in restrictions will be limited.
A new model that can deliver over 100,000 Coronavirus tests per week has been formally agreed and sets out a ‘road map’ on how to get to that level. In addition, a mobile phone app to assist with the process of contact tracing will be introduced in Ireland next month. Discussions about how it will operate are continuing with the Data Protection Commissioner.
Three major investment deals and one major logistics letting were reported in the newspapers during recent days which shows encouraging confidence from international investors in the Irish commercial property sector.
Chief Medical officer of the HSE, Dr Tony Holohan, has outlined that modelling data suggests that the curve has flattened in Ireland and a peak is not expected. He hinted last week that he is optimistic that the current restrictions which were extended on 27 March, ahead of the Easter holidays until 5 May, are being reviewed and are likely to be lifted to some extent by this target date in May. It has been indicated that restrictions will be lifted in a phased approach.
This week a reported 35 construction sites, for the provision of social housing, began reopening. The sites, which are deemed essential have been reopened under the Construction Sector C-19 Standard Operating Procedures which serves as a guide for the management of COVID-19 on a construction site for the duration of the pandemic.
It is hoped that these measures will be extended to additional commercial sites. A large volume of commercial office space was due to be delivered in the first half of 2020, however the onset of COVID-19 and the subsequent closure of sites will see these timelines pushed out. A total of 577,650 sq m was under construction at the end of quarter, of which 54% is pre-let or reserved.
Our focus now is on advising clients on the preparation for returning to work. While there has been no formal guidance on what this means in terms of office occupation, the Government in it’s recent draft framework document indicated that it was going to mandate public sector employers, colleges and other public bodies to move to 20% home and remote working in 2021 and provide incentives for private sector employers to do likewise.
While capital markets remain dormant in terms of activity, many PRS investors are not anticipating rental deflation but would instead expect a lack of rental growth in the next couple of years, with the increase in the cost of debt a possibility.
It was announced last Friday that the full lockdown in Ireland will remain in place until 5 May 2020. Some state school exams have been cancelled or deferred and 3rd level starts for 1st years will be pushed out.
Many businesses and organisations are now turning their attention on the practicalities of how we might return to work and life, and what the new normal will mean for us in business and personally. There will clearly be some sort of phased re-engagement and operation of business. The specifics are not clear yet and we will watch with interest the experiences of other Asia and European countries.
This week saw the announcement that Debenhams is entering liquidation in Ireland which will result in the loss of approximately 2,000 jobs. There is also more of a focus on the likely impact on the economy and how we will fund the cost of the Government's interventions post COVID-19.
There is an expectation that discussions in relation to Government formation will now come to fruition reasonably quickly. While Leo Varadkar and the care-taker Government are dealing well with the crisis, it is important that we have a stable Government in place soon in order to deal with items such as an emergency budget later this year if the need arises.
The anticipation that new deals may be possible in the current environment is not the real focus of the market at present. We are focusing on advising clients on their preparation for returning to a new work environment, where social distancing is going to be part of everyday life for the foreseeable future.
Ireland is now entering its second week where only essential services are permitted, and people must stay in their homes. The Government has so far announced €6.7 billion worth of measures to fight the economic impact of COVID-19, including wage subsidies and illness payments.
Forecast real GDP to contract 1.6% in 2020, compared with growth of 3.3% previously, any further impact likely to be cushioned by the tech and drug-heavy nature of much the multinational investment in the Republic.
Cushman & Wakefield has seen a number of office deals close in the last few weeks which is encouraging for the market but is likely to see pipeline deals defer as project cycle and fit out dates get impacted by site closures. Future planned expansions are currently in a holding pattern. It is too early to tell if more of these may be impacted.
Online retail sales revenue increased 110% in March compared to the previous month, with online transactions rising 44%. Most retail tenants are seeking abatements or rent holiday, and with the Government supports we anticipate that landlords will be obliged to engage.
PRS: We anticipate upward pressure on rents will diminish and rents may fall slightly. To protect those who are suffering financially during this pandemic, the Government has implemented a 90-day rent freeze initiative together with a temporary ban on evictions.
Capital markets have paused; however, we expect that we will re-emerge stronger and more resilient and anticipate that there will be greater yield spread between core and non-core property. As this current situation is showing us, we crave certainty and ultimately investors will have to pay for a product that delivers this.