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.