With the United Kingdom’s exit from the European Union set for the end of March, stakeholders in the Irish commercial real estate sector prepare for uncertain aftermath.
With Brexit looming on the horizon, consumer confidence in the UK has been shaken. The economic and social changes heralded by Brexit will have an inevitable impact on the Irish market. With the Irish property market still experiencing a steady recovery from the recession, it is imperative that the government, investors, developers and consumers prepare to ensure that the gains Ireland has experienced are not put at risk. Fortunately, despite economic uncertainty, continuing growth patterns in Ireland, buoyed by a recent upturn in economic conditions, do not appear to be slowing in the near future.
The growth that Ireland has experienced in recent years has exposed structural and market weaknesses that could leave it vulnerable to international economic shocks. A deficit between high demand and low supply has put pressure on the construction industry and the labour force. A major challenge facing stakeholders in the real estate sector is anticipating the different scenarios of the withdrawal of the United Kingdom from the European Union and their implications on demand and supply in the Irish market.
Anticipated Demographic Shifts
Demographic shifts following Brexit will likely have impact on housing demand, affecting prices. There are several possibilities to explore as to how Brexit will influence demographic changes in Ireland. If Brexit leads to an overall decrease in economic activity and an increase in unemployment rates due to an economic downturn, we will likely see a drop in housing prices in the Irish market.
The UK leaving the European Union may also lead to a potential increase in immigration to Ireland. With growing favorable conditions for Foreign Direct Investment in Ireland, it is a possibility that multinational businesses may relocate from the UK to Ireland to remain in the European Union. Another likely scenario is that Ireland may experience an increase in immigration from individuals from other EU states who view Ireland as an alternative to the UK. Regardless, an increase in immigration will no doubt increase demand on a housing sector where supply is already strained, driving up housing and rental prices.
Ireland may also experience a decrease in outward migration, as the UK is traditionally seen as a common destination for Irish migrants. With the uncertain economic impact of Brexit, there could be a decrease in migration from Ireland to the UK, contributing to a population increase exacerbating the current demand on the housing supply. A decrease in emigration could also trigger internal migration to urban areas, this coupled with a general increase in immigration will likely place additional pressure on the rental sector in urban areas, increasing prices, especially in the short-term.
Barriers to Trade: Increased Cost and Delayed Completion
Changes to trade and availability of goods due to Brexit could be disruptive to the construction industry, leading to increased costs and delays in completion times. If the UK leaves the EU Single Market, they may have issues certifying and selling construction products to EU countries, including Ireland, affecting the delivery of construction products.
Brexit could introduce barriers to trade in the form of potential customs charges and tariffs, driving up the costs of construction materials. Additional customs checks and requirements may also cause delays on products that pass through the UK in transit from the EU, which a large majority of products do, and lead to additional administrative tasks and costs. New tariffs may also place additional costs on imported construction materials. Developers may need to explore alternative supply chains to ensure the availability of construction materials to meet project budget and timeline goals.
Financial Impact of Brexit
If Brexit causes shocks to the global economy, it may affect financing for residential and commercial development. It could make it more difficult for lenders to maintain financing levels necessary to sustain growth. The decrease of available capital and a more cautious approach by investors, would only intensify the potential increased costs faced by developers and construction companies. The impact of Brexit on the value of the Pound will also have an impact of Foreign Direct Investment of British financiers.
The potential economic effects of Brexit are merely speculation with many unknown variables and the true impact will only be understood in retrospect. It is likely that the commercial property sector will be directly impacted by Brexit. Changes in economic performance, shifts in population demographics and the disruption of supply chains can potentially impact demand, supply and prices in the housing market. Without a doubt, Brexit remains at the forefront of the minds of government officials, investors, developers, construction firms and consumers in the Irish property market.