04 Mar 2019

GRN: Google Town

Yesterday’s Sunday Times reported that a new office building under development by Green REIT (GRN) is among those under consideration for Google’s latest expansion in Dublin.

Google has had a presence in Dublin, which serves as its EMEA Headquarters, for just over 15 years. Over that time it has scaled up to 8,000 employees. Its current Dublin property footprint extends to 12 buildings which we believe can accommodate more than 10,000 workers, but in a sign of the company’s growth ambitions, it is looking for more space in Sandyford (South Dublin), where the group already has a presence (in the Blackthorn and Chase buildings, owned by Irish Life and Kennedy Wilson respectively).

 

The Sunday Times says that four buildings are on the shortlist for this latest expansion, three of which are U+I’s The Hive, Blackstone’s The Atrium and GRN’s Block I at Central Park. Block I is slated for completion this month and will add 97,000 sq ft of lettable space to the city’s office. GRN has pre-let two of the seven floors at Block I, so there is c. 76,000 sq ft of available space remaining, in-line with Google’s reported requirement of “about 7,000 sq m”.

 

With take-up at record levels, we don’t believe that GRN will have any difficulty in securing a tenant (or tenants) for its latest high quality development. However, a quick win on the letting front may bring forward the additional development of office space at Central Park, which is capable of accommodating further 400,000 sq ft of offices. Furthermore, it will unlock additional development profits and lift the rent roll, with positive implications for NAV and DPS. Watch this space.

 

UK this week

 

Last Wednesday the pound reached its strongest level against the euro since May 2017. Brexit was the key driver. For one, markets took some comfort from PM May’s Commons statement on Tuesday, setting out a series of votes diminishing the risk of a “no deal” Brexit. Secondly, cutting through all the noise it would appear that behind the scenes some progress may be being made. Officially there is nothing on the Brexit calendar this week but we would expect that behind closed doors further negotiations are taking place on the backstop ahead of PM May’s plan to return to the Commons by/on 12 March for a “meaningful vote” on her Brexit plan. Aside from Brexit, UK markets will be taking a cue from UK economic data and the Bank of England. In terms of the data, the key focus will be on the services PMI for the latest read on the health of the UK’s largest sector: we are forecasting a slight fall to 49.8. There is also no less than four members of the Bank of England’s MPC delivering comments through the course of the week, including Governor Carney, where their views on the economic outlook and monetary policy are set to be scrutinised.

 

Europe this week

 

On Thursday the ECB is set to announce its latest decision on policy, followed by President Draghi’s press conference at 13:30. Given that economic data has remained weak since the last meeting in January we suspect the ECB will sound a cautious tone but avoid any hasty policy decisions. As such we expect the key ECB rates to be held steady and its guidance on interest rates to remain unchanged. Key to ECB policy going forward will be whether the economy can drag itself out of the current soft patch. Therefore interest will likely fall on the first industrial production figures for January for member states. Including France, Italy and Spain. Our own view is now that the ECB will not raise its deposit rate until Q1 next year.

 

US and ROTW this week

 

In terms of US data, Friday’s labour situation report is set to be the big US and global focus. January’s report saw non-farm payroll job gains of 304k. We suspect this was a one off and expect the job gains to moderate to 165k. Meanwhile the non-manufacturing ISM will be the other key US release. In China the major event is set to be the 13th National Peoples’ Congress second annual session. The gathering of China’s senior officials at the National People’s Congress will provide the platform for announcing China’s growth target for this year but more importantly could yield further measures to support the economy. Meanwhile the Caixin Services PMI will provide the latest reading on the economy. That will follow hot on the heels of the official PMIs which were released last week and showed a further loss in economic momentum. On the monetary policy front the Reserve Bank of Australia and the Bank of Canada are set to announce their latest policy decisions. Neither is expected to alter policy but there is likely to be some focus on the RBA after its last meeting saw the central bank open the possibility of the next move in rates being up or down.

 

Brexit update

 

Developments over the last week have, if anything seen some marginal progress at home. Notably there has been more talk of PM May possibly being able to get her deal through parliament in a “meaningful vote”.  Various reports over the week have suggested that there has been some softening among Tory Brexiteers, with the ERG reportedly willing to compromise over the backstop, if they are provided reassurances that the UK would not be stuck within it indefinitely. The weekend’s press has also been led with reports that Brexiteers may be willing to support changes to PM May’s deal should it meet 3 tests, i) that the mechanism is legally binding, ii) the language cannot be a reinterpretation of the Withdrawal agreement, iii) there is a clear exit route. There is still no formal word from Brussels on any agreement, but we would expect the EU to offer some kind of compromise to try and help PM May pass a Brexit deal through parliament, most likely in the form of a codicil. Any deal is currently scheduled to be put to the House of Commons on or before the 12 March for a “meaningful vote”, but there have been a number of reports suggesting that there may in fact be two “meaningful votes”, with the first one taking place this Wednesday (6 March).

 

Economic releases

 

09.30 UK Construction PMI

10.00 EZ PPI