01 Nov 2018

Unemployment, Manufacturing PMI and consumer sentiment updates

The latest Monthly Unemployment release from the CSO shows that labour market conditions continue to tighten, while the latest Consumer Sentiment Index release from KBC and the ESRI shows that confidence has slumped to a 46 month low.

The Markit Manufacturing PMI cooled to 54.9 in October, signifying the slowest pace of growth in seven months. To start with the CSO data, the agency revealed that the unemployment rate fell by another 10bps m/m to 5.3% in October, marking the lowest outturn since February 2008.  Unemployment peaked at 16.0% during the recession and has fallen by two-thirds since then, while the rate is now just 100bps above the low point recorded during the Celtic Tiger period. The KBC/ESRI data show yet another dip in consumer confidence, with the headline Sentiment Index coming in at 93.5 in October, the weakest since December 2014 and well below the multi-year high of 110.4 recorded in January of this year. The authors attribute this to nervousness around the Brexit negotiations and what this might mean for Ireland.


Consumers are a little bit more optimistic about the near-term outlook for household finances, likely due to the modest tax cuts in last month’s Budget. While the Markit Manufacturing PMI signifies slower growth relative to what we saw earlier in 2018, the pace of expansion remains solid. Panellists remain confident on the business outlook and are continuing to add to headcounts (as they have done for 25 successive months now). There was, however, slower growth in customer demand which contributed to another depletion in Backlogs of Work (panellists’ also utilised post-production inventories to meet orders). Cost pressures remain an issue for manufacturers, although the quickening in the rate of prices charged to a five month high suggests that they are able to pass on at least some of the increased expenses. The softer Manufacturing PMI readings chime with a trickier international growth profile, but it is important to note that they still point to a solid pace of expansion for the sector.


Irish REITs: CBRE comments on the commercial property market


CBRE has released its latest Bi-Monthly Research Report, which sets out its thoughts on the outlook for the Irish property market. The agents note that the fundamentals of the sector remain very solid, notwithstanding the jitters on the financial market. The office market has performed well, supported by larger transactions; the logistics segment is seeing new supply (now that rents have recovered to a level at which new build makes sense); while retailers are enjoying a good year in contrast to the “underlying tones of negativity about the retail sector globally because of structural threats including the growth of e-commerce”. In the office space, year to date (to end-Q3) take-up in Dublin was 2.4m sq ft, while the final quarter is likely to be inflated by a number of jumbo deals. 


Prime rents in the capital are stable at c. €65 per sq ft “and are unlikely to change dramatically over the coming months”. Retail demand for traditional bricks and mortar remains good, with occupancy rising (helped by modest new build activity). Unsurprisingly, there is “particularly strong demand from the food and beverage sector”. Turning to industrial and logistics, take-up in the first three quarters of the year was +24% y/y (see JLL comment below), helping to push vacancy rates across Dublin’s leading industrial estates to just 8.23%. On the investment side, more than €2.7bn of deals were concluded in the first three quarters of the year, with the FY spend likely to come in at or above €3.5bn. This strong outturn is positively impacted by the flow of money chasing PRS assets. We also note increased activity in the development land market, particularly in Dublin, which is very welcome. 


GRN/YEW: Industrial take-up at a three year high


The latest Dublin Industrial Market Report from JLL shows that take-up accelerated to an 11 quarter high of 1.08m sq ft in Q318. Year-to-date take-up is 2.4m, broadly in-line with last year’s annual take-up (2.5m) and the 10 year full year average of 2.4m. This spike in take-up was driven by a number of larger transactions, with the average take-up of c. 30,000 sq ft across the 36 deals inked in the quarter the highest for at least five years. Lettings dominated take-up, accounting for 71% of activity, continuing the trend that has been evident since 2015, the last year in which sales activity accounted for most of the take-up. This is a function of the marked recovery in industrial capital values (other JLL data show these are up 71% from the trough reached during the recession in Q213).


Reflecting the recent return to new build activity in the sector, Prime accounted for 60% of take-up in Q318 (including the letting of the 57,820 sq ft unit D3 at GRN’s Horizon Logistics Park), again the highest for at least five years (our records go back to 2013), with all of the other deals involving Secondary stock. Rent terms were stable in the quarter, with prime at €9.25 per sq ft and secondary at €6.50-€6.75 per sq ft. Lease terms are unchanged, with average lengths of 10 years typically with a break option at the end of year five. Rent free periods are consistent at 3 months. In terms of the outlook, JLL see FY18 take-up at 2.9m sq ft, a three year high. The agents also see Brexit uncertainty influencing demand patterns (a theme we have been writing about for some time), while JLL also note an uptick in enquiries for industrial development land in what is a potential sign of lender appetite to support new build activity.