30 May 2019

Yew Grove: Lease Surrender

Yew Grove has announced that it has agreed terms on a surrender of a lease at its property located at Cork Airport Business Park.  


The agreement will break the existing lease that had an annual rent roll of €0.63m and lease end in five years. Under the terms of the lease surrender, the tenant will pay €3.0m to YEW in respect of dilapidations and rent foregone. YEW says that it is “confident in the medium term re-letting prospects for the building that was refurbished in 2016 to a high standard and includes a 163 space car park”.


It is worth noting that the dynamics of the Cork office market are very favourable. Data compiled by Lisney show that take-up, on a 4qms basis, strengthened to a post-recession high of 444,011 sq ft in Q119, while the office vacancy rate has fallen over the past three years from 19.3% in Q116 to the current 11.8% level. Prime Grade A CBD office rents in Cork, at c. €32 psf, are half the level pertaining in the Dublin CBD, while JLL data show that there is only 2.2m sq ft of available office space in the capital (which compares to take-up in Dublin of 1.4m sq ft in Q119). As we have previously argued, a paucity of space in Dublin will likely increasingly direct firms looking for good quality office space to the country’s secondary cities, with Cork the obvious first port of call given that it has the largest stock of Grade A accommodation. To this end, we share YEW’s optimism regarding the re-letting prospects for this asset.


Upon first glance, the loss of a lease would seem an unhelpful development, but the receipt of the equivalent of nearly five years of rent up front from the tenant and the encouraging prospects for re-letting the space suggest a better-than-evens probability of this ending up being a net positive for YEW. In that regard, it’s worth noting that disclosures by YEW suggest the departing tenant at the Cork Airport Business Park was paying c. €15 psf.


First German unemployment rate rise in 5 years

Every now and then, markets are shaken out of its stupor by some random, freaky data prints, yesterday was one of those very days. Understandably enough, the monthly German unemployment data is rarely considered to be the headline print on that given day but when markets are expecting the ever decreasing German live register to shrink by another 8k only to increase by a whopping 60k, some eyebrows were sure to raise.


The jury is still out as to whether or not the dramatic shift in the monthly print is to be put down to some statistical reclassification of the collated data or is it an ominous sign that Europe’s largest economy is rapidly sinking into recession. With Germany narrowly missing a drop into recessionary territory at the tail end of last year and the dark shadow of potentially crippling US auto tariffs hanging over them, it’s no wonder confidence in the German business sector is at an almost five year low.


Up today

A relatively quiet day ahead, with most of the action coming out of the US. The headline print today will be US Q1 GDP, where markets are expecting a drop from the preliminary 3.2% showing to 3.0%. In tandem with that we also get to see the latest weekly US jobless claims data and wholesale and retail inventories numbers. German Chancellor Angela Merkel is due to meet with US Secretary of State, Mike Pompeo later this evening in Berlin and  Fed vice-Chair, Richard Clarida is to address the Economic Club of NY towards the end of the European session.


Bank of Canada confirm policy on hold

Having raised rates 5 times in less than 18 months between Q3 2017 and Q4 2018, the Bank of Canada left their policy rate on hold for the 5th consecutive meeting, confirming that their policy hiking cycle is very much on hold. While the Bank of Canada have suggested that they still feel the next move will be a rate hike, and struck an upbeat tone in the post meeting press conference, market continue to price in a rate cut in the next 12 months. The governor, Stephen Poloz was upbeat, touching on improving Jobs data in Q2, stabilization in housing market and recovering production in oil sector all pointing to the recent slowdown at the end of 2018 being a temporary blip rather than a more permanent fixture. Some concerns persist however particularly over trade talks between US and China, and China’s own restriction on Canadian canola imports (a fallout of the arrest of Hawei’s CFO) which the central bank acknowledged were adding heightened uncertainty to their outlook.


Overall the Canadian dollar weakened marginally post announcement, but has since recovered. Rates markets continue to price in a modest rate cut.


Economic Releases

13.30  US      GDP Q1
13.30  US      Core PCE Q1
13.30  US      Goods trade balance
17.00  US      Fed’s Clarida speaking
19.15  CA      Bank of Canada Wilkins speaking