16 May 2019
YEW: Waterford acquisition completed
Yew Grove has announced the completion of the acquisition of an office building at the IDA Business Park in Waterford, Southern Ireland.
On 8 February YEW announced that it had exchanged contracts on Office Block A at the IDA Business Park in Waterford. The €4m transaction implied a NIY of 8.56% after accounting for all purchase costs. The acquired property adds 36,845 sq ft of high quality office space over three storeys to the YEW portfolio. It is let to Tech Mahindra Business Services Ltd under a 20 year lease with a break in five years and SE2 Information Services Ireland Ltd under a five year lease.
The acquired property adds 36,845 sq ft of high quality office space over three storeys to the YEW portfolio.
IRES/HBRN/Housebuilders: Residential prices return to growth in March
The latest Residential Property Price Index (RPPI) release from Ireland’s CSO show that the four month sequence of modest declines in the index came to an end in March, with prices increasing by 0.2% m/m. On an annual basis, prices are +3.9%, the slowest pace of growth on this measure since August 2013.
In terms of regional trends, prices in Dublin slipped 30bps m/m, extending the sequence of falls in the capital to five months, while prices in the rest of Ireland rose 80bps m/m and were +6.8% y/y. We suspect that the divergent performance between Dublin and the rest of Ireland is driven by the Central Bank’s Macro-Prudential rules, which place loan-to-income and loan-to-value caps over the majority of front-book mortgage lending. Data from the country’s largest property website, Daft.ie, show that asking prices in Dublin are 47% above the national average, nearly three times the differential (+18%) in disposable incomes in Dublin relative to the national average. As a sense check, average asking rents in Dublin were +1.0% q/q and +6.8% y/y in Q119, which is a more meaningful indication of the mismatch between the supply of and demand for housing in the city.
As a result of this latest move, the cumulative recovery in national property prices since the early 2013 trough now stands at 81.6%, led by Dublin where prices are 92.5% above their respective low. However, the national index is 18.6% below the nominal peak reached in 2007 (Dublin prices are 22.3% below peak). We understand that the domestic banks incorporate assumed peak-to-trough falls of 30-40% in their provisioning models, so the peak-to-current gap offers considerable reassurance (although that is hardly ‘new news’).
With housing output likely to come in at least 25% below new household formation this year our view remains that the path of least resistance for house prices and rents lies to the upside. Helped by a supportive economic backdrop, we expect to see house price inflation of 5% this year.
Irish Economy: Trade surplus cools to €4.1bn in March
Goods Exports and Imports data from the CSO show that the seasonally adjusted trade surplus dropped to €4.1bn in March from February’s €6.2bn outturn. This decline was driven by a 16% m/m fall in seasonally adjusted exports (to €11.0bn), as imports were little changed (-1% m/m to €6.9bn).
As March was the original Brexit ‘deadline’, we are particularly interested in Irish trade with Great Britain. Unadjusted data show that exports to Britain rose 9% y/y in Q119, with imports rising by 15% y/y. This mirrors the findings of the PMI surveys, which suggested that precautionary stockpiling (on both sides of the Irish Sea) had spurred increased activity. While the overall trade data can be distorted by the multinationals, we note that Food exports rose 5% y/y in Q119, while exports of beverages were +30% y/y.
Unadjusted data show that total Irish goods exports rose 12% y/y (to €38.0bn) in Q1, while imports were up just 1% y/y at €20.4bn, producing a €17.6bn trade surplus that was 28% above year-earlier levels. While care must be taken with these (nominal) data due to the statistical curveballs that the multinational sector can produce, we note that our 2019 economic forecasts for Ireland assume real (volume) export growth of 2.5% this year. Notwithstanding the cloudier international outlook, the risks to our Irish export forecast look to be tilted a little to the upside at this juncture.
GBP on back foot as Brexit deadline coming back in focus
After spending the past month simmering, Brexit tensions are starting to make their impact felt once again. EURGBP broke above 0.87p yesterday, reaching its highest levels since February. Talks of a fourth vote on May’s Withdrawal bill in June highlighted that not only was the honeymoon period in talks between the Labour and the Tory government over, but the Tory Party is already planning for their failure. The pound was dealt an additional blow by Brexit secretary Stephen Barclay yesterday, who told a committee from the House of Lords that “There is an under-appreciation that no deal can still happen”. He went on to add that there was no guarantee of further extensions, and that there were certain “voices in Europe, not least the French, who wanted to move on to other issues“.
While May has long insisted that she doesn’t want the UK in the EU beyond June, her track record so far does not inspire confidence. Last year we saw all of August to December pass with almost no progress on Brexit. August is a notoriously quiet time in Europe, and September and October will see the distraction of the Tory and Labour Party conferences, all of which suggest that the October 31st deadline is closer than it may currently appear. This deadline also has some added complications. Jean Claude Juncker’s tenure at the European Commission ends in October. A changing of the guard at such a delicate stage of negotiations will be most unpalatable to the EU, which suggests that France may not be the only nation objecting to an additional extension if matters aren’t resolved by then.
13.30 US Philly Fed index
18.30 UK BoE’s Haskel speaking
Dollar dips & stocks climb as Trump delays auto tariffs: US President Donald Trump is fighting trade wars from all angles. Following on from his more prominent spat with China, it was potentially the turn of the Japanese and Europeans to face the wrath of Mr. Trump on May 18th. All the main US stock indices stopped early declines and finished the day in positive territory as the news broke that he would push out the proposed European & Japanese deadline from May 18th to the mid/end of November. The safe haven that is the dollar also came under pressure, pushing the benchmark EUR/USD rate firmly back over the $1.12 level on the news. The softer dollar tone was also supported by weaker US retail sales and industrial production data. Global trade tensions took solace from US Treasury Secretary Mnuchin when he suggested that the US is “close to an understanding” with Canadian and Mexican steel tariffs. On a slightly more negative note, it appears that Mr. Trump’s relentless beef with China is set to continue, as he has apparently signed an executive order that is expected to restrict Chinese tech behemoths Huawei and ZTE from selling equipment in the US.
Up today: Earlier this morning we had French employment data, which all came in as expected. Up next we get to see final CPI data for Italy followed shortly thereafter by EZ trade data. We are due to be getting some words of wisdom from ECB heavy hitters, Benoit Coeure, Peter Praet, Luis de Guindos and Jens Weidmann (in a Bundesbank capacity). The BoE’s Jonathan Haskel is to speak later this evening. In the US, April’s building permits and housing stats are rolling out in tandem with the Philly Fed survey and initial jobless claims. We may get some Fed insight form Fed members Lael Brainard and Neel Kashkari as they are both due to speak on monetary policy after the European close this evening.