With a skillful workforce and a competitive pro-business economy, Ireland retains its crown as one of the fastest growing economies in Europe. And thanks to its attractiveness to foreign investors and companies, it’s set to grow even more, says Greg Flynn.
Ireland, the largest and most populous English speaking country in the Eurozone, has been one of the fastest growing economies for the past four years. In the face of global economic and political uncertainty, Ireland remains a stable, competitive, pro-business economy focused on high-tech, life sciences and financial service industries.
It will remain a core member of the EU single market and Euro currency, with the youngest population in Europe (approx. 50 per cent under 35). It boasts a highly skilled workforce which is positive about their commitment to Europe; 86 per cent are in favour of free movement of EU citizens to live, work, study, and do business (the EU average is 81 per cent). Unemployment has halved in four years to six per cent in February 2018 — below the EU (7.3 per cent) and Eurozone (8.6 per cent) averages.
To top it all off, the Irish economy grew by 7.3 per cent in 2017, with GDP expected to grow by 4.7 per cent in 2018 and 3.9 per cent in 2019 according to the Economic and Social Research Institute’s (ESRI) latest quarterly commentary. This growth is reflected in the country’s different sectors.
Shifting the focus
The office sector proved to be the best performing commercial property sector in 2017. Multi-unit residential investment transactions have increased. Previously accounting for just six per cent of the Dublin commercial property investment market in 2016, it surged to 17 per cent in 2017.
In its 2018 budget, Ireland’s government increased stamp duty — a tax paid by the buyer on the purchase price of a property — on commercial property transactions from two per cent to six per cent. It is expected to turn investors’ attention from purely commercial properties to residential markets, with stamp duty levels for multi-family sales unchanged at just one per cent for the first €1 million and two per cent thereafter.
Investors are particularly interested in build-to-rent products, with the ability to achieve full market rents that would not be possible for existing stock. The government’s efforts to review the underlying costs of apartments, including updating planning apartment design guidelines, is welcomed and seen by the industry as a positive step towards maturing accommodation sectors.
Both sale and rental prices for Irish housing have risen sharply in recent years. This is particularly acute in Dublin, where sale prices have increased by 55 per cent and rental prices by 65 per cent in the last five years. This reflects strong demand but very weak supply. In relation to demand, Ireland requires at least 35,000 new homes each year to accommodate obsolescence, falling household size, a natural increase in the population and likely migration pressures.
Attracting overseas investment
According to IBM‘s Global Locations Trend 2017 Annual Report, Ireland has achieved first place for seven years in a row in the world rankings for attracting high-value projects. It is a formidable hub for attracting Foreign Direct Investment (FDI), with a small and highly globalised economy bolstered by a corporation tax rate of 12.5 per cent (since 2003), and tax treaties with 72 countries.
The IBM report also talks about future global investment activity, and the transformative effect of digital disruption. The convergence of technologies, such as the Internet of Things, big data, analytics, mobile and social collaboration called “the fourth industrial revolution”, is bringing a new wave of technological advancement that promises to radically transform how work gets done.
Ireland is ahead of the curve in planning for this digital revolution. It is already attracting companies that embrace technologies of the future like robotics, artificial intelligence, virtual reality, etc.
Global data centre hub
The explosive growth of the data centre industry is a clear sign of digital transformation. Data centres are the most space and time efficient way of storing data and their importance goes largely unnoticed in the market today. They are a large group of networked computer servers, typically used by organisations for the remote storage, processing and distribution of data. Data centres come in all shapes and sizes but share a number of common characteristics. They are highly secure, require a lot of power and are heavily cooled.
The exceptional rise in the demand for data storage space is being driven by the Internet of Things, and there was €21.5 billion worth of investment in the European data centre market in 2017 with activity doubling year-on-year since 2011.
Active Irish government support for inward investment by hyperscales such as Amazon and Microsoft has resulted in the construction of massive facilities around Dublin. Even now authorities are seeking to identify potential land banks for new large-scale data centre facilities in Ireland, which indicates that the supply of more space will continue to enter the market.
Connectivity is a key factor in the country achieving its status as a premier data centre hub. Ireland is supported by a range of international cable capacity, with the first direct submarine cable system from Ireland to France (bypassing the UK) due to be launched from Q3 2019. The country also has a high installed base of fibre and dark fibre with further deployment planned. Should all current plans for third-party expansion come to fruition, a total investment of €740m will be made by the end of 2020.
Reaching for the top
The overriding attraction of Ireland is due to its status in the EU, low tax rates, skilled labour force, English speaking, track record and trade links with multinationals and a strong legal and regulatory framework that supports and makes doing business easy. It has also fostered the development of renewable energy – primarily wind energy.
The government’s launch of the €116 billion Project Ireland 2040 should serve as an engine to continue pulling the economy forward. This ambitious plan will require a significant mobilisation of appropriate resources and mechanisms to move Ireland close to the top of the international league table for public investment.