Hibernia Reit says compression of building materials could last nine months

A squeeze on building materials that is driving up construction costs could last up to nine months, predicts Kevin Nowlan, managing director of Hibernia Real Estate Investment Trust (Reit).

A €67m drop in the value of its properties following the Covid-19 crisis left office developer Hibernia Reit with a loss of €25.2m for the 12 months ended 31 March, its last fiscal year.

The company made a profit of 61 million euros during the financial year ended March 31, 2020. Rental income from the offices it rents to tenants and changes in the value of these properties determine the profit and loss. of Hibernia.

Speaking after the results were released, Mr Nowlan confirmed that Hibernia was monitoring a shortage of key building materials including steel, timber and insulation which has driven prices up to 20%.

“Supply chains are all messed up right now – it will take six to nine months for that to sort itself out,” he said.

Mr Nowlan added that this would be a short-term phenomenon, pointing out that there were similar shortages and price inflation in 2012/13 when construction began to recover from a long slump .

Hibernia is completing construction of its Cumberland Place office complex in central Dublin, where it has agreed to lease the top three floors to US conglomerate 3M, which will house part of its healthcare business there.

The company agreed to lease the offices to Minnesota-based 3M in April 2020, shortly after the government locked down the Republic to fight the first wave of Covid. Mr Nowlan said there was good interest in the remaining four floors.

Building permit

Hibernia hopes to start work early next year on its planned 14,120 square meter (152,000 square foot) project at Clanwilliam Court, for which it has received planning permission from An Bord Pleanála.

Mr Nowlan said the company would start redeveloping Garda’s regional headquarters in Harcourt Square, which it bought for 70 million euros in 2015, in early 2023.

Hibernia is focused on developing and letting office space in central Dublin, where its top tenants include technology companies Twitter, Hubspot and Riot Games.

Mr Nowlan argued the pandemic could leave the capital with a two-tier office market. He predicted that new buildings, which meet environmental and sustainability requirements for businesses, would attract tenants. “But I think you’re going to see older buildings in trouble unless owners are willing to invest heavily in them.”

Overall, he said the next 12 months will be difficult for the Dublin office market as vacancies have increased during the pandemic.

Mr. Nowlan argues that Hibernia had anticipated tenant demands for sustainable buildings in its developments. For example, Cumberland Place would be a “near zero carbon” office.

He also thinks companies are mostly sticking to providing a desk for every worker rather than shrinking space because employees need these facilities.

Hibernia property values ​​fell 4.4% to 1.43 billion euros in the 12 months to March 31. year.

Optimism

Hibernia said Wednesday that 99% of rent due had been received or agreed to by the end of March.

“With Ireland’s vaccination program accelerating and a government roadmap for easing lockdown restrictions, optimism is growing, and this is starting to show in the active demand for office space and requests tenants,” Mr. Nowlan said in a statement.

Hibernia Reit has proposed a final dividend per share of 3.4 cents, bringing the total for the year to 5.4 cents.