Dublin property investors had better hope that Brexit happens soon.

They should also hope that it’s not just a ‘hard’ Brexit, but a granite Brexit — a Brexit that’s as hard as possible. They should be betting on the buffoonery of Boris Johnson, down on both knees praying for a massive barney between Davis and Barnier. A granite Brexit might prompt the migration of hundreds of corporate refugees from isolated London to the freewheeling safe haven of Dublin. If Brexit doesn’t drive a massive uptake in demand for prime property, we are in for a massive wobble in our inflated commercial property market.

Before we remind ourselves how this property story goes, let’s have a look at the facts: the glossy brochures are back, stockbrokers are packaging all sorts of property-related products to “investors”, the price of ad space in the property porn sections of the press is surging and of course the skyline is full of cranes and Armagh flags.

CBRE – a property-flogging outfit – tells us there are currently 31 office schemes under construction in Dublin, which is more than 380,000sqm in the pipeline. They tell us that more than 30% of this stock is already let. It also gushes that 44% of the office stock due for completion before the end of this year has already been pre-let. Meanwhile, agents tell us that prime office rents in the Dublin market stand at approximately €673 sqm.

It looks like things couldn’t be healthier.

Office take-up in Dublin surged 101,000sqm in the past three months, bringing total take-up in the first half of this year to more than 150,000 sqm. That’s a lot of space. 81 individual large office lettings were signed in Dublin since March (45 to Irish companies; 18 to US firms and 11 to the Brits). This is more than double the figure for the period from January to March.

The market is tight, hence all the building. The vacancy rate in the city centre is only 4.5% and yields for investors are stable at 4.6%. This is only because rents have been surging to keep up with the soaring prices.

Before we get carried away, remember rents are a cost and Ireland is competing with other European countries, so let’s compare our prices, not with some of Europe’s poorest countries, but why not with its richest, Germany? This will give a bit of perspective.

Comparing our prices with similar rents in Germany, we see that Dublin is already massively more expensive. Prime rents in Frankfurt are €474 sqm per annum. Remember Dublin is charging €673 sqm. The difference — €199 per annum — means that Dublin is 42% more expensive than Germany’s most expensive city. Once you start comparing other German cities, the extent of Ireland’s commercial property rip-off becomes more evident. Take Munich, capital city of Germany’s richest province Bavaria. Prime rents in Munich are €420 sqm per annum. In Hamburg, Germany’s sophisticated northern powerhouse, prime rents are €312 sqm per annum, while in Dusseldorf, the cross-road of Europe, prime real estate will set you back €318 sqm per annum – less than half of what it costs you in Dublin.

In all German markets, vacancy rates are higher so that means there’s much more choice.

When the price of something as basic as office space is profoundly more expensive in a country that has a much lower economic footprint, much smaller population and less rich capital base, you should worry.

The rebound in the Dublin commercial property market has been significant; just look at the chart below.

Figure 1 Dublin Office Rent by Building Type (2009 = 100)

Corporate Rent

But now we have a problem: what is driving prices?

We know that the foreigners bought up huge amounts of Irish commercial property from NAMA, who themselves had bought it from bust Irish banks and developers. So the foreigners got in early. Now they are flogging their portfolios as they’ve had their fun and have no long-term ambition to be Irish landlords.

So who are they selling to?

This is where Paddy comes back into the picture having been out of the loop since 2008/9.

Paddy has not been in the market for ages, but now is clambering to get in. Irish pension funds are now buying expensive property from the newly minted foreign investors. Now here is a double dilemma for Ireland. If Irish pension funds have bought expensively, they have a vested interest in keeping rents high because if rents were to fall, their yield would fall and the value of the pensions under management would fall too.

So Irish pension funds are going to keep rents up, keeping Dublin’s rents between 40% and 50% more expensive than similar rents in Germany.

Do you see what is happening here? Irish retirees who are out of the workforce will have their pensions maintained by exorbitantly high rents in Dublin. Now who pays the price for this? Well we could content ourselves that it’s the businesses that will have to pay this rent. But that’s not how the world works.

Businesses allocate expenses and the two largest expenses are wages and rents. So if rents are higher than anywhere else, wages have to be lower in order to make the investment decision to come to Ireland worthwhile.

So who pays the price of exorbitant rents? Irish workers in the fancy offices do via lower wages than would otherwise be the case!

And what’s the social impact of this?

Well, it can be seen in the crisis in housing for young people and the huge increases in commuting we are seeing as these youngish workers have to live miles away from their work to afford housing — not just because the houses are so expensive, but because their wages are lower than they would otherwise be, at the same time as rents are driven up!

Meanwhile the foreign investors have got out with their profit and the Irish are left thinking they can get rich by selling Ireland to each other.

Wait, haven’t we seen this before? Maybe Brexit will ensure a happy ending this time?