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23.07.2020

Lisbon vs. Dublin – Observed from the eyes of a newly arrived Irishman

Mark J O’Brien • Founder & CEO of Revelate Capital

 

I was speaking to Miguel recently in his office and the conversation switched to why I had moved to Lisbon and what I specifically was interested in looking at in terms of real estate projects, as a result I decided to put some thoughts on paper in order to clearly explain why I have moved here and what I see in Lisbon that reminds me a lot of Dublin.

I have moved to Lisbon in the last 9 months after spending 21 years in London. I have a private equity real-estate business which focuses on delivering newly built real estate projects that feed into the themes of economic growth centered around

FDI. (Foreign Direct Investment). So mainly office and housing, both social and PRS.

Since 2012 I have been focused entirely on the Dublin market as like Portugal we had a very severe economic collapse post credit crunch. As a result, virtually all of the domestic real estate businesses were wiped out, many never to return.

As a result, there was a skill set and capital shortage in the Irish market and this exacerbated an already significant undersupply of residential units in the City, but also student accommodation, office space and hotel beds.

From 2008 to 2012 Ireland was almost at a standstill but thankfully since then the market has seen a significant influx of external capital, a restructure of how the market works from a risk perspective, essentially taking the taxpayer off the hook for real estate cyclical downturn. This has led to significant growth in delivery of all of the above asset classes resulting in annual newly built office take-up of close to 300,000m2 per year with sub 5 % vacancy. In 2019 we had inward investment of €7.5bn of external capital in Irish real estate projects.

We are now seeing a wave of housing delivery, but it will take years to resolve the undersupply and make rents more affordable. This is again a consistent issue across Europe and is an issue here also.

I see a lot of similarities between Portugal and Ireland, culturally, societally and also commercially. Ireland has been very lucky over the least 30 years to capitalize on a wave of growth in FDI. In the 5 years to 2019 alone Ireland won 1,209 investments leading to the creation of 112,327 new high value jobs. Average salary of these jobs created is €60k. In 2018 we had €8.2bn of spend from FDI companies on Irish goods and services, leading to €13.3bn of payroll spend and capital investment of €6.4bn.

The key driver around this growth and our strong economic recovery post 2008 is levered off FDI which then has fed domestic economic growth. This is driven by the number of international companies that we have attracted to Ireland. This has in turn led to the creation of a significant number of highly skilled jobs in the economy.

The main reason I am in Lisbon apart from the lifestyle change compared to London is because I believe that Portugal can be at least as successful as Ireland in attracting FDI companies to set up operations in Portugal and clearly this is already happening.

Portugal has an extremely attractive and highly skilled workforce, it has a very high quality of living, a much lower overhead than most European Cities, prime office rent is 30/40% of the cost of Dublin as an illustrative example.

What it needs to do now is really capitalize on those attributes and boost income levels by attracting foreign companies here. That process is well under way but real estate delivery is holding it back. This goes back to certainty over timelines for delivery of projects, specifically the granting of PIPs in order to facilite this influx of jobs and capital. This makes it easier for international capital to take the risk on delivering projects and it then allows foreign companies to make plans to rent office space and have certainty that they can house workers also.

Ireland has brought in a fast track planning system to deliver residential projects in order to make up for the mistakes we have made in the past and in my opinion,

Portugal needs to do the same. There should be a fast track planning system in place in order to facilitate the acceleration of projects that lead to job creation and housing delivery. These are key issues that you need to look 5-20 years ahead of or they will continue to stunt potential growth.

On reflection I am delighted to have moved here and I am sure that I will enjoy living and working in Portugal. The only thing I have to do now is learn how to speak Portuguese which is going to take a little longer than I initially planned!!

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