Dublin Economic Monitor - April 2017

Dublin Economic Monitor issue 9

april 2017

In this issue LATEST DUBLIN ECONOMIC DATA IHS MARKIT DUBLIN PMI KBC/ESRI CONSUMER SENTIMENT DUBLIN’S ECONOMIC RESURGENCE CONTINUES

F

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A T

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PAGE 12

PAGE 14

By Ronan Lyons, Assistant Professor, Trinity College Dublin

By Colm McCarthy

HOUSING AND DUBLIN’S COMPETITIVENESS: ACCOMMODATING THE CITY’S GROWTH

INFRASTRUCTURE INVESTMENT & ECONOMIC GROWTH

WELCOME

HIGHLIGHTS Dublin's unemployment rate dipped for a second consecutive quarter in Q4 2016, falling below 7% for the first time in over 8 years.

Residential rents in Dublin for both houses and apartments rose markedly in Q4 2016, widening the gap between the Capital and the rest of the country.

Residential property prices continued to increase at rates in excess of 5% YoY between November 2016 and January 2017.

Arrivals at Dublin Airport reached a new peak of over 1.2 million in December 2016 to cap an exceptionally strong year in which 13.8 million passengers arrived overall.

Cargo handled at Dublin Port remained close to peak levels with a throughput of 8.8 million tonnes in Q1 2017, but passenger trips fell back in the quarter.

The Dublin MARKIT PMI Dublin PMI data signalled continued strong growth in business activity in Q1 2017, largely driven by the services and construction sectors.

Dublin KBC/ESRI Consumer sentiment in Dublin strengthened in Q1 2017 as expectations of future finances and employment improved. cover image: Docklands

by Conor McCabe

welcome to the april 2017 issue of the dublin economic monitor

T

he Dublin Economic Monitor is a joint initiative on behalf of the four Dublin Local Authorities, co-ordinated by the City Council. The Dublin Region (four Dublin local authorities combined) plays an increasingly important role in the economy of Ireland and it is important that its performance is properly tracked. The Monitor is designed to be of particular interest to those living and doing business in Dublin or considering locating here.

It is produced by DKM Economic Consultants, with KBC/ESRI delivering the Dublin consumer sentiment data and IHS MARKIT delivering the Dublin Purchasing Managers’ Index (PMI). The monitor is celebrating its second birthday this month and we are seeking feedback from

readers to assist us in strengthening the content and ensuring that it continues to promote the Dublin economy.

In this edition we have a special article by Ronan Lyons, Assistant Professor at Trinity College Dublin, who assesses the effects of housing on Dublin’s competitiveness. There is also a special article from Colm McCarthy of the UCD School of Economics on infrastructural investment.

You can sign up to our quarterly mailing list and access the Monitor online at www.dublineconomy.ie. We hope you find the Monitor useful and welcome any feedback to info@leo. dublincity.ie. The next release will be published online on 27th July 2017.

Interactive charts from the Monitor are available on the Dublin dashboard www.dublindashboard.ie.

Dublin City Council

Fingal County Council

South Dublin County Council

Dún Laoghaire Rathdown County Council

This document provides general information on the Dublin economy. It is not intended to be used as a basis for any particular course of action or as a substitute for financial advice. The document is produced independently by DKM Economic Consultants; the views and opinions expressed are those of the relevant author, and do not necessarily reflect the views of the Dublin Local Authorities. The Dublin Local Authorities disclaim all liability in connection with any action that may be taken in reliance of this document, and for any error, deficiency, flaw or omission contained in it.

2 //

ECONOMY

GLOBAL ECONOMY

NATIONAL ECONOMY

Global economic growth is expected to rise to 3.3% in 2017 from a 7 year low of 3% in 2016, as developed economies show signs of greater economic activity coupled with rising consumer and business confidence. Increases in both interest rates and oil prices are regarded as threats to the ongoing recovery, though global growth is expected to be supported by improved performances in emerging market economies such as India.

In the US, growth is forecasted to sharpen to 2.4% in 2017 on the back of fiscal expansions by the Trump Administration, an improving labour market and increased domestic demand. The anticipated expansion in economic activity is expected to strengthen into 2018, though rising interest rates and the appreciation of the dollar may act as counterbalances.

Preliminary National Accounts results for 2016 show that, at 5.2%, Irish GDP grew at the strongest rate in the European Union in the year. This robust economic performance was notable as the major sectors of the Irish economy all experienced growth.

On the expenditure side, personal consumption – which is a strong bellwether of the domestic economy’s health – recorded an expansion of 3% in 2016, and was complemented by growth of 5.3% in public expenditure. Net exports fell by 22.8% in the year, but this significant decrease was more than offset by an increase in investment of over 45%. Such sizeable shifts in both net exports and investment were due in large part to the import of intellectual property products into Ireland in the year.

euro: sterling exchange rate

historic & expected contribution to gdp growth, 2008-2018f 30%

€1.35

25%

Contribution to GDP Growth

€1.30

€1.25 General Election Proposed

€1.20

€1.15

15% 10% 5% 0% -5%

Brexit Referendum Result

20/04/17

25/03/17

27/02/17

01/02/17

06/01/17

11/12/16

15/11/16

20/10/16

24/09/16

29/08/16

03/08/16

08/07/16

12/06/16

17/05/16

21/04/16

source: central bank of ireland.

The economic outlook for the UK points to a further reduction in growth in 2017 as uncertainty regarding the June 8th General Election, Brexit and the country’s future trading relationships weighs on economic performance. Business investment is expected to fall while consumer expenditure could also decrease further as rising inflation erodes real incomes. This inflation is in large part due to the weakening of Sterling relative to currencies such as the Euro (see chart), meaning that import prices have risen.

Within the Eurozone, economic activity is forecasted to remain broadly stable through to 2018 as the ECB’s accommodative monetary policy aids the modest recovery. The OECD has stated that space exists for more ambitious fiscal policies in Europe and, if implemented, such measures would contribute towards tackling high unemployment rates, particularly in the likes of Spain (18%), Italy (11.5%) and France (10%).

global uk us euro area germany japan china india source: oecd, march 2017.

2017 %f

2018 %f

3.0 1.8 1.6 1.7 1.8 1.0 6.7 7.0

3.3 1.6 2.4 1.6 1.8 1.2 6.5 7.3

3.6 1.0 2.8 1.6 1.7 0.8 6.3 7.7

Government Expenditure

Investment

Stock Changes

Net Exports

GDP Growth

2018F

2017F

2016E

2015

2014

2013

2012

Consumption

source: cso 2008-2016e, esri qec 2017f & 2018f.

Forecasts point to a softening of GDP growth to close to 4% in 2017 as investment and public expenditure moderate. Construction is expected to play a stronger role in the economy over the medium term and should have a greater bearing on domestic factors such as investment. Net exports are forecasted to encounter further challenges in 2017 as the weakening of Sterling in particular poses considerable challenges for the export sector in particular.

Encouragingly for the Irish economy, unemployment is expected to drop below 7% for the year. This would be a notable development given that the rate peaked at over 15% during the economic crisis.

It would also provide a stimulus for the public finances as social welfare payments decline and tax revenues increase from greater employment levels, though Exchequer tax returns were surprisingly 2.4% behind target in Q1 2017.

irish macroeconomic growth forecasts

major economies gdp growth forecasts 2016 %E

2011

2010

2009

-10% Conservative Party Conference

2008

Article 50 Triggered

€1.10

€1.05

20%

gnp gdp private consumption public expenditure investment exports imports unemployment rate cpi inflation debt:gdp ratio* source: esri qec spring 2017.

2016 %E

2017 %f

2018 %f

9.0 5.2 3.0 5.3 45.5 2.4 10.3 7.9 0.0 74.9

3.5 3.8 3.1 2.5 9.6 5.9 7.6 6.4 0.6 70.8

3.4 3.6 3.0 2.6 8.7 5.6 7.7 5.6 1.1 67.2

*general government balance.

// 3

DUBLIN ECONOMY

DUBLIN’S ECONOMIC RESURGENCE CONTINUES DESPITE INTERNATIONAL THREATS consumer & business confidence rise as the capital's labour market improves further for the first quarter of 2017 showed sustained growth over previous quarters. Andrew Harker, Senior Economist at IHS Markit, explains:

“Dublin consumer sentiment showed a welcome improvement in the first three months of 2017 having weakened in each of the three previous quarters. The recovery in confidence reflects an easing in worries about household spending power and an associated rise in their spending plans. While consumers in the Capital remain cautious because of an uncertain global economic outlook, the survey suggests they are seeing some modest improvement in their own financial circumstances.’

In line with the broadly positive economic performance of the Capital, Dublin’s IHS Markit Purchasing Managers’ Index (PMI)

regional economic performance The recent publication of revised regional GDP data for 2014 and the preparation of a new national strategic planning and development framework ‘Ireland 2040 –Our Plan’ has focussed attention again on the issue of ‘balanced’ regional development. The regional GDP data highlights the extent to which the dominance of Dublin in the national economy has grown over recent years and especially since 2011: • Dublin’s share of national GDP increased from 39.6% in 2007 to 45.2% in 2014, • The share of GDP accounted for by Dublin and the Mid East regions increased from 49.1% in 2007 to 53.5% in 2014. (The Mid East region’s share fell from 9.5% to 8.3% over the same period).

• By 2014 national GDP in constant 2014 prices was just 1% above its previous peak level in 2007. Using the national GDP deflator Dublin (+15.1%), the West (+1.7%) and the South West (+3.7%) were the only regions where GDP had recovered above its 2007 level in real terms by 2014. In all other regions GDP in 2014 was below its level in 2007.

4 //

“While the headline index from the latest Dublin PMI dataset signalled an easing in the rate of output growth in Q1, the latest findings are still extremely positive. Output itself continued to rise sharply, but more importantly companies in Dublin saw new business increase at a pace not seen since the end of 2015. This should help to keep business activity well inside growth territory as we head through the year. Rising workloads also fed through to more positivity regarding the Dublin labour market as companies felt confident enough to take on staff at the strongest pace for two years.

Similar trends were seen across the Rest of Ireland, suggesting that both the Dublin and wider Irish economies are set to perform well in coming months.”

regional shares of national gdp, 2007- 2014 (in constant prices 2007 = 100)

2007 100 100 100 100

dublin dublin & mid east rest of state state

2011 96.2 92.6 93.5 93.1

2014 115.1 109.9 92.3 100.9

regional shares of national gdp, 2007-2014 55% 53.5%

53% 51.1%

50.9%

51% 49.1%

49% % of National GDP

Although the global economic environment continues to face considerable uncertainty, not least with a General Election looming in the UK, the Dublin economy is performing strongly. The Capital’s unemployment rate is a key positive feature of Dublin’s recent economic performance. The rate fell by considerable proportions in the final two quarters of 2016 to stand at 6.3% in Q4. This is the lowest rate recorded since mid-2008 and comes on the back of strong YoY employment increases, particularly in the Private Services and Construction sectors.

Such positive developments in Dublin’s labour market appear to have contributed towards an improvement in Dublin’s consumer sentiment index in Q1 2017, according to KBC/ESRI. Austin Hughes, Chief Economist at KBC Bank Ireland, notes:

48.9%

46.5%

47% 45.2%

45% 43% 41%

41.0% 39.6%

39% 37% 35%

2007 Dublin

source: cso

2011 Dublin & Mid East

2014 Rest of State

DUBLIN ECONOMIC INDICATORS

DUBLIN ECONOMIC INDICATORS

unemployment continues to decline

16%

q4 ' 16 6.3% -1.5 627.0 +18.9

source: cso qnhs seasonally adjusted.

Dublin Max 13.1%

12% 10% 8% 6%

strengthening employment across the dublin economy q4 ' 16 540.6 +12.7 82.2 +7.8

source: cso qnhs, seasonally adjusted BY DKM.

Employment levels across the four main sectors of the Dublin economy recorded growth in the final quarter of 2016 as the labour market gained momentum. In absolute terms, the most robust YoY growth was recorded in the Private Services sector where over 9,400 jobs (seasonally adjusted) were created, representing a 2.5% increase. More than 5,200 jobs were generated in Construction YoY, a rise of over 19%. YoY growth returned to the Public sector with an increase of 1.7%, while employment grew by 5.2% YoY in the Industrial sector.

4%

Dublin

Q4 16

Q2 16

Q4 15

Q2 15

Q4 14

Q2 14

Q4 13

Q2 13

Q4 12

Q4 11

Q2 12

Q2 11

Q4 10

Q2 10

Q4 09

Q2 09

0%

Q4 08

2%

Q2 08

Dublin's unemployment rate dipped for a second consecutive quarter in Q4 2016 to fall below 7% (seasonally adjusted) for the first time in over 8 years. At 6.3%, the rate was 1.5 percentage points (pp) below the same period in 2015 and reflected strong employment levels which had grown by almost 19,000 jobs YoY. The Dublin unemployment rate was 0.8pp below the national rate of 7.1% in the quarter. The Live Register monthly national estimate of unemployment has fallen further since Q4 2016, and thus it would be expected that the Dublin rate has also declined.

services employment '000s (sa) year on year change '000s (sa) industry & constr, employment '000s (sa) year on year change '000s (sa)

National Max 15.1%

14%

Q4 07

dublin unemployment (sa) year on year change % points (sa) dublin employment '000s (sa) year on year change '000s (sa)

dublin & national unemployment rate % (sa)

National

source: cso qnhs. dublin seasonally adjusted by dkm.

Note: series has been re-calibrated since last issue

employment by broad sector '000s (sa) 700

Max: 633,500

620,600

600 500 400 300 200 100 0

Q4 07

Q4 08

Q4 09

Q4 10

Private Sector Services

Q4 11

Q4 12

Public Sector

Q4 13 Industry

Q4 14

Q4 15

Q4 16

Construction

source: cso qnhs seasonally adjusted. note: individual sector values may not sum to total due to rounding.

// 5

DUBLIN ECONOMIC INDICATORS services employment maintains momentum private sector services employment '000s (SA)

year on year change '000s (SA) public sector services employment '000s (SA)

year on year change '000s (SA)

q4 '16 383.5 +9.5 155.0 +2.6

employment in services '000s (SA) 600

Max: 538,500

500

400

300

source: cso qnhs. seasonally adjusted by dkm.

Employment levels in the public and private services sectors expanded in Q4 2016 with very strong growth occurring in a number of areas. In seasonally adjusted terms, the greatest proportional YoY expansion was recorded in Transportation & Storage (+12.7%), followed by Public Admin (+8.5%), Professional/Scientific/Technical (+7.7%), Financial/Insurance (+7%) and ICT (+4.5%). The most notable YoY decline occurred in Wholesale & Retail where employment levels dropped by 2,800 or 3.4%. Each of the other services sectors remained broadly stable YoY.

dublin property prices increase further

100

0

Q4 07

Q4 08

Q4 09

Q4 10

Q4 11

Q4 12

Q4 13

Q4 14

Q4 15

Q4 16

Health

Education

Public Admin

Wholesale & Retail

Prof/ Scientific/ Tech

Financial/ Insurance

Transport & Storage

Accommodation & Food

ICT

Other source: cso qnhs. seasonally adjusted by dkm. note: individual sector values may not sum to total due to rounding.

residential property price index (2005 = 100) 140

110 100 90 80 70 60

Dublin

Jan 17

May 16

Sep 15

Jan 15

May 14

Sep 13

Jan 13

May 12

Sep 11

Jan 11

40

May 10

50 Sep 09

Residential property prices in Dublin continued to increase at a YoY rate of over 5% between November 2016 and January 2017. Residential prices in the Capital stood at 91.2 on the index in January, 5.3% above the same month in 2016. The trend of stronger property price growth rates outside Dublin continued into 2017 with YoY growth exceeding 11% in each of the last three months.

120

Jan 09

source: cso. note: this index now includes both cash- and mortgage-based transactions.

Dublin Max 133.3

130

May 08

jan ' 17 91.2 +5.3 82.0 +11.3

Sep 07

property price index dublin year on year % change property price index national excl dublin year on year % change

200

National Excl Dublin

source: cso.

residential rents rise sharply in q4 2016

€1,550

6 //

€1,250 €1,150 €1,050 €950 €850 €750

Dublin House

source: rtb.

Dublin Apt

National ex Dublin House

National ex Dublin Apt

Q4 16

Q2 16

Q4 15

Q2 15

Q4 14

Q2 14

Q4 13

Q2 13

Q4 12

Q2 12

Q4 11

Q2 11

Q4 10

€550

Q2 10

€650 Q4 09

The rate of growth of residential rents in Dublin increased markedly in Q4 2016 as average rents for both houses and apartments reached new peaks. The YoY growth rate of house rents accelerated to 6.6% and brought average rent levels to in excess of €1,500 per month. The YoY growth rate for apartment rents was even stronger at 11.1% as average rents stood at €1,448. This was €145 above the same period in 2015. Although positive, growth rates outside Dublin were lower in Q4, with the result that the gap between rents in the Capital and the rest of the country widened.

€1,350

Q2 09

source: rtb.

Dublin Apt Max: €1,448

Q4 08

q4 ' 16 1,522 +94 1,448 +145

Dublin House Max: €1,522

€1,450

Q2 08

dublin house rent € per month year on year change € dublin apartment rent € per month year on year change €

residential rents € per month

DUBLIN ECONOMIC INDICATORS office rents return to growth in first quarter of 2017 city centre office rent index year on year % change south suburbS office rent index year on year % change

q1 '17 113.7 +8.7 110.0 0.0

dublin office rents index (2006 = 100) 120

City Centre Max = 113.7 South Suburbs Max = 110

110 100 90 80

source: CBRE

70

office vacancies rise marginally despite increasing demand vacancy rate % dublin 2/4 year on year change % points vacancy rate % dublin suburbs year on year change % points

q1 '17 5.8 -0.1 9.7 -1.5

60

City Centre

Q1 17

Q3 16

Q1 16

Q3 15

Q1 15

Q3 14

Q1 14

Q3 13

Q1 13

Q3 12

Q3 11

Q1 12

Q1 11

Q3 10

Q1 10

Q3 09

Q1 09

Q3 08

Q1 08

40

Q3 07

50

Q1 07

Headline office rents returned to strong growth levels across most parts of Dublin in Q1 2017. Increases were sharpest in the North and West Suburbs where rents rose by 17% and 18% YoY respectively. In the City Centre, rents increased by 4.3% QoQ and 8.7% YoY to equal the 2008 peak of 113.7 on the index. Rents were stable in the South Suburbs in Q1, remaining at 110 on the index for an eighth consecutive quarter.

South Suburbs

source: cbre.

dublin office space vacancy rates % 30%

Dublin Suburbs Max = 25% Dublin 2/4 Max = 20.6%

25% 20% 15%

source: cbre.

10%

Q1 17

Q3 16

Q1 16

Q3 15

Q1 15

Q3 14

Q1 14

Q3 13

Q1 13

Q3 12

Q1 12

Q3 11

Q1 11

Q3 10

Q1 10

Q3 09

Q1 09

Q3 08

Q1 08

public transport million trips (sa) 52 51 50 49 48 47 46 45 44

Q4 16

Q2 16

Q4 15

Q2 15

Q4 14

Q2 14

Q4 13

42

Q2 13

43 Q4 12

Passenger trips on Dublin's public transport system declined for a third consecutive quarter in Q4 2016. The system had been affected by industrial action in Q3 but such events did not arise in the final quarter of the year. However, schools were closed for a number of days in Q4 due to teachers' industrial action and this may have contributed to a seasonally adjusted YoY decline in public transport usage of 1.2 million trips or 2.4%. Across 2016, over 197 million passenger trips were undertaken, representing an increase of 4.4% or 8.3 million compared to 2015.

Dublin Suburbs

source: cbre.

Q2 12

source: nta seasonally adjusted by dkm.

Dublin 2/4

Q4 11

public transport million trips (sa) year on year change (sa)

q4 '16 47.9 -1.2

0%

Q2 11

public transport trips decline in q4 2016

5%

Q4 10

The Dublin office vacancy rate increased in Q1 2017 despite rising demand for space. In the Dublin Suburbs, the vacancy rate remained broadly stable in the quarter, but the rate for Dublin overall increased by 0.4 percentage points (pp) QoQ to stand at 7%. The most significant increase in vacancy was recorded in Dublin 2/4 where the rate rose by 1.1pp QoQ to stand at 5.8%. Such increases may be an indicator of new supply coming on stream across the Dublin market.

source: nta. seasonally adjusted by dkm.

// 7

DUBLIN ECONOMIC INDICATORS over 13.7m passenger arrivals at dublin airport in 2016

source: cso, seasonally adjusted by dkm.

1,250

Max: 1,219

1,150 1,050 950 850 750 Severe Winter Weather

650

Dec 16

Feb 16

Apr 15

Jun 14

Aug 13

Oct 12

Dec 11

Apr 10

Jun 09

550

Feb 11

Icelandic Ash Cloud

Aug 08

Arrivals at Dublin Airport continued to grow in the final quarter of 2016, and reached the highest point in the series in the month of December. A seasonally adjusted total of over 3.58 million passengers arrived in Q4, and this was 341,000 passengers or 10.5% above the same quarter in 2015. December was a remarkably strong month as almost 1.22 million passengers arrived at the airport. Overall, 13.79 million passengers arrived in Dublin across 2016, 1.37 million or 11.1% above the 2015 figure.

Oct 07

total arrivals '000s (SA) year on year change '000s (sa)

dec '16 1,218.8 +134.7

dublin airport arrivals '000s (sa)

source: cso. seasonally adjusted by dkm.

2,000

1,600 1,400

source: declg. seasonally adjusted by dkm.

1,200

Over 4,200 house completions occurred across the four Dublin local authority areas in 2016. This represented an increase of 46.5% or 1,343 units compared to 2015, though completion levels are rising from a very low base. Fewer than 380 houses were completed in January 2017 (seasonally adjusted) with the majority of the activity occurring in the DĂşn LaoghaireRathdown and Fingal local authority areas. On a positive note, over 5,400 units were commenced across Dublin in 2016 and will be expected to contribute towards a greater increase in completions over the coming quarters.

1,000

trade volumes at dublin port remain robust

Max: 1,900

1,800

800 600 400

Jan 17

Jul 16

Jan 16

Jul 15

Jan 15

Jul 14

Jan 14

Jul 13

Jan 13

Jul 12

Jan 12

Jul 11

Jul 10

Jan 11

Jul 09

Jan 10

Jan 09

Jul 08

Jul 07

0

Jan 08

200 Jul 06

total housing completions (sa) year on year change (sa)

jan '17 379 +64

dublin housing completions (sa)

Jan 07

house completion rate slow but commencements rising

source: dhpclg. seasonally adjusted by dkm.

dublin port tonnage million tonnes (sa) 9.0

Max: 8.9 million tonnes

8.5

8 //

7.0 6.5

Min: 6.3 million tonnes

6.0

source: dublin port. seasonally adjusted by dkm.

Q1 17

Q3 16

Q1 16

Q3 15

Q1 15

Q3 14

Q1 14

Q3 13

Q1 13

Q3 12

Q1 12

Q3 11

Q1 11

Q3 10

5.0

Q1 10

5.5

Q3 09

The total volume of cargo handled at Dublin Port reached a seasonally adjusted peak of 8.9 million tonnes in Q4 2016, before reducing marginally to 8.8 million tonnes in the first quarter of 2017. This represented a positive start to the new year as volumes stood 200,000 tonnes or 2.4% above the same quarter in 2016. This growth was driven by both imports and exports which experienced YoY expansions in the quarter.

However, passenger throughput at the port is of concern as total trips in Q1 2017 were over 9% lower than in Q1 2016 (nonseasonally adjusted).

7.5

Q1 09

source: dublin port. seasonally adjusted by dkm.

8.0

Q3 08

yoy change million tonnes (sa)

q1 '17 8.8 +0.2

Q1 08

dublin port million tonnes (sa)

DUBLIN’S INTERNATIONAL RANKINGS

INTERNATIONAL BENCHMARKS REFLECT DUBLIN’S COMPETITIVENESS

Internationally published benchmarks are a useful means of measuring a city’s performance relative to its peers, and recent indicators for Dublin confirm the city’s strong showing across a range of dimensions (see table below).

The benchmarks listed focus on a number of areas – attractiveness for FDI, the real estate market, quality and cost of living, business environment, university quality, start-up environment and tourism.

The Mercer 2017 Quality of Living Survey ranked Dublin 34th out of 231 global cities, behind European counterparts such as Vienna and Zurich, but ahead of all other British and Irish cities along with the likes of Paris, Madrid and Rome. The authors of

the report cited Dublin’s “excellent choice of consumer goods, lower levels of air pollution, stable political and strong socio-cultural environment” as key to its ranking. Dublin was also ranked as the top destination in the EU for London-based bankers moving after Brexit, according to an index of 15 cities compiled by relocation company, Movinga.

The city performed well in a Bank of America Merrill Lynch 2017 index of ‘smart cities’ where it placed 19th in the world. This was a reflection of the city’s technological and infrastructural features, and came in spite of its traffic being the slowest moving of any major city in the study.

In education, Trinity College was the only Irish institution to make it in to the top

150 in the Times Higher Education World University Rankings, though it dropped to 131st from its previous ranking of 101st.

Trinity and UCD also had top-100 positions for at least one subject apiece in the latest QS World University Rankings.

In terms of tourism, PwC reported that Dublin had the highest hotel occupancy rates in Europe at 82.5% in 2016, and this is expected to continue in to 2017 and 2018. The average room rate was €128 and is forecasted to rise further over the coming two years. Dublin Airport was also named as the fastest growing major airport in Europe last year by ACI Europe, on the back of high passenger numbers and the opening of new routes.

d u b l i n ' s l at e s t i n t e r n at i o n a l r a n k i n g s SOURCE

BENCHMARK CRITERIA

YEAR

RANKING

CHANGE‡

FDI Intelligence Global Cities of the Future

Socio-economic

2017

3

-

Global Financial Centres Index (GFCI)

Business environment, financial sector development, infrastructure, human capital, reputational & general factors; online survey

2017

31

▲

Movinga Brexit Relocation City Ranking

Lifestyle & cost of living factors

2017

1

-

PwC Emerging Trends in Real Estate Europe 2017

Real estate investment, development

2017

4

▼

JLL City Momentum Index

Real Estate

2016

3

▲

IMD World Competitiveness Yearbook Rankings (Ireland)

Economic performance, government efficiency, business efficiency & infrastructure

2016

7

▲

INSEAD Global Talent Competitiveness Index

Ability to grow, attract and retain talent

2017

10

-

Mercer 2017 Quality of Living Survey

Environmental/socio-economic

2017

34

▼

Times Higher Education World University Rankings

University quality

2017

131*

▼

ACI Europe Fastest Growing Major European Airports

Passenger arrivals & departures

2016

1

▲

CBRE European Tech Ranking

Tech clusters’ employment, growth and attractiveness credentials

2016

6

-

Bank of America Merrill Lynch Smart Cities Indicator

Technology for security & infrastructure

2017

19

-

City Reptrak Study

Reputation as a destination to visit, work, live and invest

2016

20

▲

* tcd. ‡change on previous publication of the relevant benchmark. an upward-pointing arrow denotes an improvement.

// 9

KBC / ESRI CONSUMER SENTIMENT INDEX dublin consumer sentiment increases in the first quarter

Q1 17

Q3 16

Q1 16

Q3 15

Q1 15

Q3 14

Q1 14

Q3 13

Q1 13

National excl. Dublin

120 110 100 90 80 70 60

Dublin

Q1 17

Q3 16

Q1 16

Q3 15

Q1 15

Q3 14

Q1 14

Q3 13

Q1 13

Q3 12

Q1 12

Q3 11

40

Q1 11

50 Q3 10

128.0 +2.8 +6.3

Base 2003 = 100

Q1 10

110.0 -12.5 +5.7

National excl. Dublin

Dublin expectationS 230 210 190 170 150 130 110 90 70

Dublin

About

The KBC/ESRI sentiment index is based on responses from consumers about general economic conditions and their household finances. A more detailed commentary is available at www.kbc.ie/blog

National excl. Dublin

Q1 17

Q3 16

Q1 16

Q3 15

Q1 15

Q3 14

Q1 14

Q3 13

Q1 13

Q3 12

Q1 12

Q3 11

Q1 11

30

Q3 10

50 Q1 10

188.0 -6.3 +8.0

Base 2003 = 100

Q3 09

National

dublin excl. dublin

Consumer expectations improved in both Dublin and the Rest of Ireland in Q1 2017 after a significant weakening for much of 2016. Increasingly optimistic expectations of personal finances over the next year appear to be driving much of the improvement.

This likely reflects the robust performance of the labour market over the last number of quarters feeding into higher expectations for wages over the next 12 months.

10 //

Q3 12

Q3 11

Q1 12

Q1 11

Q3 10

Dublin

Q3 09

National excl. dublin

180.0 -31.1 +5.9

40

Q1 09

dublin

consumer expectations improve in q1 q1 2017 year on year change quarter on quarter change

60

130

The Index of Current Conditions for Dublin and the Rest of Ireland increased in Q1, rising by 5.7 and 6.3 index points QoQ respectively. The strong economic data released over the quarter appears to be positively impacting perceptions of current conditions. Personal financial situations have improved compared to last year. This likely reflects a boost in jobs over the quarter, while wages improved and relatively low inflation has kept real incomes in a healthy position.

consumer expectations

80

Q3 08

q1 2017 year on year change quarter on quarter change

100

Dublin current conditions

perceptions of current conditions positive current conditions

120

Q1 10

The Dublin Consumer Sentiment Index recovered in Q1 2017 after weakening across 2016. The index for the Capital increased by 5.7 index points QoQ in the first quarter of the year as expectations of future finances and employment improved.

Although the index increased back up to 143.5 in Q1, the sustained impact of worsening expectations for much of last year means that the index is still 16.3 index points below the level observed in Q1 2016.

140

Q3 09

158.4 -2.1 +6.9

Q1 09

143.5 -16.3 +5.7

160

Q3 08

dublin

Q1 09

q1 2017 year on year change quarter on quarter change

180

National excl. dublin

Q3 08

consumer sentiment

Dublin sentiment overall Base 2003 = 100

DUBLIN IHS MARKIT PMI business output in dublin continues to rise sharply

overall ihs markit pmi (sa) 65

dublin

national excl. dublin

60

q1 2017

57.8

59.4

55

year on year change

-1.2 -2.0

-0.9 +3.4

50

overall ihs markit pmi

quarter on quarter change

increasing rate of growth ▲

50 = no change

45 40 35 30

dublin

national excl. dublin

60

q1 2017

59.2

59.1

55

year on year change

+0.1 +1.8

-1.0 +2.9

Q1 17

Q4 15

Q3 14

Q2 13

50 45 40 35 30

sharpest rise in employment for two years

Q1 17

Q1 16

Q1 15

Q1 14

Q1 13

Q1 12

Q1 11

Q1 10

Q1 09

Q1 08

Q1 07

Q1 06

Q1 05

Q1 04

increasing rate of contraction ▼ Q1 03

25

Dublin

National excl. Dublin

overall pmi employment growth (sa) 65

dublin

national excl. dublin

60

q1 2017

59.0

57.9

55

year on year change

+0.5 +4.8

+2.2 +0.4

50

quarter on quarter change

Q1 12

increasing rate of growth ▲

50 = no change

Q1 02

Data for the first quarter of 2017 pointed to a sharp and accelerated expansion of new orders at companies in Dublin.

The latest increase was the fastest since Q4 2015. The rate of growth in new work at firms in Dublin was broadly in line with that seen in the Rest of Ireland, where the pace of increase also quickened.

employment growth

Q4 10

National excl. Dublin

overall pmi new orders (sa) 65

quarter on quarter change

Q3 09

Dublin

faster rise in new business new orders

Q2 08

Q1 07

Q4 05

Q3 04

increasing rate of contraction ▼ Q2 03

25

Q1 02

Business activity in Dublin’s private sector increased sharply again during Q1 2017. The Dublin PMI posted 57.8 in the quarter, down from 59.8 in Q4 2016. Growth of activity was stronger across the Rest of Ireland as the rate of expansion quickened to a one-year high. The Dublin service sector posted a sharp and accelerated increase in activity during Q1. In the manufacturing sector, growth eased as production rose at the weakest pace since Q2 2013. Construction activity increased at a slower pace than in Q4 2016, but the rate of growth remained strong.

increasing rate of growth ▲

50 = no change

45 40 35 30

Dublin

Q1 17

Q1 16

Q1 15

Q1 14

Q1 13

Q1 12

Q1 11

Q1 10

Q1 09

Q1 08

Q1 07

Q1 06

Q1 05

Q1 04

increasing rate of contraction ▼ Q1 03

25

Q1 02

Increased workloads encouraged companies in Dublin to take on extra staff again at the start of the year. Moreover, the rate of job creation accelerated sharply from the previous quarter and was the strongest for two years. The rise in employment in Dublin in Q1 2017 was steeper than across the Rest of Ireland.

National excl. Dublin

about

The Dublin Purchasing Managers’ Index® (PMI) series is produced by IHS Markit Economics, an independent research company that produces highly-regarded surveys of business conditions in nations around the world www.markit.com // 11

SPECIAL REPORT

Housing and Dublin's Competitiveness: Accommodating the city's growth

BY RONAN LYONS ASSISTANT PROFESSOR, TRINITY COLLEGE DUBLIN

Dublin is a rapidly growing city. Official CSO projections suggest that the Greater Dublin Area [GDA] will see its population grow from 1.8 million to 2.1m by 2031. But even these predictions may be wrong, as the 2011 projections were pessimistic about migration: we have already seen the city return to strong net immigration.

All growth must be accommodated, however. Modern FDI relies on skilled labour and wages comprise typically three quarters of all costs. And the single biggest item in the household budget is housing. If labour is three quarters of a firm’s costs, and housing is one third of household spending, housing is one quarter of Dublin’s competiveness.

Simply put, all workers need somewhere for them and for their families to live. If, as planned, close to one million square metres of office space is built between 2015 and 2020, this will create a need for three million square metres of residential space – roughly 30,000 new homes. This is on top of existing demand for new

“

People flock to Dublin because of the city’s role as a job attractor and creator. Dublin is one of the world’s biggest hubs for foreign direct investment, featuring in the top twenty worldwide in both the 2015 and 2016 IBM Global Locations Trends reports” 12 //

homes, through the increase in population and obsolescence of existing stock.

All told, the GDA needs roughly 1,200 new homes every month, but far fewer homes than this are currently being built each month in the city. Over a five-year period, 1,200 per month is 72,000 new homes – but between 2011 and 2016 just 15,000 new homes were started. The effect is to squeeze the existing working population - not only further out of the city resulting in progressively longer commutes, but also squeezing them in.

Counter to projections, average household size in Ireland rose between the 2011 and 2016 Censuses – we are cramming more people into the dwellings we have, rather than building more dwellings.

While most cities would welcome substantial growth in population, a metric long linked with success, our current housing problems will worsen as demand continues to grow and as long as supply is inadequate. At the heart of Dublin’s housing problem is an inability to build properties smaller than three-bedrooms for anything close to what households can afford. This includes student accommodation and studio apartments in city centres for young professionals. But it also includes larger suburban apartments for those looking to downsize, and assisted living developments for those with care needs.

The pressure on households from the lack of construction activity during the last five years has resulted in housing rents in the city surpassing the peak levels of 2008. As shown in the chart below, there is a clear relationship between supply and rents: when

fewer than 13,000 properties are listed for rent in a three-month period, as has been the case consistently since late 2012, rents in the city rise. If supply were to increase, it would result in a reduction in rents, alleviating the pressure on households and assisting workers in living closer to their employment.

The high level of construction costs, particularly for smaller households, is not just a problem for the market. It also means that social housing is unaffordable. While the move away from Rent Supplement to a Housing Assistance Payment (HAP) is an important shift in the right direction, more could be done to help households. Ultimately, all households should be entitled to a top-up where their own income is inadequate to cover their basic housing needs.

However, growth is not solely about housing. Every new household needs access to water, roads, electricity, broadband and a range of public services, including schools and healthcare.

The Local Infrastructure Housing Assistance Fund (LIHAF) will help in bridging the gap between market prices and what families can afford – but the end goal should be a model where funding follows the family. The core problem restricting supply remains high construction costs. Evidence suggests that the hard costs of construction are roughly 50% more expensive in Dublin than in Amsterdam, one of its rivals as a European hub. An independent audit of these costs and the factors affecting them would assist policy makers, at local and national level, taking evidence-based decisions.

QUARTERLY CHANGE IN DUBLIN RENTS

number of rental listings per quarter in dublin and change in rents (2006 q1 - 2016 q4) 6% 4% 2% 0% -2% -4% -6% -8% 5,000

7,000

9,000

11,000

13,000

15,000

17,000

19,000

NUMBER OF RENTAL PROPERTIES LISTED ONLINE DURING QUARTER

“

The pressure on households from the lack of construction activity during the last five years has resulted in housing rents in the city surpassing the peak levels of 2008”

source: author analysis of daft.ie archives

// 13

SPECIAL REPORT

Infrastructure Investment & Economic Growth

BY COLM MCCARTHY

After several years of unavoidable restraint government capital spending has begun to increase and there will likely be an expanded capital programme in the years immediately ahead.

This has spurred a debate on regional development and on the priorities for infrastructure investment, including the perennial Dublin versus the Rest competition.

It is an article of faith with construction lobby groups that Ireland has a serious infrastructure deficit. Butchers also believe that people need to eat more steak. There are deficiencies in infrastructure to be sure but it is an exaggeration to pretend that economic development nationally is hostage to a terrible endowment of public physical capital. The national electricity and gas grids are adequate, the sea and airports have spare capacity and all key operators in these sectors are self-funding and well able to finance whatever improvements are required. They all appear to have sensible investment plans and government should leave them to their own devices.

The road network has been enhanced beyond recognition, although the inter-urban network is not complete: some desirable projects were long-fingered after the financial crash. Routine work on the non-national roads has been deferred and a backlog is building up, so some expansion in spending could be justified.

Vast sums have been spent on the mainline railways, both track and rolling stock, but neither passenger nor freight volumes have responded. Spending more money on railways which cannot compete with the motorway network never made much sense.

That leaves other transport, water and waste water infrastructure.

In relation to water there is a serious backlog of work, including supplies for the Capital, and taxpayers will have to fund it if there is no political will to implement user charges.

Big companies in the tech and pharma sectors for example are not keen to locate in smaller centres, because they will struggle to find adequate labour pools and support services. If major banks and insurance companies are looking at Dublin as a postBrexit alternative to London, the competition is Paris, Frankfurt,

14 //

Amsterdam and Luxembourg, not some provincial centre in Ireland. If these companies do not come to Dublin they will not be coming to Ireland at all.

One consequence of the construction (finally!) of a proper national motorway network is that the country has got considerably smaller from a practical point of view and there is no longer the pressure to spread job creation beyond the handful of main centres – most of the population is within easy commuting distance of one.

The exception is Dublin, where high house prices and rents are pushing people further out and traffic congestion and commuting times are rising again, having abated during the downturn.

As shown on page 4 of this issue of the Economic Monitor, Dublin’s dominance of national GDP has increased, and such an emphasis on the Capital raises serious challenges for local authorities in terms of more appropriate land uses and densities.

“

So should Dublin grow?

Is it realistic to restrain the growth of the city in the hope of spreading development around the country?”

ECONOMIC SCORECARD

dublin: economic scorecard April 2017 Note: These "petrol gauge" charts present the performance of the particular indicator relative to a range of performances from most positive (green) to least positive (red). Each gauge presents the latest value compared to the peak value and the trough value over the last decade (except for public transport trips which cover the past 6 years). The Commercial Property gauges are red at the high and low extremes, in recognition of the undesirability of rents or vacancy rates that are either too high or too low.

economy ihs markit business pmi q1 2017

46

51

8

40

57

57.8

34

unemployment rate q4 2016

100

10

6

63

kbc/esri consumer sentiment q1 2017

70

11

6.3

5

3 month moving average (sa)

120

13

% (sa)

140

144

53

160

index (2003 = 100) (sa)

transport airport arrivals dec 2016

850

7.4

980

730

46.0

8.8

42.7

million tonnes/quarter (sa)

47.7

44.4

8.4

6.3

000's/month (sa)

public transport trips q1 2017

7.9

6.9

1,110

1,219

610

seaport cargo q1 2017

49.3

47.9

51.0

million trips/quarter (sa)

residential property average residential rents q4 2016

1,150

87

1,240

1,060

971

residential property price index jan 2017

1,422

103

71

1,330

55

â‚Ź/month

housing completions jan 2017

700

1,100

119

91.2

135

index 2005 = 100

1,400

379

60

1,720

units/month (sa)

commercial property dublin city centre office rent q1 2017

450

520

673 â‚Ź/sq.m.

673

9

4

dublin suburbs office vacancy rate q1 2017

20

15

600

370

296

dublin 2/4 office vacancy rate q1 2017

%

22

13

25

5.8

19

16

30

9.7

25

%

sources: cso, except consumer sentiment kbc/esri; ihs markit; seaport cargo dublin port; public transport nta; residential rents rtb; commercial property cbre research

// 15