As published in the IFN Annual Guide, January 2018.
The uncertainty created by the Brexit vote in 2016 has continued throughout 2017 with Brexit dominating many discussions but transaction activity has continued unabated. In Ireland the financial services and insurance industries have been net beneficiaries of the uncertainty with many household names announcing moves to Ireland and other centers across Europe. It is still unclear what form Brexit will take and the only thing that is clear is that no one knows what the outcome and its consequences will be.
Broadly speaking, the Irish economy has surged ahead in terms of economic performance and the property market (both residential and commercial properties) has seen strong growth fueled by a shortage of supply relative to demand. Credit remains constrained but as new entrants join the market and competition between existing institutions for market share increases, the interest rate environment has begun to normalize by reference to European neighbors.
Review of 2017
In 2016, we predicted an increase in relocation activity as a consequence of Brexit in both the financial services and legal sectors and this has proven to be the case in both sectors. However, we are also observing increased activity by corporates concerned about their EU business in preparation for Brexit. They are ensuring their distribution, manufacturing and intellectual property structures are compatible with whatever shape Brexit takes (any customs arrangements which might apply and before any duties or taxes might be introduced on the movement of such assets, rights or agreements across the EU). Significant events in 2017 included the following:
- The announcements by Barclays Bank, JPMorgan, Beazley, Legal & General, Chaucer, Bank of China, Citi and Credit Suisse regarding increases to or the establishment of operations in Ireland and the opening by Pinsent Masons and Simmons of Dublin offices.
- In terms of Sukuk, among others, the listing in April 2017 of the world’s largest Sukuk on the Irish Stock Exchange by the Kingdom of Saudi Arabia totaling US$9 billion.
- In real estate terms, 450,000 square feet of office space was acquired by JPMorgan, AIB and Facebook in the second quarter of 2017.
The Central Bank of Ireland increased its staff numbers in response to the level of interest by financial institutions and the fintech sector as a consequence of Brexit and has provided clarity in relation to its authorization process and the application procedure for applicants.
To date, it does not appear that UK-authorized Islamic financial institutions have considered that the loss of passporting rights (access to EU member states) is a key part of their operations as there has not been any significant announcements in terms of strategy.
The discussions to date have been rather inward, focused on how Brexit might affect the UK (in particular London) property market and the carrying-on of business generally in the UK. Perhaps this has been because limited use has been made by Islamic institutions in the UK of passporting entitlements. However, with the increasing focus on fintech and the opportunities for Islamic finance, this may change.
Ummah Finance and Yielders were standout launches in the UK for Islamic finance but the question remains how these companies might make an impact in Europe outside of the UK without access to passporting entitlements.
In terms of the property market, according to JLL, overall investment in the Irish commercial property market exceeded EUR1.3 billion (US$1.53 billion) with the total volume for 2017 likely to reach EUR2-2.5 billion (US$2.36-2.95 billion). While substantially down from 2016’s high of EUR4.5 billion (US$5.3 billion), vacancy rates in the Dublin office market are still running at 7.4%, only just over 4% in the Dublin 2/4 Grade A office market, with 4.1 million square feet of office accommodation under construction and the total takeup for 2017 expected to exceed three million square feet.
Proposals have been brought forward, as part of the government’s strategy, for significant changes to planning and development laws to allow construction of high-rise developments with shared services in the city center. The proposals aim to develop the buildto-rent sector with a review of the limits on urban heights to permit more high-rise development.
Preview of 2018
The prospect of a customs border with Northern Ireland remains a concern for the Republic of Ireland and Northern Ireland, as do concerns for the agriculture and export markets. However, sectors such as financial services continue to flourish and decisions on the relocation of the European Medicines Agency and European Banking Authority from London are awaited from the European Commission at the time of writing. Dublin is one of the key candidates in the mix for these prestigious institutions. Further relocation activity and announcements will continue into 2018 as the terms of the Brexit negotiations are ironed out between London and EU member states.
Opportunities abound for Islamic finance in Ireland. Commercial property is enjoying a resurgence with internationally renowned tenants and landmark properties available for acquisition, a range of PPP projects underway and interesting prospects for social housing projects and equity investment in the property sector. All of the above accompanied by a renewed interest in Islamic finance will hopefully yield progress for the sector in Ireland in 2018.
Ireland as a location in Europe bears the most striking similarities to the UK and remains a key alternative jurisdiction in the EU for companies and institutions to maintain their EU presence. Its strengths include being an English-speaking, common law jurisdiction, with an established and familiar legislative framework in terms of company legislation, a system of property registration and property rights. It has long established a legislation framework which facilitates equal taxation treatment for certain Shariah compliant structures and a highly developed financial industry with a skilled professional workforce and extensive fintech and technology infrastructure.
Ireland has been on the verge of establishing itself as a key jurisdiction for Islamic finance in the EU for a number of years and perhaps Brexit will provide the necessary impetus for institutions and Middle Eastern investors to look beyond London and the UK. We are currently working on a number of interesting projects which may contribute to the advancement of Islamic finance in Ireland.