Office downturn hits Central Bank as campus building loses €157m in value

The Central Bank wrote down the value of a building it acquired in 2019, to expand its campus on Dublin’s north docklands, by €157 million last year, according to its latest annual report.

The hit, together with an end of an era of super profits by the bank, conspired to push it into a €132.1 million loss for the year, according to its 2023 report, published on Thursday.

The bank agreed in early 2019 to buy the building as it being developed by Sean Mulryan’s Ballymore Group and Singapore partner Oxley for €225 million, including VAT. Occupation of the buildings commenced in the summer of 2022 and expenditure, including fit-out, had reached €232 million at the end of last year.

The building, which backs on to Mayor Street in Dublin 1, has a floor area of 18,850 sq m (200,000 sq ft), which is some 60 per cent more than the Central Bank’s headquarters, which it acquired for €104 million in 2015.

“Since the pandemic, there has been a significant shift in the commercial property market, with a substantial move to hybrid working models. This has led to companies reducing their office footprint, ultimately leading to an oversupply of office space in Dublin,” the Central Bank said in the report. “This has resulted in the market value of the Mayor Street building being less than the carrying value.”

The Central Bank is currently using three floors of the building and is seeking to lease out the remaining four floors.

Separately, the Central Bank has booked an unrealised loss of €18.2 million against a property in nearby Spencer Dock, which is fully leased and the bank is currently seeking to sell. That has reduced the carrying value to €31 million.

News of the writedowns come days after The Irish Times reported that bids for the landmark North Dock office scheme near the bank’s HQ have come in well below the €130 million that receivers to the development had sought. First-round offers are said to have come in at between €60 million and €95 million.

The scheme’s senior lender, US investment giant Pimco, appointed receivers to the scheme earlier this year. The National Asset Management Agency (Nama) and Los Angeles-based Oaktree Capital own the scheme. They had put the offices on the market last August for €155 million but failed to receive a bid.

Capital values in the Irish office sector fell by 17 per cent last year, bringing the total decline since March, 2020 to 26 per cent, according to AIB. Values have been hit by an acceleration of hybrid working arrangements in the wake of the Covid-19 pandemic and a sharp increase in interest rates. The European Central Bank’s (ECB) main lending rate jumped from zero to 4.5 per cent in the 15 months to last September.

Offices values are expected to fall further this year, even as the ECB begins to cut rates.

This underlying slump by the Central Bank into loss-making territory was foreseen for some time and it took a number of actions in recent years in response, Mr McGrath told other Ministers. A provision of €3 billion was built up to cover anticipated losses.

The Central Bank had generated more than €23.5 billion of profits in the 15 years to 2022, driven by the response of central bankers in Dublin and Frankfurt to the near-collapses of the domestic banking system and the euro, and a decade of anaemic inflation across the euro zone.

More than €18.5 billion was transferred to the government over the period, cushioning the blow after taxpayers were forced to commit €64 billion to rescue the banking system and successive budget deficits.

The profits were initially driven by interest on emergency loans to banks during the financial crisis. They have also been fuelled by multibillion-euro gains on the sale of government bonds used in 2013 to refinance the bailout of Irish Bank Resolution Corporation (IBRC), interest on bonds acquired under European Central Bank (ECB) quantitative easing (QE) programmes, as well as money made from charging commercial banks negative rates for excess deposits stored with the central bank.

The last of the IBRC-linked bonds were sold in 2023, while the Central Bank is now paying banks a 4 per cent interest rate on their surplus deposits, following a series of ECB rate hikes in the past two years in a fight against inflation.