Prime office rents rebound to pre-Covid levels

The number of vacant offices in Dublin has fallen sharply over the past 12 months while prime rents have also rebounded to pre-pandemic levels, according to a new report.

The research from agent Cushman & Wakefield shows investment in the Irish commercial property sector has recovered over the first six months of the year, with the total number of transactions valued at almost €2 billion, 15 per cent higher than the average over the past decade.

Published on Thursday, the report notes that residential property remained the top asset class for investors in the first half of 2022, accounting for some 34 per cent of total volumes or €663 million.

After a slow start to the year, the agent’s analysts found that Dublin office investment activity picked up between April and June. Office investments were valued at €355 million in the first six months of 2022, 18 per cent of the total commercial investment volume.

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Cushman & Wakefield chief economist Kate English said the first half of the year had seen “very strong investor activity” but that we may see “a year of two halves”.

“As interest rates rise, costs and uncertainties have increased, this is impacting both purchaser and vendor sentiment,” she said. “Dynamics have shifted and, therefore, the market is likely to see some element of price adjustments, while there may also be a wait-and-see approach taken by others.”

The position follows similar warnings by Savills on Wednesday. A report by the property dealer found that commercial real estate transactions hit €3.2 billion in the first six months of the year – led by the April sale of Hibernia Reit to Brookfield for €1.1 billion – a new record and 17 per cent higher than during the first half of 2021.

However, Savills analysts warned that recent interest rate rises in the US and the prospect of the ECB hiking rates later this month could dampen demand as borrowing costs for both investors and developers begin to creep up.

Cushman & Wakefield’s report highlighted the dramatic recovery in Dublin’s commercial property market following the lifting of public health restrictions this year. According to the commercial property company’s figures, at €673 per square metre at the end of June, average prime office rents in the capital climbed 4.3 per cent in the second quarter alone.

“To the surprise of perhaps many, this is a return to pre-Covid levels,” the company said.

The net vacancy rate, particularly in Dublin’s Central Business District, has also fallen from a multiyear high of 7.5 per cent at the end of June 2021 to 5.9 per cent last month and as low as 3 per cent in some sub-markets.

“Much focus now turns to construction activity,” Ms English said, “and what will be delivered to the market in the coming years.”