The loss of one of the IFSC's anchor tenants to cheaper and larger accommodation across the river could signal a shake-up in occupancy rates at the financial services centre, as companies forking out exorbitant rents for back office operations seek out more profitable lease terms in other city centre developments.
That's the view of some property analysts who believe up to 20 per cent of the IFSC's total lease area will come to market over the next five years as the accelerating supply of modern city centre developments drives up competition on rental values.
Three years ago, when vacancy rates in the city centre were at an all time low of 3 per cent, rental prices in the IFSC surged to over €602 per sq m (56 per sq ft).
That rate has now slumped to an average of 495 per sq m (46 per sq ft) with some agents reporting new leases for as little as €452 per sq m (42 per sq ft).
According to Mr Paul Fanning, head of Lambert Smith Hampton's office agency department, a number of companies in the IFSC are "paying exorbitant rents on back office operations that really don't need to be there. The McCann FitzGerald move could prompt other organizations to look at their bottom line and question whether it's worth locking in leases on up-and-coming developments. Certainly there's less of a culture shock for companies relocating to the Grand Canal Quay and Barrow Street areas than there would be for the outer city office parks."
And with the 10 per cent corporate tax incentive for IFSC companies now abolished - operations established before July 1998 can still avail of the rate until the end of 2005 - experts argue there is little to be lost financially from such a move.
One agent, who requested to speak off the record, claimed the IFSC could lose up to 20 per cent of its occupants within five years as financial companies relocate their back office operations to nearby cheaper accommodation.
He said: "There are a number of banks and other financials in the IFSC that are paying too much rent for task-driven jobs or back office work and they will move over the next few years as more space comes on to the market. As a result we could see occupancy rates at the IFSC drop by 10 to 20 per cent and that will impact on growth there. But the only way we're going to see a massive shift in rental values is if there is a major shock to the economy and that now looks unlikely with the recovery in the US."
Although property analysts are confident the market will rebound slightly from last year's meltdown, it's clear the bargain values in the office sector are attracting blue chip clients out of the city's traditional financial hubs.
McCann FitzGerald is the second high-profile law firm to relocate its headquarters to the Grand Canal Docks area in under a year, with Mason Hayes & Curren ditching its Georgian offices on Fitzwilliam Square and Leeson Street for a pre-let agreement on a nine-storey Treasury Holdings development in Barrow Street.
Mr Roland O'Connell, a director in HOK's office division, believes many IFSC companies which suffered punitive rent reviews during the economic boom will now find it difficult to offload their leases in the current market.
He said: "There are a lot of organizations paying historically high rents on reasonably inflexible leases in the IFSC and that may be a disadvantage for them going forward as these prices are going to be incredibly difficult to offload in the current market.
"That's because rent reviews here are upwards only and if you're lease term is up when the market is flying you're committed to paying disproportionately high rates when values suddenly drop."
However he points out that at 8 per cent, the IFSC boasts the lowest office vacancy rate in Dublin. "At the moment there is very little space available in the IFSC, although admittedly there isn't a great deal of demand.
But ultimately, businesses like to work in quality offices and the financial centre is one of the best in town. It's also going to benefit hugely from the infrastructure changes such as the port tunnel, the Luas and the new bridge from the IFSC to Cardiff lane."
