Office MarketThe office market was the strongest performing sector of the commercial property market this year and prospects look good for next year, reports Edel Morgan

The Dublin office market has had a chequered past but in 2006 it emerged as the star performer of the commercial property market which inevitably meant less generous tenant incentives, a shift of power to the landlord and a growth in headline rents.

Roland O'Connell, a director of Hamilton Osborne King, called it "generally one of the better years in the office market, and the best part is that it looks as if 2007 will be better again".

Dublin was ranked 11th best European city to locate a business by the European Cities Monitor conducted by Lisney's international alliance partners, Cushman and Wakefield, and agents are now reporting unsatisfied demand in prime locations.

The third quarter of the year was particularly active with CBRE putting office take-up at 61,192sq m (658,665sq ft) - the highest of any quarter since 2000 with office investment transactions totalling over €800 million.

High profile deals of the year included the letting of Riverside IV in the south docklands to Matheson Ormsby Prentice (MOP) and 13,200sq m (142,083sq ft) in East Point Business Park to Enterprise Ireland.

Anglo Irish Bank announced it is to occupy 22,000sq m (236,806sq ft) of new office accommodation on the Brooks Thomas site at North Wall Quay which is being developed by Liam Carroll who undercut competitors to lure the bank.

Solicitors O'Donnell Sweeney is taking 4,600sq m (49,514sq ft) in the same building and Hibernian Insurance Group took 18,500sq m (199,132sq ft) at Park Place on Upper Hatch Street, Dublin 2.

While overall vacancy rates for Dublin are somewhere between 10 per cent and 11.9 per cent, depending on which agency's report you believe, city centre rates have dropped to between 8 per cent and 9 per cent, with Dublin 2 and Dublin 4 down to 4.4 per cent.

The figures being released on total take-up for the year vary wildly, depending on which agent you ask. Lisney says it is 246,476sq m (2.653 million sq ft), while CBRE calculates it at a more sober 185,000sq m (1.991 million sq ft), with the majority of activity in Dublin 1, 2 and 4. This variation can partly be explained by the fact that some agents include unsigned deals in their final figures.

While the south docks has had a renaissance in recent years and continues to be a hot spot for high profile tenants, the north docks was boosted by Liam Carroll attracting Anglo Irish Bank to his North Wall Quay site. Anglo Irish Bank is the first big letting on the north docks since PricewaterhouseCoopers (PwC) first negotiated space there several years ago.

The IFSC also came back to prominence, with a number of key deals, like the letting of over 2,000sq m (21,528sq ft) on the second floor of IFSC House to Euro Vl.

Roland O'Connell says that, if he was asked six months ago, he would have said the IFSC hadn't fared well with quite a few units available. "But the second half of the year picked up with quite a few of these second-hand units being snapped up."

But the south docks is where "all the excitement has been", says O'Connell. "Prime city centre rents have reached €550 per sq m [€51 per sq ft] for bigger units, and €620-€630 per sq m [€57.5-€58.5 per sq ft] for smaller high quality units."

The suburbs, in contrast, are "a bit flat, although Citywest continued to perform well as did Liffey Valley with 2,300sq m [24,757sq ft] let to Advance Medical Optics", he says.

The south suburbs fared reasonably well with lettings, including 2,100sq m (22,604sq ft) in Block AD in Cherrywood, Loughlinstown to Tiltware, an IT company.

CBRE says prime suburban rents now stand at €269 per sq m (€25 per sq ft).

Sandyford has had a good year, according to Declan O'Reilly of HT Meagher O'Reilly, boosted by HSBC's high profile move there and the 9,200sq m (99,028sq ft) Q-House near Beacon Court, an own-door scheme which clocked up €25 million in pre-sales prior to its official launch.

While Sandyford is helped by the Luas and M50, "it is still very congested", says Roland O'Connell, who adds that activity in the south suburbs was "a little mundane. If anything, it was disappointing during the year. There were a lot of smaller lettings but nothing very dramatic. A lot of the stuff was second-hand older space but, next year, we will see newer buildings coming on stream in the South County Business Park and The Park in Carrickmines which will be a cut above what's gone before."

He calls Sandyford "a funny place" with brand new buildings "beside older ones that you don't know how long will take to be redeveloped, unlike The Park in Carrickmines and Citywest where there is single ownership and an overall plan".

If there were any losers in the market, it was parts of the north and west suburbs with vacancy rates that Lisney put at 17.6 per cent and 32.1 per cent respectively.

Some of the more notable deals include Ebay in Green Property's Atrium Building in Blanchardstown which, according to Declan O'Reilly, buoyed the west suburbs up to an extent, and the letting of a block in Park West Business Campus to John Player.

On the north side, the letting to JP Morgan Tranaut in Northern Cross on the Malahide Road and a building at Omnipark in Santry, Dublin 9, to the Carphone Warehouse as its headquarters, were among the more noteworthy.

Lisney reckons that fourth generation offices have already arrived here which are "intelligent and energy efficient". With corporate image now vitally important, dated buildings are not faring so well.

Another factor is the cost of taking on ageing buildings and the lack of flexibility. Lease terms are moving back in favour of the landlord with high profile, longer lease terms, and shorter rent-free periods.

That said, Declan O'Reilly points to Liam Carroll's willingness to vie with other developers to lure Anglo Irish Bank to his scheme on North Wall Quay which shows that the bigger players will make concessions to attract good tenants to their new schemes.

According to O'Connell, while the pendulum has swung back in favour of the landlord, "it has done so generally in a sensible sort of way. The big danger is that some landlords will bite off their nose to spite their face and frighten off excellent tenants with extreme terms."

Lisney is forecasting that prime rents will reach €754 per sq m (€70 per sq ft) in 2007 with car-parking spaces jumping to €5,000 per space. It says second generation buildings are now obtaining rents of €380 per sq m (€35 per sq ft) with Georgian rents static, but it foresees an increase due to a shortage of office accommodation.

Marie Hunt of CBRE believes vacancy rates will fall to single digits overall in Dublin next year with another 185,000sq m (1.99 million sq ft) of take-up by the end of 2007. She says there are eight or nine companies "actively seeking" space of around 9,290sq m (100,000sq ft) "although it may not all happen next year".