It was another year of rising rents and falling vacancy rates in the Dublin office market but, looking ahead, the standout feature is the supply surge coming down the tracks.
Office construction is booming. The Irish Times Crane Survey, for example, recorded 34 cranes over Dublin city centre on February 1st but, by December 1st, this had increased to 58 – a rise of 71 per cent over the course of the year.
"Most office viewings these days require high-vis jackets and hard hats," says Paul Finucane, director of offices at Colliers International. "The office market is firmly back in the development phase and the stats prove it: 1.5 million sq ft will be delivered in 2016; three million sq ft of space is under construction and due for completion between 2017 and 2019; and six million sq ft of additional space can potentially be delivered, half of which either has planning permission or is going through the process. The 10-year average annual take-up is two million sq ft and, on that basis, phased supply should broadly meet demand for the next few years."
0 of 4
![Tanya Duffy: “We expect prime office city centre rents to reach €700 per sq m [€65 per sq ft] by the end of 2018.”](https://www.irishtimes.com/resizer/v2/ZAWRB4F7HKYB6STCLAUCMQ6ALQ.jpg?auth=d80b13b100f36a15fab53ab1afefededac5e63882041c2ef6453e862f0ec9481&smart=true&width=1440&height=810)
This supply surge, in sharp contrast to the post-crash hangover years up to 2014 when almost nothing was built in Dublin, will mark the first wave of new buildings to be delivered to the market since 2008. "These will be the first buildings in Dublin that can truly be described as being of international standard," says Ronan Corbett, head of offices at Cushman & Wakefield.
Supply surge
The soon-to-arrive supply surge is already having a cooling effect on rents, which have effectively doubled since 2013.
"Prime headline rents are in the €55 to €60 per sq ft range," says Hannah Dwyer, associate director and head of research at JLL. "This is for the best quality Grade A buildings in the best city centre locations. Rental levels will vary and are very building-specific.
“At the end of 2015, we recorded rents at the same level; therefore, overall there have been limited rental increases in 2016. What we have seen is an increase in the number of deals achieving these rental levels. As the supply pipeline comes on stream, we are expecting rents to stabilise and remain at €55 to €60 per sq ft. Our rental forecasts peak at €62 per sq ft in this cycle, but this rental level will only be achieved for a select few new buildings.”
However, some other agents believe rents are still on the rise. Lisney's commercial rental index puts the increase in rents at 10.8 per cent over the past 12 months. "We expect prime office city centre rents to reach €700 per sq m [€65 per sq ft] by the end of 2018 and remain at that level in 2019," says Tanya Duffy, property researcher at Lisney.
“Based on the level of proposed development due to come to the market in the coming years, we expect rents to revert to a more sustainable level of about €592 per sq m [€55 per sq ft] in 2020.”
CBRE points to rents peaking in 2017 at €63.50 per sq ft, but once new supply starts to come on stream in 2017 and beyond, it sees potential for prime rents to fall back. "This is important from a competitiveness point of view considering that prime rents are higher than in many of the other cities that Dublin is now competing directly with for foreign direct investment," says Marie Hunt, executive director and head of research at CBRE.
Brexit caused quite an amount of chatter, with "the market expectation now that it will increase demand for Dublin offices over the next two to three years", according to Tony Waters, managing director of HWBC.
Post-Brexit inquiries
Paul Finucane says preliminary enquiries post-Brexit “now seem to be gathering pace”, as a number of legal/insurance/financial companies are considering relocating part of their operations from London to Dublin. But Marie Hunt is not expecting Brexit-related relocation enquiries to generate thousands of jobs, as space requirements being talked about are typically 5,000-20,000 sq ft – that’s more like establishing a beachhead than a full-scale invasion.
What can be said with reasonable certainty about Brexit is that it has resulted in many firms running the rule over Dublin as a potential base should a hard Brexit materialise. “About one-third of the Brexit-related enquiries we’re getting are serious,” says Hannah Dwyer, “but it is still early days.”
Meanwhile, there was healthy demand for office space during 2016, with most agents expecting end-of-year take-up figures to be close to 2015’s strong figure of 2.75 million sq ft. Active demand in the market is for mid-sized space requirements as opposed to blockbuster lettings.
"The standout letting of 2016 was probably the prelet of 13-18 City Quay to Grant Thornton, " says Andrew Cunningham, director of offices at Savills Ireland. This 10,960sq m (118,000 sq ft) let is sizeable, even by south docklands standards, while the rent works out at €565 per sq m (€52.50 per sq ft) on a 25-year lease with a midterm break option.
Amazon decision
However, the City Quay letting was dwarfed by Amazon’s decision to take 15,992sq m (172,000sq ft) at the Vertium building on Burlington Road at a blended rent in the region of €50 per sq ft.
Enda Moore
of Hooke & MacDonald believes Bank of Ireland’s expansion to circa 130,000sq ft in the refurbished former
FÁS
headquarters on Baggot Street Upper is “notable” as it demonstrates the “growing trend of upgrading 1960s-1970s office buildings”.
Looking ahead, Andrew Cunningham of Savills believes that, as the available space in fringe city centre locations fills, there may be "displacement to the suburbs". Enda Moore notes that tenants who secured low city centre rents in 2010 to 2013 and now face rent reviews, may be "priced out of the city centre". This has some agents, like HWBC, predicting that prime suburban rents are likely to reach €30 per sq ft in places like Sandyford and Central Park in Leopardstown.
Meanwhile, supply will still be an issue in the immediate future with real pressure points for size requirements over 20,000sq ft in the Dublin 2 and 4 postal districts. One agent even puts the vacancy rate "effectively at zero" in the central business district for space requirements in excess of 50,000sq ft. Another says availability is tightest in the IFSC and north docks, where the vacancy rate is 1.5 per cent.
The overall Dublin vacancy rate stands at 9.9 per cent – the first time it’s dropped below 10 per cent since 2000.
