Tenants may have to pay up to £30 per sq ft this year to secure prime office accommodation, a property seminar has been told. It also heard that shortage in supply is continuing to drive up rents.
Killian O'Higgins, managing director of DTZ Sherry FitzGerald, said, however, it is evident there is considerable market resistance to rents above £25 per sq ft. "Many tenants are reassessing their need to locate in the central district and are looking to rationalise in favour of cheaper suburban locations."
Mr O'Higgins told a conference in UCD, which was organised by his company, The Irish Times and Cement Roadstone Holdings, that the take-up in the office sector is likely to exceed two million sq ft this year. Average construction (at 522,000 sq ft per year between 1992 and 1998) has remained relatively static, he said.
However, he said this is about to change as 2.6 million sq ft is currently under construction.
"Although the average age of stock is getting younger, there is still 39 per cent which is pre-1980 and will need refurbishment," he said. "The longest life-span of the internal fittings is usually 20 years."
Mr O'Higgins said that making allowances for refurbishments already completed, approximately one-third of buildings will need refurbishment. "In order to properly refurbish offices they are generally vacated, thereby creating additional demand."
He said tenants now have little option but to accept landlords' terms, including 25-year leases without breaks, in order to secure new buildings.
However, he said, some landlords have recognised the flexibility which can be obtained by offering shorter leases.
Mr O'Higgins said prime offices were currently fetching £25£27.50 per sq ft net, while suburban prime offices (third-generation) were currently making £16-£19 per sq ft gross. Georgian/own-door offices are making £18£20 net per sq ft.
Regarding the industrial buildings sector, Mr O'Higgins said there was "a striking similarity" between the age of industrial and office stock this year. "The high vacancy rate at a time of significant pre-let/sold activity is a clear sign that the older stock will have to be replaced," he said.
"Given the intensity of use, the age of industrial stock is even more important in the industrial market," he added.
Mr O'Higgins pointed out that although the pre-1980 proportion of stock had fallen from 49 per cent in 1996 to 42 per cent this year, it is "still too high a proportion and will help support new development".
He said the availability of relatively cheap finance means there is a very strong preference for purchase and "often rental evidence can be thin on the ground".
Mr O'Higgins told about 600 delegates that the changing structure of demand in the industrial market had deterred very largescale speculative construction.
In the current market conditions, most developers prefer to negotiate design-andbuild contracts.
He said prime industrial rents in Dublin are currently making £6.50 per sq ft, giving a net yield of 6 per cent. Secondary units are making £4.50 per sq ft, while tertiary units are making £3.50£4 per sq ft.
Mr O'Higgins said rents have remained relatively stable, despite a take up of 10 million sq ft over the past years. "This reflects a plentiful supply of serviced zoned land and a preference for occupiers to purchase rather than lease.
"The significant uplift in values has been, for the most part, the result of falling yields".
