Office take-up levels for 2008 down 21%

TAKE UP of office space in Dublin for 2008 will be lower than in the two previous years.

A new report on the office market from agent DTZ Sherry Fitz-Gerald calculates that 163,000sq m (1.754 million sq ft) was let in the first nine months of the year, a drop of 21 per cent on the same period of 2007. For the year as a whole take up is likely to be in the region of 200,000sq m (2.152 million sq ft) – well down on the two previous years but still strong by historical standards.

The report says that because of deteriorating economic conditions deals are taking longer to close and this is likely to filter through into 2009 when there is likely to be a further slide in activity levels.

The most direct impact of the slowdown was manifested in market confidence with a definite air of cautiousness among potential occupiers and many firms opting for a “wait and see” approach. In addition, a lack of liquidity – coupled with rising costs associated with securing finance – has resulted in a reduction in the number of deals signed during the third quarter.

Anecdotal evidence suggests that while occupier demand has eased during Q3, the market for space under 400sq m (4,306sq ft), while slow, remains “somewhat active”. DTZ says that supply levels eased somewhat during Q3 with the vacancy rate standing at 14 per cent, down from 15.1 per cent recorded during the same period in 2007.

At the end of September, the volume of accommodation under construction increased during Q3 to reach 339,000sq m (3.649 million sq ft), most of it speculative developments which suggests that the vacancy rate is likely to remain in double digits for some time.

The study also shows that the level of net take up, measuring the change in occupied space, weakened in the first nine months of the year and totalled over 116,000sq m (1.249 million sq ft). This represents a fall of 17 per cent when compared to the same period in 2007 and highlights a softening of demand.

Enquiry levels remained low during Q3 with an air of cautiousness among tenants and deals taking longer to close as they assess market conditions.

DTZ says that the largest proportion of newly occupied space during the first nine months of the year, 46 per cent, was located in the suburbs, primarily the south suburbs. A further 34 per cent of space was absorbed by the prime region of Dublin 2 and 4.

Overall the central business district, which includes the traditional prime area of the city and extends to the IFSC and north and south docklands areas, accounted for 41 per cent of all space taken up during the period.

An analysis of the profile of tenants that moved into new space during Q3 shows that the professional sector remained the most active, accounting for 22 per cent of all space taken up. The IT/telecommunications and the State sectors were also very active accounting for 19 per cent and 18 per cent of newly occupied space. A further 13 per cent was occupied by the financial sector.

DTZ estimates that the quantity of available space at the end of September was 428,500sq m (4.612 million sq ft), a drop of 2 per cent on 2007 but still strong by historical standards. The overall vacancy rate declined to 14 per cent at the end of Q3, compared to 14.5 per cent three months earlier and 15.1 per cent in 2007. “This remains considerably greater than the equilibrium level of 7 per cent, highlighting the persistently strong levels of supply that exist in the market.”

The report shows that the suburban market continued to account for most of the available space at 45 per cent, suggesting that the vacancy rate in this region is considerably greater than the overall level of 14 per cent. Much of the available space is in the south suburbs, in areas such as Sandyford and Merrion Road. A further 24 per cent of available space is in the prime region of the city with the remaining 26 per cent in the adjacent secondary region.

The report shows that 44 per cent of the completed space has been on the market for 12 months or less. A further 16 per cent of the accommodation available consists of older second generation facilities. DTZ says that only 1,700sq m (18,300sq ft) of accommodation was completed during Q3 2008, the lowest level witnessed since 2004.