Take-up of offices down 40% in 2008

OCCUPIER ACTIVITY in the Dublin office market deteriorated during 2008 with take-up falling by 40 per cent to almost 167,000sq m (1.798 million sq ft) – the lowest level for five years, according to a new study by agent Jones Lang LaSalle.

The report by Dr Clare Eriksson estimates that 42 per cent of the space newly occupied was in the city centre while the balance was in the suburbs, indicating that demand within the suburban market – where rents are typically lower – is increasing.

With the ongoing banking crisis, the finance and insurance sectors accounted for only 19 per cent of take-up in 2008, a significant fall off from the 30 per cent in 2006 and 49 per cent in 2007.

A key feature of the market in 2008 was that many tenants decided to sublease surplus office space rather than retain it in the expectation that they would grow into it. In this new role tenants were often in a position to offer greater flexibility in terms of break option dates and higher specification including fully fitted office accommodation.

Corporate space still available increased by 75 per cent in 2008 and now represents 17 per cent of all the accommodation on the market. The decision by companies to try and offload surplus space has helped to push up the overall vacancy rate to 17 per cent, compared to 11 per cent at the end of 2007.

The sudden rise in the vacancy rate also stems from the number of speculative office developments reaching completion as well as corporate assignments.

Jones Lang says that new developments tend to slow as the market responds to higher vacancy rates. This had happened in 2003, 12 months after the vacancy rate peaked in 2002. Because of the present economic climate, some schemes which were due to get under way or which were already under construction had been put on hold. The agency estimated that at the end of 2008 about 12 per cent of the stock under construction was placed on hold. Further projects would be suspended during 2009.

The report shows that rents came under downward pressure during 2008 in reaction to deteriorating market conditions and the increased supply. Prime headline rents fell from €646 to €592 per sq m (€60 to €55 per sq ft) during the past year and were expected to decline further in 2009.