Top end office rents to rise by up to 30%

Office rents at the top end of the Dublin market are expected to rise by up to 30 per cent this year to €484 per sq m (€45 per sq ft) if the

trends continue, according to a mid-year office market review from commercial agents HWBC.

The review shows rents for prime grade A office blocks in Dublin city centre rose 15 per cent in the first six months, well in excess of the 10 per cent full year growth anticipated at the start of the year.

The report predicts the rapid rise will mean some tenants will look at the fringes of the city and suburban locations to find affordable space.

Demand for office space in the first half of the year was calculated at 95,200 sq m (1,024,713 sq ft), reflecting a 50 per cent increase on the same period in 2013.

Four out of the top five deals were struck by US technology companies including Amazon, Oracle and Dropbox.

Tony Waters, investment director at HWBC, said they thought 2014 would be strong but not as strong as this and that was why they had upgraded their full year forecast to 30 per cent.

Limited

The level of choice for tenants seeking more than 2,000 sq metres of grade A space was limited and getting worse. In the near term that would likely drive rents higher and also mean some tenants looking beyond the city centre and consider looking at older grade B buildings.

“The principal winners here will be buildings located in city fringe locations in Dublin 1, 3, 7 and 8, many of which have struggled to attract tenants to date.

The older grade C stock will still not interest the majority of occupiers without significant landlord investment to modernise.”

Waters said any shortage of quality offices would have implications for the wider economy as current and future FDI (foreign direct investment) projects were dependent on a reasonable supply of modern space in the right locations. This made Nama’s recent plans to focus on fast tracking development in a Special Development Zone in Dublin’s docklands all the more welcome.

HWBC recalled a number of speculative schemes were now underway in Dublin totalling 40,000 sq m and would be ready for occupation from late 2015.

There was likely to be strong tenant demand for the new space with a probability of pre-let deals being agreed prior to completion.

The market was now gearing up to supply new space as evidenced by the recent sale of a prime site on Burlington Road at 60 per cent over the guide price.

Limited development

No new space would be required in the suburbs until the current supply is absorbed and HWBC expects limited development in only the most popular locations such as Sandyford and Leopardstown.

The report also showed that the vacancy rate at the end of June stood at 16.25 per cent, compared to the peak rate of 22.8 per cent in 2010. The average deal size for new leases this year was 950 sq m with 100 transactions taking place in the period.