Dublin now has two distinct office markets with different rent levels - one in the city, the other in the suburbs. Rents for top-class buildings in the city are in many instances twice as high because of the shortage of supply and the limited number of development sites. The opposite applies in the suburbs, where a large number of office developments are either under way or in the pipeline and where there are plenty of choices open to tenants.

With this scenario, it is hardly surprising that the latest office report from Hamilton Osborne King warns that the increasing number of planning applications and permissions in out-of-town locations will mean that supply will exceed demand as early as this year. The level of surplus accommodation is expected to grow over the next few years as more developments are built. HOK says this year alone 126,868 sq m of office space - 68 per cent of the total due to be built - will be located in out-of-town areas, mainly along the M50. This suggests that traffic congestion on the M50 ring-road will get even worse over the next few years.

Already, a two-price structure has emerged. Newly developed or newly refurbished space at the top end of the market in Dublin 2 or 4 is making anything from £30 to £35 per sq ft while rents in the suburbs generally range from £15 to £20 per sq ft. HOK says that, as availability starts to increase in the suburbs, features such as accessibility, on-site facilities and building design will become increasingly important and rents will reflect the relative merits of these schemes.

The agency estimates that of the 185,000 sq m to come on stream in all parts of Dublin this year, 45,000 sq m has already been pre-let or is reserved. In 2001, around 193,000 sq m of new space will become available while the figure for 2002 will be about 122,000 sq m.

The report says that over the next two years, certain sub-sectors within the market will be oversupplied while others will remain undersupplied. As a consequence, there was even the possibility (although very slim) that for the first time, rent levels could be rising in the city centre while falling in outer areas.

HOK says the lack of sites in traditional city centre locations will lead to shortages in these areas despite the strong demand. While there was considerable scope for office developments within the greater docklands area, progress had been slower than anticipated.

The report also says that it seems unlikely, with the exception of East Point, there would be any significant office schemes in the docklands for at least another 18 months.

Take-up of modern office space in Dublin during 1999 reached 114,450 sq m, compared with 227,500 sq m in 1998. The fall off was largely due to the fact that almost 70,000 sq m were completed in the International Financial Services Centre in 1998 compared to 5,386 sq m last year.

At the end of the year, the vacancy rate for the overall market stood at 1.9 per cent. Interestingly, 55 per cent of this total was located in just three suburban parks - Parkwest, Cherrywood and Blanchardstown. The vacancy rate in the traditional city centre locations was well below 1 per cent.

The largest offices transaction in 1999 involved 5,014 sq m taken up by Lucent Technologies, at Cherrywood Science and Technology Park, Loughlinstown.

Three other deals also exceeded 4,000 sq m: Andersen Consulting took 4,460 sq m at Grand Canal Plaza, on Upper Grand Canal Street; Scottish Amicable rented 4,195 sq m at Montague House, Adelaide Road, while the Office of Public Works signed for 4,180 sq m at Plaza House, Tallaght.