How Frothy Is Dublin Office Market?

22 Aug 2017 | 09.30 am

How Frothy Is Dublin Office Market?

Cushman & Wakefield H1 overview

22 Aug 2017 | 09.30 am

A total of 26,750 sq m of new office space in Dublin completed construction during the three-month period April to June 2017, bringing the total volume delivered to the market in the year to date to over 65,850 sq m. A new report from Cushman & Wakefield notes that this is over double the level of completions in 2016 as a whole.

With six new schemes commencing during the second quarter, a total of 334,850 sq m of space is now under construction in the Dublin office market, across 37 schemes, all to be delivered by 2019. This represents a 7% uplift on the previous quarter and a 14% uplift year on year.

Report authors Marian Finnegan (pictured), Deirdre O’Reilly and Ronan Corbett are sanguine about this huge increase in office supply. They note that of the space under construction, 27% is pre-let, with a further 11% reserved.

“It is anticipated that, as the year progresses, pre-lets will increase further and approach 50%,” says the estate agent. “Of the space due for delivery before year end 2017, 42% is either pre-let or reserved.”

Of space under construction, 264,500 sq m (79%) is concentrated in the Central Business District (CBD) area of the capital. The C&W report states: “With the best sites in the right locations currently being built on, particularly around the South Docks area of the CBD, funding for additional projects will be a challenge. If the estimated meaningful share of Brexit-related moves to Dublin are realised, demand for new and existing floorplates will strengthen further, and supply levels will tighten again in 18-24 months’ time.”

Central Business District

Following three consecutive years whereby the quantity of office space taken up in the suburbs was greater than the CBD, occupier preference has now moved back towards prime city centre space.

This is largely due to new space being constructed and/or materialising through refurbishments in the CBD, accommodating ongoing inward FDI. Just on half of all take-up in the CBD in the six month period consisted of newly developed and completed office space, compared to zero over the past five years.

An estimated 85,950 sq m of space was taken up in the CBD in the six months to June 2017, the highest level of H1 take-up in a decade. Take-up activity during the first half of the year was largely accounted for by State bodies, which comprised 29% of all occupied space in Dublin, mainly attributed to the Central Bank and ESB/ESBI occupations in Q1.

C&W reports that within the CBD, demand remains firmly focussed on Grade A space, which accounted for three-quarters of CBD take-up through H1.

At the mid-point of 2017, availability in the Dublin market stood at 472,800 sq m. This represents an increase of 18.2% year on year, attributed to a stronger level of second hand space released to the market over the year, combined with a smaller level of newly developed space delivered and not yet taken up. The corresponding vacancy rate rose to 13.8% at the end of June.

Vacancy Rates

The result of this increase in supply means that despite strong take up levels, annual net take up, which measures the overall change in occupied space, was notably lower at the end of June compared to the same period last year.

C&W estimates that factoring in the volume of space signed and awaiting occupation, net availability stood at 307,600 sq m at the end of June, with a corresponding net vacancy rate of 9.0%. The C&W report adds: “Availability in the CBD market, while also volatile, remains tight. Net of signed and reserved space, availability stood at 80,450 sq m, with a corresponding net vacancy rate of 4.5%. The Grade A net vacancy rate is 5.4%.

“An analysis of the CBD submarkets reveals that the IFSC– orth Docks area was the most supply constrained at the end of June, with a net vacancy rate of 1.5%. The Ballsbridge area has a net Grade A vacancy rate of 1.7%.”

Stable Rents

Prime office rents in the Dublin office market remained unchanged at the mid-point of the year from the previous quarter, at €619 per sq m per annum. The view from C&W is that prime rents will stay at this level in the medium term, though some smaller infill sites are achieving up to €646 per sq m per annum.

In the suburbs, the second quarter of 2017 saw little change in rental levels, standing between €296 and €323 per sq m. Rents in the suburbs can vary significantly based on location and building specification.

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