Despite doubts about the veracity of the 2005 Dublin offices story, it appears the city did have a bumper year. A rise in take-up combined with the continuing reduction invacancies reversed a negative trend that started after the millennium.
According to CB Richard Ellis, take-up was the highest since 2002, against a backdrop of greatly reduced vacancy levels. In quarter one of this year, it was 50% up on 2005.
John Bruder, director with one of Ireland’s largest developers, Treasury Holdings, says: “We would be a bit more cautious than agents, but undoubtedly last year was a turning point in the market. There is evidence of a hardening in lease terms, with rent-free periods reducing from two to three-and-a-half years to 12-18 months.”
Upward trend
But there have been freak years before. Some in the market have disputed the quality of lettings, suggesting churn accounted for the bulk of take-up. In such a climate, it is valid to wonder if Dublin’s office market is beginning an upward trend or at the tail of a blip.
A key indicator is what non-speculative developers are doing. Treasury Holdings normally wants half of any scheme prelet before starting construction. Of its 41,800m2 on site, 30,660m2 is prelet.
But in April, it secured prefunding from Anglo Irish Bank for a speculative 11,150m2 scheme at Spencer Dock, D1. It is already on site at the dock with PricewaterhouseCooper’s 21,370m2 Irish headquarters.
“We would not have pushed the button on Spencer Dock if we were not bullish,” says Bruder. “We will be very disappointed if we don’t have all of that let before practical completion in the summer of next year.”
It is a fair point that a lot of take-up is from existing occupiers but, as long as take-up rises and vacancies do the opposite, who cares?
McCann Fitzgerald, one of Ireland’s largest corporate lawyers, is an existing occupier moving from the International Financial Services Centre to Grand Canal Dock. The relocation can be regarded as churn, but the company is also taking an additional 4,650m2.
Hibernian Insurance has also taken a 18,580m2 prelet at Clancourt Group’s Park Place scheme, near St Stephen’s Green, Dublin, that it is due to occupy in October. Again, this is churn, but the company is taking an extra 9,290m2 above the total floorspace of the four buildings it is vacating.
Anglo Irish Bank, Microsoft, HSBC and telecoms company Avaya have all taken extra space too. The Investment & Development Agency of Ireland – the country’s inward investment body – estimates that at least half of what it does is helping existing foreign direct investment to expand.
But can the good times continue?
Depending on the source of data, GDP growth for the republic is forecast at between 5-6% pa – providing there is the optimum workforce to sustain it. Kevin McCarthy at the IDA’s strategic business group says: “There is net migration of nearly 50,000 people into Dublin each year. In the 1980s, we were exporting 50,000 people per year.” The old joke about Dublin “doublin’ in size” now looks more prescient than amusing.
Agents speak anecdotally of an increase in large requirements from legal, financial and even IT firms. CBRE is projecting that the take-up of offices in Dublin could reach 185,800m2 by the end of the year.
Following commitments for new space by lawyers McCann Fitzgerald and Mason Hays & Curran, the city’s remaining large law firms are now in the market. Matheson Ormsby Prentice will, it is rumoured, complete a 13,940m2 deal shortly.
Now, following PricewaterhouseCoopers’s relocation to Spencer Dock, accountant KPMG is also rumoured to be planning to relocate in the city. In addition, growth is predicted for the financial service sector.
As a result, rents are predicted to rise through the remainder of the year and into 2007. In the past six months, headline rents have jumped from €457 per m2 to €538 per m2. Given diminishing vacancy and incentive levels, some anticipate achieving €645 per m2 in 2007.
“Tenants now realise that, if they are going to relocate or expand, they may end up paying more rent with fewer incentives. Landlords are being more bullish,” says CBRE’s head of agency James Mulhall.
Like all silver linings, growth in demand comes with a cloud. The spectre of oversupply, which so blighted Dublin’s office market in recent years, is once again looming.
“In the course of last year, the development industry turned a psychological corner and has kicked off schemes 100% unlet,” says Treasury’s Bruder. “It remains to be seen whether or not that was a good move. If more kick off, the market could go into oversupply very quickly, with tenants dictating terms.” He cites several developments in the city approaching completion with no apparent interest from occupiers.
Mulhall disagrees, saying the timing of delivery will prevent this.
Nick Coveney, director at Colliers Jackson-Stops, is more measured. “What we have seen is a gradual upturn,” he says. “The market is very, very good at satisfying small- to medium-level requirements but, once you get to larger requirements, there is more available. There are still plenty of deals to get done.”
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At times it can seem as if the Republic of Ireland’s office market is based almost entirely in Dublin, with a smattering in Cork, writes Noella Pio Kivlehan. But there are other office schemes in the Republic that are vying for the attention of large firms. Westpark Shannon, outside the town of Shannon on Ireland’s south west coast, is one such business park determined to put itself on the map. The 16ha scheme is within the 243ha Shannon free zone site. Developer Westpark Shannon Company is pulling out the stops to get the big businesses and prove the area can be a credible alternative to the Irish capital. The free zone has already attracted almost 200 companies, including computer chip manufacture Intel, computer hardware firm Avocent, GE Capital, Lufthansa and Veritas Software. Among the many marketing tools that the company is using to promote the site is the development’s close proximity to Shannon airport, which has direct flights to North America, and is used by 2m Ryanair passengers pa. Another is that the site has all the latest hi-tech communication facilities, coupled with what the developer is calling “lifestyle amenities”, such as restaurants, hotels, crèches and gyms. Development on the office scheme started 12 months ago, and the first of seven planned buildings has just been completed. Tenants are set to move in later this month. With incentives, such as grants for employment, research and development, training and capital, plus corporation tax of 12.5% and rents cheaper than Dublin, Westpark Shannon hopes it will be able to get the names and provide a real alternative to Dublin. |
