Apr 4, 2010 - 09:00

Activity improved in Dublin Office Market in Q1

Share this article

Highlights

Dublin office take-up was up on both a quarterly and annual basis in Q1 2010, with nearly 25,000m2 of office lettings signed during the period
The headline office vacancy rate in Dublin, although high compared to other European markets at 23%, fell in Q1 2010 for the first time in almost two years
Headline quoting rents remained stable in Q1 2010 at €376 per square metre emerging
The city centre accounted for 53% of gross take-up in Q1
Vacancy in the city centre remained stable at 23%, but vacancy in Dublin 2/4 increased marginally to 17.3%
Prime headline quoting rents in the city centre remain stable at €376 per square metre
73% of current outstanding requirements focused on the city centre
Approximately 47% of gross take-up in Dublin during Q1 2010 took place in the Dublin suburbs
The south suburbs accounted for 60% of suburban take-up in the period
Vacancy remains high in the suburbs overall, but vacancy in the south suburbs fell to the lowest rate among Dublin's sub-markets at 13%.
Uneven take-up patterns reflect tentative economic recovery
Changes of use helping to insulate markets against sharp rises in vacancy
Smaller rental falls in the final quarter, and indications that headline rents are starting to level
Prime yields stable
Transaction volumes expected to improve
Considerable arbitrage between prime yields and the cost of funding attracting investors

Activity improved in the Dublin office market in the first three months of 2010, with 24,954m2 of lettings signed in the capital in Q1. This represents a quarterly increase in letting activity in the capital of 26% and a year-on-year increase of 143% compared to Q1 2009, when the Dublin office market experienced the lowest quarterly take-up on record. There were 36 individual office lettings signed in Dublin during Q1 2010, nearly half of which (17 lettings) were larger than 450m2 in size. Three office lettings signed in Q1 2010 were 1,900m2 or larger. This is in contrast to the same period last year, when 31 lettings accounted for only 10,284m2 of office take-up between them.

Prime office headline quoting rents in Dublin held steady in the first quarter of 2010 at €376 per square metre. With rents having declined approximately 44% from peak and Ireland's corporate tax rate still attractive to international occupiers, demand - as measured by the total requirements for office accommodation in the capital - has grown considerably since the start of 2009, when we saw not only the lowest level of office letting activity in the capital but the most significant contraction in the Irish economy overall. There has been a notable increase in demand in the last few months with a number of new office requirements emerging. This comes at a time when the quantum of new office supply entering the Dublin market is severely restrained, with only what is currently under construction due to come available over the next 18 months and no new schemes scheduled for completion in 2012.
The level of vacancy in the capital fell in Q1 2010 for the first time since 2008. Overall vacancy in Dublin fell 45 basis points to 23% in Q1, although there were minor increases in vacancy in some districts. Several trends are at play. The make-up of the vacant office stock in Dublin continues to shift as occupiers exercise break options and move from older, sometimes obsolete, offices into new "Grade A" accommodation. As they move, the quality of vacant accommodation continues to deteriorate and there is limited 'net absorption'. However, some occupiers are net takers of space and are helping to slowly erode vacancy. For example, 10 of the office lettings signed in Dublin during Q1 2010, accounting for 10,633 square metres of overall take- up between them, were new entrants into the Dublin office market. A considerable amount of stock under construction around the city is already pre-let and won't ultimately end up in vacancy calculations. In addition, the lack of new speculative accommodation coming on stream should help to slowly erode the level of vacancy in the market. However, the stock of new office accommodation will decline first meaning that any upward movement in rental values will be limited to this sector while rents for older accommodation in need of refurbishment are likely to continue to come under pressure.
Continued stability in office yields has attracted increased investor interest in office assets in recent months. However, as yet, this has not translated into completed transactions. Almost €19.5 million of investment transactions were signed in Ireland during Q1 2010 although none of these transactions comprised office investments.

Report downloads