Overview
Despite on-going difficulties in the economy and business generally, there has been a reasonable level of take-up since the beginning of the year, and vacancy rates are now abating. Vacancy rate now standing at 21% for Dublin overall, compared to 22.8% at the beginning of the year. The city centre rate is currently 17.7%, down marginally from 18.2% in Q2.
Activity
Total take-up for the first nine months of the year was 130,755 sqm (54,500 sqm in Q1, 39,100 sqm in Q2, and 37,170 sqm in Q3) and has already surpassed the level achieved for the entire of 2010 (125,000 sqm). We estimate that total take-up for the year will reach 160,000 sqm. If achieved, it will be ahead of the 20 year average figure of 150,000 sqm. Unsurprisingly, offices that are obsolete or nearing obsolescence, only secured 4.2% of the market activity over the quarter with occupiers preferring better quality accommodation.
There were 96 transactions during the first half of 2011 with a further 50 completed in Q3. High profile lettings during the year-to-date include companies such as Google (19,044 sqm), LinkedIn (3,066 sqm), Paddy Power (11,055 sqm), SAP (1,323 sqm) and Tullow Oil (4,450 sqm), and more recently the HSE (3,530sqm), Ocuco (978 sqm), Dell (3,066 sqm) and a Belgian software company, BSB (1,872sqm).
The IT sector is the key source of demand, accounting for approximately 44.5% of all office accommodation taken-up in the year- to-date. The financial services sector accounts for 14.7% of space acquired during the period, while the state/ semi-state sector and professional services account for 7% and 6.9% respectively.
Despite an increase in activity, lease terms remained firmly in favour of the tenant with most occupiers securing generous incentives and flexible lease terms. We expect these conditions to prevail for the remainder of 2011, however, there are signs emerging that the market is stabilising. Consequently, terms may begin to edge back in favour of the landlord in 2012, particularly in Dublin city centre.
Availability
Overall Dublin availability currently stands at 21%. This translates into approximately 740,000 sqm of accommodation. In the city centre market, there is currently 395,000 sqm of modern office space available representing a vacancy rate of 17.7%. We estimate that 29% (118,000 sqm) of this is grade C, i.e. accommodation that is obsolete or nearing obsolescence and in a different economic climate would be redeveloped. 48% (192,000 sqm) of the total city centre available space is grade A (brand new and never occupied), whilst the remainder is grade B, modern space previously occupied.
Although the statistical information indicates that there is adequate supply in the market, once each geographical sector and grade of building is examined, gaps appear. This is particularly the case in the prime Dublin 2 & 4 areas and we suspect that in time this will also be the case in Dublin 1.
If you consider the prime locations of Dublin 2 & 4, there is only 78,500 sqm of grade A space available and we understand that much of this is under active negotiation.
We estimate that there are combined occupier requirements of about 100,000 sqm in the Dublin market at present. Most of these have a preference for the city centre. For larger occupiers requiring 5,000 sqm or more of new accommodation in the central business district of Dublin 2 & 4, there is currently only five buildings to choose from namely; Burlington Plaza, two buildings at Grand Canal Square, Bloodstone Building and The Observatory.
Similarly, if such occupiers focused on Dublin 1, there are only a small number of buildings available. We estimate that there is approximately 45,000 sqm of grade A space in this area, and of this 19,500 sqm relates to three buildings; The Point Village, Castleforbes House, and Joyce House. These buildings do not appeal to the wider market for various reasons and are not high on the list for occupiers wishing to locate in grade A offices in the city centre.
Outlook
Ireland has regained some ground in terms of competitiveness and certain occupiers are now making the decision to commit to Ireland. Google is a prime example. Since the peak of the market, the Lisney composite index of headline commercial rents has declined by 55%, and rents are now well below the cost of construction when capitalised. However, rental levels remained relatively stable in Q3. This, in addition to the gaps that are now appearing in supply, means that the office market will be one of the first property sectors to recover.
However, the economics of the market are not sufficiently readjusted to make speculative development feasible, and it may take two to three years for any growth to resume in rents.
Summary
• Total take-up for the first nine months of the year was 130,750 sqm.
• We estimate that total take-up for the year will reach 160,000 sqm, 10,000 sqm ahead of the 20 year average.
• There were 96 transactions during the first half of 2011 with a further 50 completed in Q3.
• Overall Dublin availability currently stands at 21% with the city centre at 17.7%.
• In Dublin 2 & 4, there is only 78,500 sqm of grade A space available and we understand that much of this is under active negotiation.
• Since the peak of the market, the Lisney composite index of headline commercial rents has declined by 55%.
• The economics of the market are not sufficiently readjusted to make speculative development feasible at present, and it may take two to three years for any growth to resume in rents.
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