Lisney has suggested that some new construction of large scale office buildings must start immediately in Dublin city.

MD James Nugent says in the company's latest office report that foreign companies and indigenous firms wanted a choice of larger office blocks, something that was not currently available.

The demand was for single blocks with more than 8,400sq m (90,000sq ft) in Dublin 1, 2 or 4. The choice was presently limited to just five properties, four of which were under active negotiation.

First wave
He believes the first wave of new developments would be in the city and this would be followed by the south suburbs. Whilst construction in a market with a vacancy rate of 18.98 per cent (670,000sq m of space) appeared ill-advised, there were other considerations – capacity constraints and a two-year construction time lag.

Nugent said an analysis of the viability of developing an office block in Dublin city showed that a headline rent of about €360 per sq m (€33.45 per sq ft) would be required. This would allow for prevailing lease terms, including a 24-month rent-free period, 15 per cent developer’s profit on costs, a capitalisation rate of 6.25 per cent and a site value of €10 million per acre.

Based on these calculations, prime headline rents would need to increase by 11.5 per cent over the development period or 5.6 per cent a year.

The Lisney report also suggested that the refurbishment of office buildings in the city centre must become a more significant part of the market.

There were already good examples of how top rents were achieved where refurbishment work had been carried out.