COMPANIES RENTING new office space in Dublin are continuing to avail of rent incentives and flexible lease terms, but there are signs that the market is beginning to stabilise, according to two reports out today, from estate agents Savills and Lisney.
Savills said that prime rents have stabilised and letting activity was highlighting the fact that the split between prime and secondary locations was becoming more pronounced and having a negative impact on secondary rents.
While the overall vacancy rate was up – primarily because of an increase in obsolescent space – the lack of new Grade A accommodation in prime locations would see demand outstrip supply, because completions have dropped to the lowest level since 1985.
The Lisney report said it expected the present favourable conditions for tenants to prevail for the remainder of 2011. However, there were signs emerging that the market was stabilising and incentives should be edged back in favour of landlords in 2012, particularly in the city.
Lisney estimates that there is currently a combined occupier requirement of at least 100,000sq m of space, most of it in the city centre. For larger occupiers needing 5,000sq m or more of new space in Dublin 2 or 4, there were currently only five buildings to choose from. It was doubtful that development would recommence in the short term because of the dearth of development finance and the present uneconomical rent levels.
Roland O’Connell of Savills said demand was set to remain focused on prime central locations and on new space in well located suburbs. Rents for prime locations had stabilised at close to €350 per sq m. Secondary rents would remain under pressure for the remainder of this year and into 2012 because of higher vacancy rates in secondary locations and the deals on offer in the best areas.
Savills researcher Joan Henry said office take-up remained steady in 2011 with just under 80,000sq m of space let in the first six months. This was 43 per cent higher than for the same period in 2010. Prime locations continue to dominate, accounting for 62 per cent of take-up in the last quarter.
Lisney said vacancy rates would continue to fall, but at a slow rate because some financial institutions would be bringing secondhand surplus space to the market.
They expected a year-end take-up of 140,000sq m, which would be considerably better than the 124,500sq m and 84,000sq m recorded in to 2010 and 2009, respectively.
Meanwhile, Jones Lang LaSalle has said the market is continuing to improve and, in the first six months of the year, total take-up reached 85,339sq m (918,615sq ft). The overall vacancy rate has fallen again and stands at 20.7 per cent.
Fionnuala O’Buachalla of the agency said that in addition to companies making the most of lease terminations and break options by relocating, there had also been a significant increase in the number of companies expanding. Around 59 per cent of the tenants who took extra space in Q2 was as a result of expansion.
O’Buachalla said average rents were now €247 per sq m (€23 per sq ft) in the city centre and €166 per sq m (€15.50 per sq ft) in the suburbs. “Dublin is clearly a location that can provide competitive terms and an excellent labour pool to encourage companies to expand here.”
