Lease lengths on Irish commercial property continue to grow, according to Goodbody real estate analyst Colm Lauder.
This should provide greater comfort to investors around the stability of income from property.
"Irish lease lengths have grown considerably as tenant demand has surged and supply remains relatively limited," says Mr Lauder who points to Knight Frank data which suggests that the average prime Dublin office lease was 12.8 years in 2017 – up 23 per cent from 10.4 years in 2014. "Our own analysis of a wider CSO lease database correlates with this trend," he concludes.
Mr Lauder also suggests that suburban Dublin office leases are “among the longest in the market”. He says a “remarkable recovery” in the suburban office market over the past three years has resulted in rents edging above the previous cycle high of €25 per sq ft.
"Several notable long-lease deals have been concluded at rents of €28 per sq ft and €30 per sq ft in Sandyford and Blackrock, " says Mr Lauder. "Our analysis shows that the average new office lease in Dublin 18 (Sandyford) was 7.4 years in January and 8.9 years in the south suburbs."
City centre
However, while larger-than-average lettings in the suburbs have lengthened leases, lease term lengths in the city centre remain stable. Dublin 1, predominantly the IFSC and north docklands, has the longest average new office lease length at 10.4 years, according to Mr Lauder. This is almost unchanged from 10.3 years in January 2017, while Dublin 2, which includes the traditional CBD and south docklands, saw an average lease length of 7.5 years in January, in line with the 2017 average of 7.3 years.
The lack of an upward-only rent review clause in new office leases has made investors reassess how they manage income risk. There is now a preference for longer leases and fewer break options to boost net effective income and minimise income risk.
Mr Lauder says new Dublin office leases are now up to seven years longer on average than in London. “This provides a great degree of comfort for income investors, and is one of the key appealing factors of Irish commercial property, especially Dublin offices, to a broadening pool of international investors.”
