More than 40 per cent of office space in Dublin’s central business district has changed hands over the past four years, according to a report by Savills. The high turnover rate reflects the acceleration in recovery from 2013 onwards.
“During the economic crisis office blocks could be picked up cheaply, and this caused assets to be traded at a ferocious rate,” said John McCartney, director of research at Savills, said. “Now that the economy is back on a strong growth trajectory, the appeal of these assets has widened and core institutions, such as pension funds and Reits [real estate investment trusts], have become key buyers.”
Over the 2013-2016 period, the aggregate value of office investment transactions in Dublin totalled almost €6.3 billion, Savills said. However, the report also noted that fewer office investment opportunities came to the market last year.
But Dr McCartney said that investors would continue to have opportunities to buy income-producing office assets.
“Some of the short-term money that picked up offices earlier in the cycle is already moving on to riskier, and therefore higher-yielding, markets, and this will give core investors opportunities to buy good buildings as they are re-traded,” he said.
There is also an additional 400,000 sq m of office space currently under construction in the capital.
International companies
The demand for city-centre office space from international IT and financial services companies continues to outstrip supply and drive up rents in Dublin. This trend is likely to be exacerbated by the impact of Brexit-related lettings.
In its report, Savills also highlighted the re-emergence of forward-funding deals in which investors agree to buy completed developments before or during the construction phase.
“On the demand side, such structures enable investors to obtain better returns while avoiding most of the development risk,” Savills directors Domhnaill O’Sullivan and Fergus O’Farrell said. “On the supply side, while there are numerous proposed office schemes in Dublin, their promoters often lack funding to build them out. This has made the promoters of such schemes particularly receptive to forward-funding transactions.”
Looking ahead, Savills said there would be continued opportunities for investors to develop their own buildings, to forward-fund developments and to purchase re-trades. However, it also said that more normalised supply levels will see investment settle back to a sustainable €2.5 billion to €3.5 billion per annum over the coming years.
