Licensed companies availing of tax breaks in Dublin's International Financial Services Centre can no longer be compelled to move into the Custom House Docks.

There is virtually no office space available in the IFSC. With the Government unable to grant double rent allowances and a remission of rates any more because of pressure from the EU, one of the major companies operating outside the IFSC area, Scottish Amicable, will this week exchange contracts to rent a new 45,000 sq ft office block nearing completion at Adelaide Road.

Scottish Amicable's decision to opt for a permanent headquarters outside of the IFSC will provide considerable comfort for about 150 other licensed companies already based in various parts of the city despite repeated Government threats over the years that their licences could be withdrawn. Most of them have been renting space on a short-term basis because of the difficulties of finding accommodation in the docks. Rents in the city are about half the £27.50 to £29.50 per sq ft level in the IFSC.

Only last week the Taoiseach, Mr Ahern, reiterated that the docklands will remain the hub for the long-term development of the financial services industry. He noted that the requirement for IFSC companies to locate in the docks area will end in 2005, or 2002 in some cases.

A Department of Finance spokesman yesterday acknowledged that some companies licensed to trade in the IFSC cannot find office space in the docks. "Where factors such as the growth of their business, the ending of short-term leases or other commercial considerations require such operations to relocate, there is often no current option but to move to offices not located in the area," he said.

All licensed companies, whether based inside or outside the IFSC, only pay 10 per cent corporation tax, a rate that is due to move to 12.5 per cent from 2003.

Even companies committed to moving into the 12-acre extension to the IFSC will not be able to avail of rent and rates relief because of an EU ruling.

The EU is to decide early this summer on whether IFSC tenants should have to pay back the money they received from both sets of reliefs since 1993.

Developers in the extension to the IFSC will be able to claim capital allowances on over 600,000 sq ft of buildings currently under construction.

Scottish Amicable's decision to settle for the Hardwicke block will come as a surprise, as it was earlier involved in detailed negotiations to rent a new office block at the Sweepstakes complex, in Ballsbridge. Dublin 4.

The company will occupy Montague House under a 25-year lease with upwards-only rent reviews. Like most other lettings, the company will have an option to break the lease after 15 years, provided it gives 12 months notice and pays a penality of one year's rent, as well as rates and service charges.

Scottish Amicable will be paying an annual rent of about £1.25 million, equating to £27.75 per sq ft for the building and 29 car-parking spaces. It is the highest rent yet achieved for a substantial block in Dublin.

Tony O'Loughlin, of Jones Lang Wootton, who negotiated the letting, said the building would be in keeping with Hardwicke's tradition of a particularly high specification. Richard Ellis in London advised the tenant.

Mark Kavanagh's development company, Hardwicke, which owns Montague House, has decided to take an adjoining 43,500 sq ft block off the letting market until it is completed in July. The company obviously feels that by that stage rents will have moved up again because of the immense scarcity of prime space in the city. The two office blocks being developed are Hardwicke's first venture since the company and its partner, British Land, completed the office element of the main section of the IFSC.

The timing of its office scheme could not have been better, as the office vacancy rate in the city is now at its lowest for more than 30 years. With IFSC traders no longer required to move to the Docklands, most of these companies will now attempt to switch to long leases in their present accommodation or seek new space in a market where rents are rising rapidly because there are few available buildings.