Prelet deals account for nearly half of leased Dublin offices

Nearly half the office space leased in Dublin during the last quarter of 2016 has not even been built yet, according to a study by Savills.

The estate agents said preletting commitments accounted for 44 per cent of all the Dublin office space leased during the three-month period.

In Dublin 2 and 4, where the demand for business space is hottest, prelets accounted for an even greater proportion of the market, equating to 61 per cent.

Preletting was never really a feature of the Dublin market until now, even during the boom, primarily because the size of the lettings were relatively small by international standards.

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However, the hiatus in building during the recession and the resulting scarcity of new office space has led to a spike in demand.

Crash-weakened lenders are also making developers secure contracted income before financing the schemes.

These factors mean an increasing number of businesses – particularly those with larger space requirements – are willing to precommit to space which is under development.

Rental growth

In its report, Savills noted headline rents for prime business space in central locations had more than doubled since 2012 with the top end of the market commanding on average €646 per square metre per annum.

Savills, however, linked a recent fall-off in rental growth – from well over 20 per cent in 2015 to about 5 per cent last year – to the growing influence of prelets.

The agency said that rents for prelet offices were currently trading at a discount to rents on space for immediate occupation.

It said this reflected the fact that some developers may be willing to offer competitive rent deals to ensure their projects get funded and completed within the current cycle.

“Looking ahead, however, this trend may begin to reverse as completions of speculatively built office blocks provide more tangible competition for pre-lets,” it said.

Preletting has traditionally not really been a feature of the Dublin market because the size of the lettings were relatively small by international standards.

Space requirements

Savills chairman Roland O’Connell said that preletting is emerging because it delivers benefits for all parties in the current market.

“Although enough Grade A space is available to accommodate around 2,200 office workers, occupiers with large space requirements or very specific locational preferences are facing an increasingly limited choice of buildings,”

“Preletting opens up a wider set of possibilities for tenants and some are willing to forego immediate occupancy in return for buildings that tick the right boxes in terms of location, fit and finish,” he said.

Savills director of research John McCartney said preletting also suited developers and property investors, many of whom need to have tenants signed-up before they can access the development finance.

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.