Rents slip as demand from occupiers slides

OFFICE MARKET:ANOTHER STUDY has confirmed the decline in commercial property rents.

Lisney's latest Rental Indices estimates that rents generally have fallen by 1 per cent in the first three months of this year - the first drop since 2002.

Dublin office rents, according to the report, are down 2.7 per cent overall with the fall in the city centre even more pronounced at 3.1 per cent.

The slippage is attributed to a combination of a busy office construction programme and a softening demand for business space.

An estimated 360,000sq m (3.875 million sq ft) of new office space has been built in Dublin since January 2007 - equivalent to 12 per cent of the total Dublin office stock. Around 73 per cent of this space is in the city centre.

Lisney researcher Dr John McCartney says that, while the market was quickly able to digest new space in a growing economy, occupier demand was now beginning to soften due to the economic slowdown and rents were easing back as a result.

"Office take-up remained robust by historical standards in Q1 but was down by one-third on 2007 levels. This is not surprising given that the financial services sector, which accounted for 45 per cent of all office lettings in 2007, is going through a sharp global downturn."

Even more surprising, 2008 is shaping up to be an all-time record based on building projects already underway. In the event of demand for space weakening even further, the likelihood is that rents could slip.

The Lisney report said that retail rents were flat in Q1 but significant increases in the second half of 2007 meant that they remained in positive territory for the year. However, retail rents were likely to be sluggish during the remainder of this year due to strong development activity and moderating demand from retailers as consumer spending cools off in a slowing economy.

The report also found that industrial rents had also been flat in the first three months of this year. However, higher interest rates and a desire to remain flexible in an uncertain economy meant that more firms were now choosing to rent rather than go down the route of buying their industrial premises.

According to Lisney, these factors could provide some support for industrial rents over the coming months.