Report says prime office rents in Dublin have stabilised

OFFICE MARKET:THE OFFICE rental index in Europe grew by 1 per cent in Q1 2008 and by 8.9 per cent over the year with six markets showing prime rent increases, according to research from Jones Lang LaSalle.

Prime office rents in Dublin showed no change over Q1 2008 or over the year and were the fifth highest in Europe, at €646 per sq m (€60 per sq ft) per annum, coming after London's West End, Moscow, London's City and Paris.

Deirdre Costello of Jones Lang LaSalle in Dublin said their office clock for Dublin showed that the rate of rental growth was slowing in the light of a more difficult economic climate which would filter through to occupational demand. There was, however, still reasonably strong activity in the office leasing sector with companies like Deloitte, Citco, KPMG and Bank of Ireland all looking for headquarter accommodation in the city. Prime rental levels had, in exceptional circumstances, reached and breached €654 per sq m (€60.75 per sq ft) for prime office space in late 2007 and Jones Lang LaSalle does not forecast any additional growth beyond that level.

Over Europe as a whole the highest rental growth was recorded in Milan with plus 14 per cent and Warsaw with plus 10 per cent. Brussels was the only exception where rents fell during the quarter by minus 1.7 per cent.

Alastair Hughes of Jones Lang LaSalle says: "Demand for office space remained at healthy levels, although prime rental growth continued to slow in the first quarter due to the diminishing economic outlook."

Despite job losses in the financial sector, European labour markets remained in good condition, driving office demand. In Q1 2008 take-up of almost 3.2 million sq m (34.5 million sq ft) was recorded. Although this is a decrease of 7 per cent in comparison to the same quarter last year, it is 25 per cent above the five-year average. At a city level the highest increase over the year was recorded in Prague (plus 83 per cent).

Over the last 12 months rental growth was particularly strong in Warsaw (plus 32 per cent), Moscow (plus 31 per cent), Budapest (plus 19 per cent) and London (plus 18 per cent). The cost of renting office space in Warsaw rose to €396 per sq m (€37 per sq ft) a year, a fraction of the high costs associated with London's West End, where prime office rents remain the highest in Europe at €1,553 per sq m (€144 per sq ft) per annum.

European office completions have been moderate at around 1.1 million sq m (11.85 million sq ft) in Q1 2008, well below the volumes witnessed over the last three quarters. However, more than 7.2 million sq m (77.5 million sq ft) is anticipated to be completed by the end of 2008, driven mainly by the booming Moscow market with nearly 2.4 million sq m (25.8 million sq ft) of expected completions.

At the end of March 2008 the majority of the markets on Jones Lang LaSalle's "European Office Clock" reached the "rental growth slowing" quarter. While the rental outlook for western Europe for 2008 is subdued, rental growth expectations for the central and Eastern European markets are still very positive, according to the Jones Lang LaSalle research.

Decreasing business confidence and ongoing downward revisions to GDP growth forecasts have not yet impacted on leasing markets, although it is expected that the majority of the European markets will show lower take-up volumes in 2008 overall.