Slow start to new year as office letting down by 50%

THE DUBLIN office-letting market has had a slow start in the first three months of this year, with lettings down by at least 50 per cent on the same quarter in 2011.

Estate agents Lisney said that while take up of space in Q1 was only 22,900sq m (246,494sq ft) compared to 54,500sq m (586,633sq ft) last year, it still believed that 2012 would bring an increased level of activity on the previous 12 months.

Lisney argued that the figures did not tell the full story as one deal in the first quarter of 2011 – Google’s purchase of the 19,044sq m (204,988sq ft) Montevetro building – accounted for 35 per cent of all transactions.

CBRE said the slippage in the volume of lettings signed in Dublin during the first three months was not surprising, considering the time it was taking to conclude negotiations and the fact that many corporate occupiers were curtailing their expansion and relocation until such time as the economic climate was more certain.

The agency said overall demand for office space in the capital was up 71 per cent quarter-on-quarter as a result of some large requirements that emerged during the first three months of this year. It estimated that there was now a requirement for 181,000 sq m (1,948,268sq ft) of office buildings, with almost 54 per cent expressing a preference to locate in Dublin city centre.

Jones Lang LaSalle reported a 20 per cent increase in inquiries and said it was hoped that most of these would be completed in the next three months. The average deal size of 653sq m (7,023 sq ft) in the last quarter showed that demand was focused on space of less than 929sq m (10,000 sq ft). There may be shortages of good quality prime space in this size category in Dublin 2 and 4.

The long term average take up over 15 years is 179,500sq m (1,932,122sq ft) per annum, according to Lisney. Last year, the figure was 164,000sq m (1,765,281sq ft), demonstrating that the market was now almost back to normal activity levels. What was noticeably different, the agency said, was the increased focus from overseas occupiers and particularly those from North America.

Lisney said that 20 of the 34 transactions completed in Q1 were for space of less than 450sq m (4,844sq ft). This was an encouraging sign for two reasons – it may indicate a certain level of confidence was returning to the market from smaller occupiers who previously were unsure about making property decisions and, secondly, it might also be a positive indicator that there were some new overseas occupiers dipping their toe into the Irish market. Experience would show that such companies grew quickly.

Jones Lang said the technology sector was still driving demand, accounting for 30 per cent of all deals in the last quarter, followed by banking and finance which was involved in 15 per cent of the lettings. Both of these sectors had consistently outperformed the rest of the market and they expected this to continue throughout the remainder of the year.

The three agencies differed on the proportion of office space now unoccupied in Dublin city centre, with CBRE putting the figure at 23 per cent, Jones Lang having a stab at 19.9 per cent and Lisney calculating it at 16.8 per cent. Lisney said that of the 374,600sq m (4,032,160sq ft) of space for sale or to let in the city, 28 per cent of it was either obsolete or nearing obsolescence.

Lisney forecast that rental growth will return towards the end of this year or early in 2013. CBRE estimates that prime rents now stand at €296 per sq m (€27 per sq ft), while Jones Lang says rents have further stabilised at €301 and €344 per sq m (€28 to €32 per sq ft).