Vacancy rate drops and rents rise in Dublin office market

Lisney’s latest quarterly review of the Dublin office market reports strong activity in first quarter of 2015 with take-up coming in at 51,300sq m (552,188sq ft).

Some 59 per cent of this figure related to international companies taking space while 52 per cent of take-up was in the city centre.

The amount of available space in the market fell by 5 per cent over the first quarter. This left Dublin’s overall vacancy rate at 13.5 per cent, while the city centre rate now stands at 10.9 per cent. “But,” according to Lisney, “a third of city centre supply could be considered sub-standard space.”

The IT sector accounted for 50 per cent of all activity in the quarter and six of the top 10 transactions. Google acquired 2,480sq m (26,695sq ft) at 2 Grand Canal Plaza in the south docks, while Paraxel and Island Networks concluded deals in One Kilmainham Square (2,790sq m/30,031sq ft) and Park West (2,480sq m/ 26,695sq ft).

A revival evident last year in the financial services sector continued into 2015 as the sector accounted for 16.6 per cent of take-up. Citco (1,900sq m/ 20,451sq ft in Custom House Plaza ), JLT (1,670sq m/ 17,975sq ft in Cherrywood) and Insurance Ireland (1,110sq m/11,840sq ft in Harbourmaster Place) each took significant space in the quarter.

Domestic economy

According to Lisney, financial services “will become a bigger part of the market in the short to medium-term as activity in the domestic economy strengthens further”.

Aircraft leasing companies were an important part of the picture. The sector reported three deals in the first quarter for 1,200sq m (12,917sq ft) while a large pre-let to Aercap is due to be finalised in the coming months.

Lisney reports that of the three new office schemes under construction, two are already pre-let. “This leaves just one new building under construction available – No 1 Ballsbridge – which was on hold since July 2014 but restarted recently. This site and the buildings currently under refurbishment (such as the former Bank of Ireland HQ, Hanover Reach and Hibernian House) are insufficient for the Dublin market.

“Consequently, upward pressure on rents continues to build. Prime city rents are now approaching €540 per sq m (€50 per sq ft).”

With falling vacancy rates and limited supply growth, sourcing the right accommodation has become an even bigger issue than rising rents for tenants, according to Lisney.

"Those companies wishing to expand may now either have to postpone plans or settle on satellite offices outside of the CBD. We are already seeing signs of this. For example, Mason Hayes & Curran took space on Ringsend Road and Google took space in EastPoint.

“Near sourcing”

“This trend could also be symptom of ‘near sourcing’, a practice more common in the UK where large professional services companies, primarily based in the city centre, locate certain office functions in cheaper suburban locations while maintaining high-profile offices in the city centre.”

Take-up this year and next may be constrained by a lack of available space for occupiers seeking relatively large amounts of accommodation in one building, according to Lisney.

As a result, rents will continue to rise in the medium term. Lisney estimates prime rental growth of 29 per cent over 2015 and 12 per cent in 2016.

“Landlords in the south suburbs will benefit from shortages of city space,” it says, “and there will be increased levels of take-up in this region. Rents have already risen here by 40.5 per cent in the last two years and this trend will continue. More developers will prepare sites and lodge planning applications in the prime areas.

“By the end of the year, we are likely to see construction commencing on a number of schemes. The vacancy rate will continue to fall with the city figure likely to drop below 10 per cent by the end of the summer for the first time since mid-2008.”