Lenders have big say in what gets built

The banks and lending institutions have a powerful say in what suburban office developments are completed, and may ultimately control whether there is an accommodation glut or shortage.

There are about four million sq ft of office space either planned or under construction in south Dublin and some believe that the market will not be able to absorb this.

With these concerns undoubtedly in mind, three of the leading pension funds abandoned plans to put at least £30 million into a scheme in Sandyford, south Dublin, as The Irish Times Commercial Property supplement reported last week. The Irish Pension Fund Property Unit Trust, Irish Life and Ulster Bank had planned to provide finance for the 130,000 sq ft Odenberg development on a site opposite Intel in Sandyford.

The funds recently indicated to Odenberg, however, that they were not proceeding because of worries that the space might not attract a tenant quickly enough. Odenberg has since agreed to sell the 1.6acre site for more than £5 million to developer Paddy Kelly.

The lenders have a powerful say in this type of development, given the high capital costs, says Ronan Webster of Gunne. "Only the banks will decide what the developer can build without tenants."

Lenders might allow the largest builders to begin building without a tenant ready to take over the space upon completion, but smaller companies would not receive this type of support on speculative letting. "Anyone who has never developed before and is sitting on a nice land parcel, the banks won't support until they have a tenant," Mr Webster says. "Banks and the developers are taking a sensible attitude in this."

Instability in financial markets generally can also serve to make lenders more cautious. "Confidence could have been rattled with what has been going on in the NASDAQ," says Mr Webster.

The traditional approach had been that the tenant was lined up and ready to take possession once construction was finished, says Roland O'Connell, a director of Hamilton Osborne King. There is at least one significant exception to this general rule however - Park West, the massive and highly visible development just off the M50 near the junction with the Naas Road. It includes more than a million sq ft in total, but building has continued in advance of lettings in order to maximise availability of tax incentives for completed buildings, Mr O'Connell explains.

This, he adds, is very much the exception and even the very large developments going into Sandyford have tenants available for them ahead of completion.