Record take-up of space this spring as demand continues unabated

The office accommodation market in Dublin continues to boom with a record uptake for spring 2000 of 683,681 sq ft, twice the uptake in spring 1999. This has brought the vacancy rate to well under two per cent and possibly as low as 1.2 per cent of the total office stock.

Market forces, however, are causing a widening commercial gulf between developments in the city centre as opposed to the suburbs to the west, north and south of Dublin. There are significant price differentials, the types of development are very different and vacancy rates vary.

There are a number of factors driving this situation, including land values and availability, lack of supply in the city compared to near oversupply in the suburbs and also the provision of new infrastructure, including the M50 and proposals for LUAS.

Ronan Webster of Gunne Commercial outlines why what was traditionally a single sector is evolving into distinct property markets. "Traditionally, people would attach a premium for being in the city centre." The key issues, he says, are whether you are creating an environment that will attract and keep staff. "Some people want to be in the city centre and some want to be in the suburbs".

The latest Gunne Market Bulletin for the spring 2000 Dublin office market highlights the separation between the two markets. While new accommodation in the city centre might make £36 to £38 a sq ft at the top levels, suburban space might make £15 to £20 a sq ft. Second-hand values in the city would be around £18 per sq ft compared with £14 or £15 in the suburbs.

And of the total uptake for the period, 50 per cent was captured by developments in the south suburbs, concentrated around Sandyford and Leopardstown. The remaining 50 per cent went to developments in the north and west suburbs and city centre.

Land availability is a powerful influence. "The short supply of building land in the city centre is driving up prices there." Too little land means too few developments and a vacancy rate of under two per cent.

It is a remarkable turnaround, brought on by the Celtic Tiger phenomenon, and is in stark contrast to the letting history of, for example, the large Irish Hospital Sweeps site in Ballsbridge.

Although sitting in one of Dublin's finest office locations, it took agents nearly a decade to let it all. Today, new developments are being let before completion.

It has also pushed Dublin well up the international ranks in terms of the rate of change in commercial property prices since the mid-1990s. A recent analysis by the Bank for International Settlements placed Dublin at the top of the table, with a 141 per cent change between 1994 and 1998.

Next in line and much lower down the percentage table is Stockholm, at about 83 per cent change, Madrid at 80 per cent, Amsterdam at 55 per cent, New York City at 50 per cent and London at just 32 per cent.

Another change which pushed development activity further away from the city centre was competition for sites, explains Roland O'Connell, a director at Hamilton Osborne King.

"A lot of the sites which could have been developed for offices during the 1980s and 1990s were developed for hotel and residential accommodation purposes. That was a new thing."

A tightening of planning regulations in the city, matched by a loosening of planning demands in the suburbs, also helped to bring about the current situation.

This took hold from the early 1990s on, Mr O'Connell says making it increasingly difficult to initiate large office sites in the city or to develop in "Georgian" areas of the city.

This has brought about a "dearth of new supply in the city centre area", he says. The George's Quay site, behind the existing Ulster Bank headquarters, is one of the very few significant new sites under way at the moment and this won't be ready until early to mid-2001. He estimates that there is an 18 to 24month supply delay on the city market generally.

Things couldn't be more different in the suburbs. The M50 development has opened up vast new areas for potential high profile office and warehousing units and these now sit prominently along the motorway.

ZONING controls have also loosened as the new council areas rushed to benefit from incoming commercial development. There has been a rash of developments, with warehouse units in existing low density industrial estates including Sandyford and Leopardstown giving way to new high-density four or five-storey office blocks, Mr O'Connell explains.

This, he says, is largely attributable to zoning changes, but also access to the motorway and future light rail transport. These have transformed areas such as Tallaght which has become "established as a focal point" for office development.

Other western suburban areas where this is under way include Citywest, Park West, the Naas Road generally and also near the two newest shopping complexes, Blanchardstown and Liffey Valley.

The north suburbs are also benefiting, leading Mr O'Connell to comment: "For the first time, we are seeing significant office development on the northside of the city."

Examples there include elements of the huge Ballymun Regeneration project, a collection of small to medium-sized developments around Swords and the massive Santry Demesne project, which will deliver about one million sq ft of space.

The big question is whether the market will be able to absorb everything that is planned or underway outside the city centre. Mr O'Connell believes that there will not be a problem. "While there is quite a lot of suburban development, there is no more than demand dictates it should be."

He points to the quite low vacancy levels for these areas, with figures of less than one per cent in Dublin, and two and four per cent in Blackrock and Dun Laoghaire. Sandyford stands at about one per cent and, because of a decision to build quickly to achieve tax incentive deadlines, only the Park West development shows vacancies in double figures.

Kevin McHugh at HOK sounds a note of caution however. "There is a view at the moment that there is going to be so much space in the suburbs that prices will remain low or possibly stagnate somewhat. It may well be that those units with poor build quality, won't hold their prices.

Now, he says, there is plenty of choice and if the tenant has any hesitation, there are plenty of suburban options.