Lisney says city centre office rents have reached the floor, but DTZ predicts more falls, writes JACK FAGAN

TWO NEW reports on the Dublin office market are at variance on whether rents will continue to fall. James Nugent of Lisney says it appears that the market has reached a floor in terms of rent levels, particularly in the city centre, which had reacted faster to the downturn than some suburban locations.

However, DTZ Sherry FitzGerald argues that while a floor has yet to be reached, prime rents continue to drop with falls of about 25 per cent evident when compared to the same period in 2008.

Nugent said that any transactions in 2009 would be hard fought forand that there were a number of astute occupiers now trying to take advantage of market conditions by looking for office accommodation. He estimated that their combined requirements could be in excess of 70,000sq m (753,473sq ft).

Developers and landlords were fully aware that it would continue to be a tenants’ market for some time, he said. Not all the space available was grade A and occupiers would need to be mindful that delaying decisions on taking new space may mean that only inferior space would be available.

DTZ said that a combination of weak demand coupled with strong development activity had resulted in a significant increase in the supply of space during the second quarter. The volume of completed space remained excessively high, rising by 10 per cent to 609,500sq m (6,560,597sq ft). The vacancy rate rose to 19.1 per cent and supply levels were expected to remain strong in the short to medium term with a number of new developments due to be completed before the end of the year. This would put a further downward pressure on rents in the year ahead.

DTZ said that in line with deteriorating economic conditions many potential occupiers continued to remain cautious about making commitments to relocate or expand. For the year as a whole take-up was likely to be in the region of 75,000-85,000sq m (807,292-914,931sq ft).

This was based on the assumption that most of the space currently pre-let or reserved does not fall through due to difficulties associated with the economic climate. This was significantly lower than in 2008 when the take-up figure reached 227,500sq m (2,448,787sq ft).

The report said that with the exception of the final quarter of 2008, the volume of transactions in Dublin had been falling since quarter four in 2007. Letting activity amounted to 18,000sq m (193,750sq ft) during the three month period. This represented a decline of 70 per cent when compared to the activity levels during the same period in 2008.

The quantity of space taken up during the second quarter was mainly concentrated on small sized deals with the exception of the decision by the Central Bank to rent 5,550sq m (5,974sq ft) in Block 3 of Spencer Dock.

The suburban regions remained the most sought after during the first six months of the year, accounting for 65 per cent of all newly occupied space. A further 14 per cent was in the IFSC.

Letting activity in the prime regions of Dublin 2 and 4 continued to remain subdued, accounting for only 11 per cent of space compared to 37 per cent 12 months previously. The gap between city centre and suburban rents continue to narrow. This could lead to a rebalancing between the two regions towards the end of the year as tenants priced out of the city centre may now find the revised rental terms more acceptable.`The Lisney report put the vacancy rate at just over 20 per cent, meaning that one in every five buildings is empty. “The city centre vacancy rate stands at about 16 per cent (336,346sq m or 3,620,395sq ft). However this figure is misleading because a substantial portion of it would be considered dated and certainly not grade a space.”

The report said that under normal market conditions the abundance of poorer and older buildings would be redeveloped. However, given the current office supply and lack of finance the only option for landlords was to try and let them on short-term leases. Rent levels for these buildings looked cheap at less than €215 per sq m (€20 per sq ft) but the running costs tended to be disproportionate and the quality of the space was often poor.