Office leasing rises to highest level since 2007

The latest Dublin office review from DTZ Sherry FitzGerald confirms last week’s record returns reported for the sector by IPD.

Dublin’s central business district (CBD) office market has entered a new phase in the recovery cycle, according to the DTZ report, as a shortage of space is fuelling double digit rental growth – up 33 per cent so far in 2014.

"Occupier demand within Dublin's CBD strengthened during the third quarter of 2014 as office leasing activity rose to its highest level since the final quarter of 2007," says Marian Finnegan, chief economist at DTZ Sherry FitzGerald.

“Total take-up in the CBD stood at 83,600sq m in the year to date, up 93 per cent on the corresponding period in 2013. A further 21,800sq m was signed and is awaiting occupation.”

Demand for office space in the capital remains largely concentrated in the CBD with lettings in this area in the year to date accounting for 47 per cent of overall take-up in Dublin. This compares with pre-crisis levels of 33 per cent.

Vacancy rate

Tenant demand in the CBD is focused on Grade A space and this “soared during the first nine months of 2014”, according to the report. As a result, the stock of available Grade A CBD office space shrank rapidly to 42,000sq m at the end of September. With Grade A CBD stock of just over 1 million sq m, the corresponding vacancy rate now stands at 4 per cent.

“There is an acute shortage of available Grade A office space in the CBD market capable of accommodating large scale office requirements,” says Ms Finnegan. “The last remaining large office building measuring in excess of 10,000sq m [Grand Canal Square, Block 5] was reserved during the third quarter.”

Further analysis of the figures shows there was 57,350sq m of Grade A space unoccupied in the CBD, but 73 per cent of this is either signed or reserved. “This highlights the critically low levels of top Grade A1 accommodation available in the city,” according to the report, “and could potentially compromise Dublin’s attractiveness to corporate occupiers, both domestic and overseas.”

Meanwhile, there is just 22,500sq m of new office space under construction in the CBD at the end of September, equivalent to 1.3 per cent of overall stock. As a result, it’s of little surprise that DTZ is reporting that rental growth accelerated in the CBD area during the third quarter of 2014. “Prime headline rents in the CBD stood at €468 per sq m at the end of September, up 33 per cent since the beginning of the year. Rents are forecast to rise to €520 per sq m in 2015,” according to the agency.

Strong demand

There was also strong demand for non-Grade A space in the three months to September, as the quantity of available CBD space dropped 21 per cent during the quarter. The stock of vacant space now stands at 162,450sq m which means the rate is down to single digits (9.5 per cent) for the first time since the third quarter of 2008.

Take-up of office space in the Dublin office market for the third quarter of 2014 stood at 41,450sq m – almost a third higher than the second quarter. A number of significant occupations took place, including William Fry occupying almost 9,000sq m at 2 Grand Canal Square, Dublin 2, and Amazon taking 6,500sq m at Burlington Plaza, Dublin 4.

Demand remains strong, with 38,700sq m of CBD office space under offer at the end of September. The IT/telecom- munications sector is the main driver of corporate occupier activity in the year to date – BT, Intercom and Telefonica took extra space in the third quarter.

It is interesting to note that the finance sector’s share of demand increased to 7 per cent of total activity in the first nine months of the year after a prolonged period of decline.