Office market recovering after fall in rents

A rise in the number of inquiries and in the number of small deals are a positive sign, say reports

THREE NEW reports on the Dublin office market out today suggest that there has been a recovery in the level of inquiries and market activity in the first three months of this year. The improved business climate follows a substantial fall in rents and a much enhanced level of incentives being offered to tenants.

Jones Lang LaSalle reports that tenant demand in Q1 was double that of the same quarter in 2009 at 20,784sq m (223,732sq ft) while overall demand was 16 per cent higher than in the final quarter of 2009.

However, DTZ Sherry FitzGerald says that the improvement in market sentiment and active requirements has not as yet translated into an uplift in transaction activity, with Q1 take-up levels disappointingly low. Marian Finnegan, chief economist with DTZ, said it is still perhaps too early to call the bottom of the market but the emerging trend is positive. Q1 saw a significant uplift in the enquiry levels and perhaps most importantly, the quantity of deals taking place has increased by 45 per cent on the same period last year. But as the majority of the deals done are small in size, the headline figure for take-up at 14,300sq m (153,925sq ft) is low.

Lisney estimates that the quantum of space transacted up to the end of March comes to 25,505sq m (274,533sq ft) over 36 different properties. James Nugent says there has been a noticeable increase in market activity with viewings on most buildings up on this time last year. As would be expected, the activity had translated into transactions with vacancy levels in certain geographical areas beginning to fall. Interest from new overseas companies was continuing as Ireland proves a popular location. “It is possible that rental growth will come back in certain locations quicker than most would anticipate,” he said.

Deirdre Costello of Jones Lang LaSalle says that 47 per cent of all the office deals in Q1 stemmed from the expansion of companies already based in Ireland although they did not opt for as large a volume of space as in previous years. A further 32 per cent of transactions are new companies setting up a base in Ireland for the first time. She said that both these trends “are very positive signals for the overall recovery of the office market . . . as they indicate that the future performance is not just dependent on inward investment. Some expansion of indigenous corporate occupiers has already returned to the market”.

Jones Lang LaSalle estimates that prime office rents in Dublin have fallen by 27 per cent since January 2009, and are now at between €323 and €430 per sq m (€30 to €40 per sq ft). Dr Clare Eriksson, head of research with the agency, said there were two noteworthy changes to the patterns of tenant demand recorded during 2009. Firstly, half of all office deals were for grade A space whereas in the two previous years the choice was grade B accommodation.

In addition the demand for suburban office space increased to 71 per cent of all deals in the first three months of this year, a move away from the balance seen in 2009 when occupier demand was almost evenly split between the city and the suburbs.

The DTZ report noted a slowdown in the volume of new and second-hand space coming on the letting market in the first three months of this year. The increase in supply at the end of March stood at 2 per cent compared to 18 per cent during the same period of 2009. At the end of March, there were 39,200sq m (431,948sq ft) of space under construction, a significant reduction on levels witnessed at the height of the market when over 350,000sq m (3,767,400sq ft) was in the pipeline.

Ronan Corbett of DTZ said that behind the statistics, sentiment was definitely improving. Most agents had seen an increase in the level of enquiries and general activity since the beginning of the year.

“It is too early to say whether this is just a blip or the start of a trend but compared to the lows of 2009, so far 2010 is giving us all more optimism.”

Jones Lang LaSalle said that 76 per cent of all deals completed in Q1 were for offices with new leases as occupiers were currently avoiding sub-leases or assignments.

As a result the volume of “grey” space available (almost 17 per cent) continued to be an ongoing threat to the recovery of the market during 2010 and possibly for a longer period.

FROM CHURCH TO OFFICE: St George's to let for €4400,000 per year

THE BEAUTIFULLY restored St George’s Church beside Temple Street children’s hospital in Dublin’s north inner city is to be given a new lease of life as an office setting when it is offered for letting through joint agents BNP Paribas Real Estate and HT Meagher O’Reilly. The asking rent is €400,000 per annum.

One of the last buildings to be completed by the celebrated architect Francis Johnson in the 19th century, the church has been meticulously restored and fitted out with all modern services at a cost of more than €10 million.

The finished work is increasingly being cited as one of the best examples in Dublin of how a historic building can be successfully adapted to the highest office standards.

The church at Hardwicke Place, Temple Street, Dublin 1, has an overall floor area of over 2,000sq m (21,528sq ft) including two free-standing floors which have been inserted into the fabric of the building.

The lower ground floor provides ancillary accommodation which could be used as meeting rooms or as storage space.

The building has been fitted out with toilet and kitchen facilities and has been wired with Category 5 data cabling.

Navan property developer Eugene O’Connor, who specialises in restoring and converting old churches, is the man behind the adaptation.

The architects are James A O’Connor Associates and Joseph Doyle.