Office rents recover

Market Report : New figures released from Lisney point to evidence of a recovery in prime office rents.

Office property is in strong demand and this has fuelled a 3.3 per cent increase in prime rents so far this year, the first significant increase in over four years. This figure compares positively to a decrease of 9.16 per cent in office rents for the last three years and a decrease of 5.09 per cent over the last five years.

Currently, all market indicators suggest that this growth will continue for the remainder of the year. Occupational demand for office property has increased and, as a result, the vacancy rate for modern offices has fallen to 13.1 per cent. In Dublin city centre the vacancy rate is even lower at 7.1 per cent.

To date, enquiries from end-users are on the increase and there have been a number of significant new lettings. However, there is a shortage of space available for immediate occupation, particularly for large users in Dublin city centre.

Prime high-spec city centre space has seen an increase of 5 per cent this year. This growth rate differs from the overall figure, as there is still a two-tiered market with office rents in the suburbs and outside of Dublin experiencing no growth.

There is good demand from owner-occupiers for Georgian buildings and capital values have increased this year. However, due to high vacancy levels in the letting market, Georgian office rents have not moved this year.

But the retail sector continues to perform well. Prime retail rents have increased by 3.85 per cent since the beginning of 2005. This represents an increase of 20.73 per cent over the last year.

The prime retail sector has been the only area to see growth over the last three years with a growth rate of 86.53 per cent.

Although the pace of rental growth on Grafton Street is slowing, there is still a significant gap between rents being achieved on the open market and rents being agreed with tenants at rent review. Recent new lettings on the street indicate rents over Zone A €8,600 per sq m (€799 per sq ft), while rent review settlements are approaching Zone A levels of €7,500 per sq m (697 per sq ft) with corner units achieving more. The latter indicates that there is scope for more growth towards the year-end.

Activity is also increasing in the industrial market. Despite the increased market preference to purchase rather than lease throughout the Dublin region, the rental market has seen some signs of increased activity with properties taking less time to rent. Tenants continue to seek flexible terms with short leases and rent-free periods now being considered standard.

Prime new units of up to 500sq m (5,382sq ft) are achieving rents of between €105 per sq m (€9.75 per sq ft) and €130 per sq m (€12 per sq ft) per annum. Units over 500sq m (5,382sq ft) are realising about €100 per sq m (€9.3 per sq ft) and €120 per sq m (€11 per sq ft). According to Lisney, prime industrial rents increased by 1.5 per cent for the six months to July 2005 and should continue to grow for the remainder of the year.