Recovery in office market picks up pace

The ongoing recovery in the Dublin office market is to trigger a further round of investment sales from September onwards.

Dublin’s impressive income return of 10.5 per cent on an annual basis has generated considerable overseas interest in the prime end of the office market where there are even signs of a slight pickup in values because of competitive bidding.

Overall investment sales exceeded €610 million in the first six months of the year and several agents are now forecasting that the turnover for the full year should reach at least €1.2 billion.

With Nama and a number of receivers preparing to offload a range of distressed office investments, Jones Lang LaSalle has been appointed to handle what is likely to be the highest value portfolio going on the market this autumn – Central Park in Leopardstown, Dublin 18, which could possibly sell for around €200 million. The park was one of the highest value assets held by Treasury Holdings when it was declared insolvent with debts of around €2.7 billion.

Savills investment team is also gearing up for a busy autumn with more than €100 million worth of investment properties due to be offloaded.

DTZ Sherry FitzGerald is also to begin marketing up to a dozen investment properties with an overall value of close to €80 million. These will include three retail parks in Naas, Tallaght and Limerick, as well as a serviced office block on Leeson Street.

Several other individual office and retail buildings in the city are also due to be offered for sale when the market reopens in September.

London researcher IPD recently reported that the equivalent yield for Dublin offices has grown from a European low of 4.2 per cent when the Irish market peaked in 2007 to 8.9 per cent at the end of last March.

While this reflects the significant over renting that dominates a large section of the Irish market, it also displays the high level of annual return available to investors.

The latest property index published today by Jones Lang LaSalle shows that capital values in the office sector increased by an impressive 2.2 per cent in the three months up to the end of June, putting overall returns for the commercial market in positive territory for the seventh consecutive quarter with an increase of 2.8 per cent.

However, the retail sector is still in trouble with capital values down by 1.7 per cent in the last quarter and by 9.8 per cent over a 12-month period.

The index shows that overall rental values rose by 0.6 per cent in the quarter, a result the agency sees as “highlighting the increasing stability in commercial occupier markets”.

The Jones Lang study shows that this was only the second quarter since Q2 2008 that overall rental values have risen due to growth in both the office and industrial occupier markets.

Researcher Hannah Dwyer said that office occupier and investment markets had performed steadily over the past 12 months with evidence of rental growth in the last two quarters and the first signs of value increases this quarter for prime product.

In the UK, IPD has reported that capital values increased by 0.2 per cent in June as the growth that emerged in May gained a little momentum and more regional assets started to recover. Total returns rose to 0.8 per cent, the highest monthly return since March, 2011.