Office Market: A new report suggests the worst may be over for Dublin's office market, although some locations are lagging behind the city centre. Jack Fagan, Property Editor, reports

The central Dublin area is leading the office property market back into balance, according to new research by Jones Lang LaSalle published today.

The report focuses on the last two years in the Dublin office market, against a background that stretches back over a whole business cycle for a decade.

Launching the report, its author Dr Clare McParland, head of research at the Dublin agency, said they took the view that the ideal state for a property market was one of equilibrium. With balance between supply and demand, developers could make a reasonable profit, occupiers could pay a reasonable rent, and investors could be assured of a stable return.

She said property followed a business cycle where demand was driven entirely by growth in the wider economy, and supply aimed to match that demand as closely as possible. Because of the lead-time of two years and upwards for developments, there tended to be some over-supply whenever a downturn in the economy produced a slackening of demand.

"That is where we are now, but the good news for the property market is that the mismatch between demand and supply looks to be quite manageable."

Some 159,137 sq m (1,712,935 sq ft) of office accommodation in the city centre was taken up in 2003, much the same as the previous year. This compares to an annual average of 161,088 sq m (1,733,935 sq ft) between 1999 and 2002, the report found.

By far the most popular geographical area in the past year was the traditional central business district of Dublin 2 which accounted for 34 per cent, or 54,322 sq m (584,717 sq ft), of the take-up. Other popular areas were around the M50, such as the M50 south-west (which includes Citywest Business Campus and Park West), M50 north-west (Navan Road and Blanchardstown) and M50 south (Sandyford and Leopardstown).

The report also identifies the business sectors which have been most active in acquiring new office space in 2003. The finance and insurance sector headed the list, accounting for 26 per cent of newly acquired office space, followed by business services (19 per cent) and public administration (15 per cent).

Dr McParland also said that the overall move towards market balance was demonstrated by how substantially the completion level of new office accommodation dropped in 2003, as a direct result of the downturn in the office market. Only 85,294 sq m (918,096 sq ft) was completed in 2003, compared to 239,934 sq m (2,582,626 sq ft) in 2002.

This was matched by a fall-off in the amount of office space under construction. By the end of 2003, there was 85,350 sq m (918,700 sq ft) under construction, which was only roughly half of the amount under construction a year earlier. The overall vacancy rate at the end of 2003 was 19 per cent of completed office buildings and those under construction. However, the geographical disparity was wide with a 13 per cent rate in the city centre and 27 per cent in the suburbs.

One of the trends which emerged from the research is the significant amount of office space being offered by corporates rather than developers. In the last quarter of 2003, 116,590 sq m (1,254,963 sq ft) of vacant property was surplus office space released onto the market. This now accounts for almost one-quarter of the entire market.

Jones Lang LaSalle's managing director for Ireland, John Mulcahy, said that for the part of the market outside the central area, the historically high vacancy rate would continue to drive rents down in the short term, but it was unlikely to persist for very long. The pipeline of further development was relatively modest, especially when one considered that not all the planning permissions at present on the table would actually be activated on their original time-scale.

"With the long-awaited upturn in economic growth now beginning to manifest itself, all the indications are that the office market in Dublin will soon return to balance, following the lead being set already by the central city area."

An indication of how Dublin suburban rents have weakened is underlined by the rates being quoted for the Q centre, a superb high rise office block at Blanchardstown Town Centre in Dublin 15.

The 11-storey block with a gross internal area of 9,754 sq m (105,000 sq ft) and 214 car-parking spaces was originally bought by Dunnes Stores as a new headquartersbut, when the company came under pressure from Dublin City Council, it reverted to its original plan to redevelop a large site it has owned for many years in South Great Georges Street.

At that stage it sold the Blanchardstown building to the Sean Quinn Group for around 30 million.

The Quinn Direct insurance company now occupies the ground and the first two floors of the building and CB Richard Ellis Gunne has been engaged to offload the remaining space on a long lease at a most competitive rent. Robert Murphy of the agency is quoting "indicative rents" of €215.28 per sq m (20 per sq ft), well below the general level of rents in the suburbs. Not only that the Q centre, which was designed by top architects A & D Wejchert, will be finished to third generation standards including raised access floors, suspended ceilings, power boxes and heating. The available space will either be let to a single tenant or on a floor-by-floor basis.