Strong year for office lettings in 2007

MarketAnalysis:  Office letting activity in Dublin reached new highs in 2007 and it was one of the busiest years on record for the sector, according to the latest CB Richard Ellis Market View for the Dublin office market.

But the year also ended with a notable slowdown in investment transactions and with vacancy levels still in double digits.

Another new CBRE report, the EMEA Offices Market View, on demand across Europe for offices, showed a bullish market with more than 10 million sq m (over 107 million sq ft) leased during the year.

Office lettings in Dublin pushed past 260,000sq m (2.798 million sq ft), according to the CRBE report, and 85 per cent of this was in the city centre region with central Dublin making up 70 per cent of the overall figure.

Overall vacancy rates stood at 10.1 per cent at year end, the report states, which is high given the strength of letting in 2007.

It also reports a "notable slowdown" in Dublin office investment transactions during Q4, a reflection of the turmoil in world financial markets. And "rent inflation" has eased, with the last quarter showing signs of a flattening of rents.

Despite this the prime office yields in Dublin remained stable overall, delivering 3.75 per cent over the year. The Irish performance was better than office yields in the UK which began to falter over Q4, 2007, the report states, while the office sector out-performed all others in the Irish property market over the last year, delivering total returns of 10.6 per cent.

The take-up over the year also set a record at more than 259,000sq m (2.788 million sq ft), the report says. "This level of take-up represents an increase of more than 28 per cent year-on-year, and is an overwhelming 86 per cent higher than take-up levels achieved in the Dublin office market 10 years ago," the report notes.

Dublin 2 and 4 remained the most favoured locations for office lettings in the city in 2007, accounting for 43 per cent of the total for the year. The south suburbs also remained attractive, accounting for 21 per cent of take-up.

Most lettings were to business services tenants, a sector which claimed 37 per cent of lettings. Financial tenants took 32 per cent of the total space let in 2007.

The report noted that "there was no discernible weakening in demand for office accommodation in Dublin, despite a less favourable economic climate and a slowdown in the availability of funding".

The wider European report from CBRE indicated office demand remained strong during 2007 and was comparable with 2006. "Despite the expected indications of growing caution among occupiers, particularly in the financial sector, the overall level of activity remained healthy in the fourth quarter at 2.5 million sq m," the report states.

By year end local variations in patterns of leasing activity emerged, it adds. Demand was stronger in Germany through Q4 compared to financial centres such as London and Madrid.

Strong demand on the Continent also helped to sustain rental growth.