Take-up down over 20% while rents slip

OFFICEMARKET:  Next year could be rescued from disaster should some of the large companies with unfulfilled office requirements take advantage of the depressed climate to get good deals

THIS WAS "a year of two halves" for the office market, according to Lisney agent James Nugent.

While in the first six months of 2008 there was a reasonable level of activity, "someone turned the lights out in June/July and activity almost ceased".

Take-up eased as the year went on and the effects of the credit crunch took hold in the latter half of the year which accounted for only 30 per cent of the year's transactions.

Even at that, many of these transactions were agreed during the first half of the year and took a while to get signed.

The outlook for 2009 is uncertain as sentiment deteriorates in the face of worsening economic conditions. Many companies have been putting expansion plans on ice but some agents believe next year could be rescued from disaster should some of these companies with unfulfilled requirements take advantage of the depressed climate to get good deals.

Take-up for the third quarter was around 58,500sq m (629,688sq ft), bringing the total figure for the first nine months to 163,000sq m (1.75 million sq ft), according to DTZ Sherry FitzGerald's figures, a drop of 21 per cent on the same period last year.

Estimated take-up at the end of this year varies from around 180,000sq m (1.938 million sq ft) to 200,000sq m (2.153 million sq ft), depending on which agent you ask, with over 60 per cent of that being in the city centre.

The final tally at the end of 2008 will depend on whether some big deals - like the Citco Group's agreement to take 7,080sq m (76,208sq ft) at Heuston South Quarter - are signed by year end.

Weakened demand meant that landlords were under pressure to improve incentives. While headline rents weren't hugely impacted - down 5-7 per cent at most with prime office rents for the city centre standing at €645 per sq m (€60 per sq ft) - landlords had to come up with the goods in terms of inducements.

Declan O'Reilly of HT Meagher O'Reilly says it was in everyone's interests to keep rents steady in order to protect capital values. "Rents are tax deductible so landlords are becoming more flexible in terms of offering longer rent-free periods, break options and better inducements."

Dublin remains the fourth most expensive city to rent office space in Europe and 14th most expensive in the world, a slip from ninth in 2007.

James Nugent says any prospective tenants still out there are "very much focused on costs and looking at overheads". These tenants are generally looking for top-spec buildings where the rents are competitive, the service charge low and where there's good access in terms of public transport. This inevitably means that older buildings, or ones without good transport links, are suffering in terms of desirability.

"Current vacancy rates in Dublin stand at around 15.1 per cent, and the trend has mostly been towards smaller lettings - under 400sq m (4,306sq ft). One of the biggest deals of the year - and a fillip to the market in the second half of the year - was BCM Hanby Wallace's deal with Chartered Land for 13,940sq m (150,049sq ft) of space at 2 Grand Canal Square.

Other notable deals of the year were 13,935sq m (150,000sq ft) to Ebay in Blanchardstown at the former Xerox building, and the Central Bank's decision to take 5,774sq m (60,000sq ft) of space at 3 Spencer Dock.

In the suburbs, take-up in west Dublin was 11.6 per cent, in north Dublin 13 per cent and south Dublin 11.5 per cent, according to Lisney, who say that the south suburbs would normally be in the region of 20 per cent but a lot of product didn't become available until the second half of the year. Suburban areas along the M50, well served by public transport, fared better than less well located areas.

The market was shaken by a number of big deals falling through. In September Bank of Ireland pulled out of discussions to locate its back office along Mayor Street while AIB Capital Markets decided against locating its new headquarters on the former Brooks Thomas site, also a Liam Carroll development in the docklands.

Declan O'Reilly says the docklands held up reasonably well in 2008, mainly due to quality of office space and its proximity to the city centre. He says managing to lure a tenant in these difficult times is not just about rent, it's about offering quality, a good location and a building with the right layout.

However, nowhere has escaped the knock-on effect of a punishing economic climate entirely. Last year financial service companies accounted for 44 per cent of all take-up, while this year they almost halved to 24 per cent.

There are mixed views on whether Padraic Rhatigan's Heuston South Quarter is likely to steal any of the docklands thunder. While some are enthusiastic about the top-spec award winning development, others are more sceptical, saying it is located on the city fringe and Eircom takes up a lot of the available space.

Next year most are predicting a further slide of activity and, while over 125,000sq m (1.345 million sq ft) of office space is due for completion, further schemes are likely to be put on hold for the foreseeable future.

Some are remaining bullish in the face of adversity, however, like the consortium of Treasury Holdings, Derek Quinlan and David Arnold who decided to proceed with one of the largest ever speculative office schemes in Dublin, the €106 million Number One, Central Park in Leopardstown. It will have a floor area of 16,680sq m (179.543sq ft) when completed in an estimated 18 months.

Declan O'Reilly believes the survivors and winners will be the people that are "quickest to adjust and offer value early. They will probably be the first to get deals."