It is yet another year of phenomenal demand for accommodation in the Dublin office market. The buoyancy of the economy in recent years has encouraged an increasing number of multinational firms to enter the market and facilitated the growth of many existing foreign and indigenous firms. In the past few years, expansion has been impeded by the limited stock of available space. Even though 1998 was the fifth successive year of strong growth in the Dublin commercial market, developers were reluctant to build on spec. However, they now appear to be slowly responding to the strength of owner-occupier and investor demand.
As of March 31st, there was approximately 2.6 million sq ft of office accommodation under construction in Dublin. Over half of this space is already pre-let, with a further 250,000 sq ft either reserved or actively under negotiation. Most of this accommodation will be completed during the year, a factor which, combined with activity to date, suggests take-up for the year is likely to be about 2 million sq ft.
The strength of demand in recent years is reflected in the fact that as of March 31st, there was only 412,000 sq ft of office accommodation available in Dublin. This is equivalent to a vacancy rate of 2.5 per cent, a figure which represents a 15-year low. About 350,000 sq ft of office space was taken up during the first quarter of 1999. The strength of economic growth is evident in the number of firms seeking space for expansion. Approximately 78 per cent of take-up in the year to date was as a result of such displacement. This is perhaps most notable within the professional sector, which was responsible for 29 per cent of take-up during the first quarter. The transformation of the Irish labour market from a low- to a high-technology sector is reflected in the profile of tenants entering the Dublin market. IT firms were responsible for taking up 143,000 sq ft in the year to date. An example of this was the occupation of 45,000 sq ft in Hanover Court by Worldcom. The limited supply of space available in the traditional office location of Dublin 2 and 4 has resulted in increasing demand for suburban office space. This trend continued in 1999, with over 40 per cent of space taken up during the first quarter located in the suburbs. Examples were 24,000 sq ft and 25,000 sq ft taken by the Office of Public Works and Elida in Plaza House, Tallaght.
Interestingly, 100 per cent of the space currently under construction in Dublin 4, and over 60 per cent of the space in Dublin 2, is already pre-let, a factor which suggests that this trend of accelerated demand in the suburbs is likely to continue to be a feature of the market throughout 1999.
It is also interesting to note that despite the elimination of tax incentives in recent months, demand for office space in both the International Financial Services Centre, and in enterprise areas, remains strong. At the end of March, there was 536,000 sq ft of office accommodation under construction in the IFSC, with over 90 per cent pre-let.
Prime office rents have risen rapidly over the past few years, reflecting both the strength of demand for such accommodation and its limited supply. Rental levels for prime offices now range between £25 and £30 per sq ft. However, rents of over £30 per sq ft are being quoted for high-specification smaller office units that have the added advantage of short-term lettings. The limited availability of such space has resulted in significant premiums being paid to secure available accommodation. The overall trend for the year suggests that the market will experience further rental inflation. However, there would appear to be considerable resistance to rents in the region of £30 per sq ft with many tenants re-assessing their need to locate in the central business district and looking to rationalise in favour of cheaper suburban locations.
Marion Finnegan is an economist with DTZ Sherry FitzGerald.
