Prime areas hold strong

IN reviewing 1996, it is evident that predictions for the year have been substantially fulfilled. The strength of occupation as anticipated in December, 1995, has transpired. Current forecasts for 1996 suggest the take-up will be about 1.4 million to 1.5 million square feet. This will represent a 50 per cent increase on occupation levels for 1995.

The past year has been a very buoyant period in the Dublin office market with take-up of approximately 1,163,300 square feet in the first nine months. The top 11 deals in 1996 represented 30 per cent of total forecasted take-up for the year (see table).

Interestingly, however, the net take-up figure to the end of September - 287,000 square feet - was quite low. This showed a significant portion of occupation was as a result of displacement - occupants moving between offices in the city. Some firms moved in order to avail of the tax incentives in the IFSC, while a high percentage moved to meet changing requirements.

An analysis of the take-up figures in the office market indicates that the principal demand - 41 per cent - is for accommodation in traditional prime areas such as Dublin 2 and Dublin 4. Furthermore, it is apparent the predominant preference is for third-generation or modern offices.

This preference for third-generation accommodation is not clear from the occupation figures, which show an almost even breakdown between second and third-generation property. However, availability in the market is biased towards second-generation offices - 67 per cent of current available space is in this category. As a result, many occupiers who are unable to secure third-generation properties must resort to accepting second-generation accommodation.

Rents are, therefore, tracking third-generation accommodation and, accordingly, substantial rent reviews for well-located, second-generation offices can be anticipated over the next 12 months.

An analysis of occupation sector by sector reveals the strength of demand in the financial sector. The attractive tax incentives provided in the International Financial Services Centre are drawing increasing numbers of foreign companies to Dublin. Sherry FitzGerald's study of IFSC licensed companies shows there is approximately 377,000 square feet of unsatisfied demand for IFSC office space.

IDA-supported companies were responsible for 39 per cent of the take-up in the first nine months of the year - reflecting the continued importance of IDA support for the development of the Dublin office market.

The trend of falling availability levels that has been evident since 1993 continued into 1996. As of the end of September, there was 588,000 square feet of unoccupied office space, representing a vacancy rate of only 4.3 per cent - which is likely to fall to below 4 per cent by the year's end.

New developments under construction amount to approximately 973,000 square feet, of which 176,000 square feet will be completed and occupied during the fourth quarter of this year. Discounting the pre-let space, the net addition to vacant accommodation from new construction will be approximately 486,000 square feet.

Rents in the market reflect the strength of demand. Second-generation rent in prime locations is averaging between £12 and £14 per square foot, while third generation is approximately £16 to £18 per square foot. Rents in excess of £18 are achievable for prime third-generation offices, particularly for small self-contained buildings.

The outlook for the future of the Dublin office market is very encouraging. The combination of a strong economy and considerable IDA and IFSC incentives are attracting increasing numbers of firms to establish in Ireland - and particularly in Dublin. Recent announcements by Citibank and Fidelity alone will result in demand for in excess of 120,000 square feet of office accommodation.

The strength of demand is particularly evident in third-generation accommodation and it is likely the new developments coming on stream will not be sufficient. The net result will be continuing upward pressure on rents, with rents of about £18 to £20 becoming increasingly achievable in the coming six months.

The only possible cloud on the horizon for the office market could occur as a result of uncertainty in the economy in the lead up to EMU.