Rentals/Market upturn:There has been steady growth in rentals and there are indications that the lettings market is finally bouncing back after its decline in 2002, writes Lauren Mulhall

As 2006 draws to a close, the Dublin rental market is again gaining momentum after a year of steady increase, an indication that the market is finally bouncing back since it fell into a decline in late 2002. Figures from rental website, Daft.ie, show that from September 2005 to September 2006 rents had increased at a healthy pace of 10 per cent.

Rather than being a case of waning investor interest causing a shortfall in accommodation, industry experts agree that the upturn in the market has been largely fuelled by the steady inflow of immigrants into the capital.

"The residential letting market has been exceptional in all areas and I think that much of this can be put down to the fact that there has been a large influx of people moving to Dublin who are happy to rent," says Barry Finnegan of Sherry FitzGerald Sheehy.

Sharing this viewpoint is director of Daft.ie Eamon Fallon who says that continued immigration has been one of the mainstays of the Dublin letting market over the past few years.

"October was the 24th month of consecutive year-on-year growth in average rents since October 2004. A large part of the rental market - perhaps 30 to 40 per cent - comes from working immigrants.

"A lot of young workers from countries such as Poland and China come to Dublin because they are attracted to the higher wages. Many see it as an opportunity to save money and buy property back home."

Ulster Bank chief economist Pat McArdle believes another factor has played a major role in the upturn of the rental market - rising interest rates. According to McArdle, soaring interest rates are sapping the purchasing power of the first-time buyer.

"Asking prices for residential property were rising at a 14 per cent annual rate at the beginning of the year and were down to 6 per cent by September. As interest rates rise so does the cost of borrowing. These rising costs are squeezing first-time buyers out of the market and I think it's reasonable to suppose that people who cannot afford to buy property are renting instead."

McArdle said he expected interest rates would continue to rise. "Since December 2005 ECB rates and, by extension, mortgage rates, have risen by 1.25 per cent with another quarter-point rise pencilled in for early December. The main objective of the ECB is to curb economic activity so as to keep inflation below 2 per cent. As they have not yet achieved this objective, it is likely that interest rates will be further increased next year."

Uncertainly about cuts in stamp duty had also added to a deceleration of the housing market.

"Speculation that stamp duty may be altered or abolished has seen potential investors holding off until the Budget was released."

According to Fallon, the rise in rental demand has been felt across all areas of Dublin.

"In general there's not any area that has not done well," he says.

The average rent for a one-bed in Dublin city centre is €1,031 while a two-bed is about €1,469. In north county Dublin prices are €885 for a one-bed and €1,121 for a two-bed while properties in the south of the county are achieving €1,016 for a one-bed and €1,373 for a two-bed.

The upper end of the rental market is also performing extremely well with houses achieving prices in the range of €3,000 up to €12,000, according to Joan Fogarty, manager of Lisney lettings.

"Landlords have realised that people are looking for homes that are top-of-the-range and are spending the money to ensure that their homes are of a high standard," she says.

"People are willing to pay a high price for homes that are well presented with nice kitchens and bathrooms."

Fogarty says areas doing well included the usual suspects, such as Ballsbridge, Ranelagh, Rathmines and Donnybrook.

She said areas along the Dart and Luas lines, such as Blackrock and Monkstown and Dalkey, had also been extremely popular.

Corporate lets also did well in 2006. According to the CB Richard Ellis Bi-Monthly Research Report November 2006, activity in the Dublin office market continued to perform well in the last two-month period.

Take-up of over 60,000sq m (64,583sq ft) in Q3 2006 alone is evidence of an exceptional level of activity in the Dublin market since the summer period and suggests that over 185,000sq m (1,991,000sq ft) of office accommodation will be let in the capital this year - the highest level of letting activity since 1998.

The majority of this activity is focused on the city centre, where the vacancy rate has now declined to 8 per cent.

Prime rents in the core city centre have risen over the course of 2006 reaching a new record level of €645 per sq m (6,942 per sq ft) in recent weeks.

At letting and management agency Wyse Property Management, director Mary McGarry Murphy says there has been plenty of corporate letting activity in the south of the county, from Ballsbridge to Dalkey.

She says there had been quite a bit of interest from overseas executives coming to Dublin with some of the larger companies.

"There seem to be a lot of top executives relocating from places such as the UK looking for good quality places to rent."

McGarry Murphy believes that rentals across the board will remain strong in 2007.

"The market has been well up and, as the population continues to be buoyed by immigration, we can expect those rates to continue well into next year."