Strong demand sets up office sector for another bumper year

WITH Citibank and the Office of Public Works each looking for over 100,000 square feet of office space, the Dublin market is on target for another strong year. The OPW has invited developers to put forward proposals for a new headquarters building for the Land Registry.

Several groups are expected to respond to the invitation though it seems unlikely that all of them would be prepared to allow ownership of the new building to revert to the State after a prescribed period. This is the usual practice in the provinces but with the sharp increase in Dublin site values over the past three years, a different package may well emerge on this occasion.

This unusual development opportunity could attract Irish Life back into the construction market because it has an ideal site lying idle at the rear of George's Quay.

Citibank's announcement that it plans to create 1,000 new jobs in Dublin will put further pressure on space at a time when the available accommodation is at its lowest for many years. Only three years ago, almost 1.5 million square feet, or 11 per cent of the entire stock, was vacant. At present, there are 580,000 square feet available, the equivalent of 4 per cent of total stock.

A report on the office market by the Hamilton Osborne King agency shows how the demand for space has changed in recent years. In the five years between 1989 and 1993, the average annual takeup in Dublin's modern office market was 677,000 square feet. In 1994, the figure jumped up to 960,000. In 1995, it rose again to 1.1 million square feet and last year, it went to 1.31 million square feet.

Roland O'Connell of HOK says that while the improved takeup of space over the last three years was anticipated, few expected such a remarkable demand. He expected the International Financial Services Centre to contribute significantly to this year's takeup, with over 250,000 square feet under construction for licensed traders. Up to recently, small and medium sized companies planning to move to the IFSC found that there was no opportunity to relocate there because developers concentrated on looking after the larger occupiers.

The report shows the other main source of demand for office space in 1997 will be the companies attracted to Ireland by the IDA. These fall into a number of different categories such as financial service back offices, customer support services, tele-sales and computer software companies.

With the OPW back in the office market after many years, it was likely it would have a number of requirements for space including the Land Registry. HOK says [a demand for extra workspace is also coming from both foreign companies based in Ireland and indigenous companies which are expanding their operations because of the strength of the economy.

Mr O'Connell says the biggest difficulty the market may have in exceeding a takeup of one million square feet this year will be the shortage of supply. In previous cycles, as soon as it became apparent demand was rising and the economic factors looked promising, speculative development started at a rapid pace - though this, in turn, often led to an oversupply in the market.

Despite the strong levels of takeup over the past three years, developers were extremely cautious this time round. Although there had been a limited amount of speculative development, most developers were waiting to secure pre-lettings or pre-sales before starting construction.

HOK says usually the bravest developers who are the first to start a construction trend are the ones who do best. To date, speculative developments on a small scale at Blackrock, Clonskeagh and Earlsfort Terrace have all attracted tenants or purchasers on good terms.

The first significant speculative development in Dublin 2 is Charlemont Exchange, where 90,000 square feet is due to be completed by next August. Another large development, which will eventually total 98,000 square feet, is under way at Shelbourne Road and will be ready for occupation early in 1998. In Blackrock, a 30,000-square-foot building, Carysfort Court, is now ready for fit out. The agency says these developers are likely to be rewarded for moving ahead at a time when the market is generally cautious.

Mr O'Connell says rent free-periods and fit-out allowances have virtually disappeared for new buildings. Rents rose during 1996 and were likely to harden further this year. While there has not been a quantum leap in rents, the abolition of tenant incentives and the gradual rise in rents during 1996 has meant that rents have risen significantly in real terms.

In 1996, prime rents for new buildings without tax incentives were about £16 to £17 per square foot. This year, they were likely to be between £17 and £18 per square foot. Rising site values and, more especially, increased building costs would push rents upwards in 1997.

HOK says one factor which has tempered the rise of rents is that tenants now have a much broader choice of location. In the early 1980s, office developments were concentrated in the Dublin 2 and 4 areas, as well as Blackrock and Dun Laoghaire. In addition to these areas, tenants can now move to city centre locations in Dublin 1,3,7 and 8, where they can frequently claim tax breaks. New developments in Tallaght also offered tax incentives.

"This diversity of choice will have a calming affect on rents, though they will, continue to rise during the year."