Office Market – Word on the Street
- Continued improvement in activity and sentiment – up on 2012 levels
- Dublin 2 & South Dublin/Sandyford most active
- SME’s – busiest sector of the market.
- Green’s REIT validates D2/4 market
- Emerging problem – lack of quality stock for occupiers.
- Development conundrum – are there lessons we can learn from abroad?
- TMT sector – challenging the norm on specification….and coffee machines!
Click here to download the key Half Year Take Up stats PDF
Take up YTD of approx. 745,000 sq ft is up 45% Year on Year. Of the 88 transactions YTD, 26% were in Dublin 2 and 26% were in South Dublin/Sandyford districts. SME’s (0-5,000 sq ft) still dominate the market accounting for 57% of the total number of deals. There were 3 deals over 50,000 sq ft (all in the Suburbs) and the top 9 deals represented 50% of total take up.
Green Property’s announcement last week that they were launching a €200m REIT with a significant focus on office blocks in Dublin 2/4 is an important validation that recovery is well under way.
The lack of quality stock, particularly in the core D2 market, remains a critical issue. Square pegs and round holes come to mind as tenant expectations on the type and spec of office space struggle to be satisfied. Rental growth has begun particularly in the 0-5,000 sq ft high end sub-market as demand outstrips supply. Prime rents for fitted space in D2 are now €31.50 per sq ft up from €30 per sq ft 6 months ago.
Development of new office stock remains a complex financial conundrum. Developers need pre-lettings and finance. Banks need a sustained market recovery to instill confidence and occupiers to take longer leases. Occupiers believe they still hold the aces and typically want lease flexibility. Something has to give.
In trying to find a solution, is it worth considering how office development is being approached in the major cities of the U.S. or France and Germany? Their markets are larger obviously but similar traits exist with Dublin. Sustained market demand and take up, occupiers seeking lease flexibility and investors requiring the necessary financial returns to make projects worthwhile. Maybe the players in these markets could give us some suggestions on how to get over the current impass in Dublin? The conundrum needs to be solved and maybe with rental and economic growth it will, but until then….all answers on a postcard please!
On the occupier side, Arthur Cox and KPMG are both busy considering their options. Facebook/Dropbox/Airbnb are some of the Social Media/TMT companies who are also active. This sector represents 34% of the market YTD. Their sustained presence in the market has “shaken up” the traditional way agents and developers now view office specification. Most TMT’s prefer “warehouse chic” as opposed to “third generation” raised access floors and suspended ceilings. The way forward to attract these guys…..think coffee generation…think collaboration space…think Silicon Valley and you’re on the right track!