Commercial property: Office rents could hit €50 per sq ft, say Davy
OFFICE rents are set to go as high as €50 per square foot, Davy Stockbrokers have claimed, in what is one of the most bullish calls on the future of the commercial property market.
According to the broker's latest report on the commercial property sector, rents can go as far as €50 per sq ft, a 40pc increase on current levels, as the market surges back.
"There has effectively been no new commercial build since 2010, but the uplift in values and fundamentals now supports new projects. But with near-term supply likely to be constrained, we believe rents can get back to €538 per sqm (€50 per sq ft) from €377 per sqm (€35 per sq ft) currently. In addition, some further yield compression is likely. All this suggests further upside to capital values," say the broker's analysts.
The call is far above what property agents around the capital have been forecasting up to now. Most expect rents to hit €40 per sq ft this year, but €50, or any figure close to that, has not been mentioned as a near term target.
As well as the spike in rents, Davy expect volume levels to "remain strong", and point to the almost €32bn of real estate-backed debt that is earmarked for disposal.
"After a dearth of activity between 2009 and 2011, the price discovery process in the Dublin office market is now firmly underway.
"Prime Dublin office yields have compressed from 7.5pc in 2012 to 5.75pc currently and capital values have appreciated 25pc to 40pc since September 2012. A recent feature of the market has been the arrival of foreign capital; overseas investors have been responsible for 60pc of the €2.4bn invested over the last two years," Davy note.
While Davy has bought some notable properties, and acts as housebroker for a number of businesses in the sector, it has broadly been bearish on the commercial property recovery that began last year. Its analysts have previously cautioned that there needed to be movement in the property market outside of the "prime" sites. Their latest report however strikes an optimistic tone that has not always been present.
The firm goes on to highlight the "healthy" occupier levels in Ireland last year.
Office take-up in 2013 at 1.8m sq ft was the highest since 2007. Prime office rents are up 27pc since bottoming in 2012. While the overall vacancy rate at 15.33pc remains elevated, it is as low as 4.5pc for Grade A space in the core Dublin 2/Dublin 4 central business district, say the firm.
For those hoping to invest in the commercial market, Davy highlights the growth of real estate investment trusts (REITs) as vehicles to allow investment.