Demand for office space continues to rise – Savills
THE rate of lettings in the office market surged by more than a third during the first three months of this year, with rents now forecast to climb by as much as a fifth in 2014.
New research from Savills has found that the jump in employment levels in the ICT sector is driving up the demand for office space in Dublin in particular with 57,000 sq m let between January and March – that's twice as much as the average during the same period over the last five years. Nearly three quarters of this space was taken in Central Dublin, with lettings in the prime Dublin 2 and 4 postcodes accounting for 55pc of the quarterly take-up.
However, the demand for good quality suburban space is on the increase as declining availability is making it more difficult for occupiers to find Grade A space in the best city centre locations, say Savills.
Just over 16,000 sq m of suburban space was let in Q1, with the majority of this spread evenly between the South West and South East suburbs.
That surge means Savills now expects office rents to climb 20pc this year. Most forecasters had expected increases of between 12 and 15pc before now.
The Dublin vacancy rate has fallen to 14.5pc, but that conceals "significant variation by building quality and location".
The vacancy rate for Grade A space in Dublin's prime areas is now just 4pc, while for Grade C space in the South West suburbs remains at over 32pc.
As new entrants and existing occupiers have gravitated towards the best buildings, Savills has noted the quality of available stock has steadily deteriorated. Grade A space has fallen from 22pc to 17pc of vacant stock over the last year. Conversely, Grade C has risen from 43pc to 49pc of total availability in the market.
Those issues, combined with a lack of development, mean rents are already up by as much 14pc – about what most experts had been expecting over the whole year.
"We believe that headline rents for prime city centre space now stand at €430 per sq m, while rents for secondary space are approximately €250 per sq m per annum. Rents for Grade A suburban space range between €160-190 per sq m depending upon exact location, and the gap between these and equivalent city centre rents is widening," the firm claims.
That means that by the end of the year, there will be effectively zero availability for top grade offices in central Dublin, and that is unlikely to change until what new buildings there are are completed by the end of next year.
That means rents will continue to surge with few factors to send them lower.