Lack of new builds puts focus on office refurbs
Financing remains "non-existent" for building new office blocks which do not have a tenant signed up, even as rents hurtle to a new record in central Dublin.
This week saw aircraft leasing firm AerCap agree to pay €60 per sq ft for Denis O'Brien's "LXV" building on the site of the former Canada House on St Stephen's Green in Dublin 2.
Meanwhile developer Rohan Group said it will build a new block at the home of the defunct advertising firm McConnell's. That block in particular is practically the only one being built in Dublin at present with no tenant lined up.
Analysts are forecasting rents to head towards €70 per sq ft in the current cycle but still there is "practically no funding" available, according to Savills' director of research Dr John McCartney.
"It is logical to think that because rents are now almost matching the highs of the previous boom, then there is a market for speculative development.
"The shortage of suitable office space as well would support that argument.
"However there is practically no funding available for that type of construction at present and until that changes you will see few new blocks being built," he said.
While the AerCap deal at the Stephen's Green property has set a new benchmark, Mr McCartney said that deal in itself would not change the nature of the market at present.
"The market has been expecting rents to hit these levels and surpass them for some time, so the AerCap deal is not a game changer in that regard," Mr McCartney said.
Instead, Mr McCartney believes the higher rents may increase the emphasis on refurbishing older blocks that would up until now have been earmarked for redevelopment.
"There are some quality sites around Dublin in particular that have second generation blocks.
"The owners may have planned to knock them and go for new builds but as the market is moving so fast at the moment they may now favour substantially refurbishing the existing block.
"The refurb can be done more quickly and usually won't have any issues with planning.
"For properties outside the SDZ and ones that may have obvious planning constraints this is becoming a much more viable option," he added.
Businessman Larry Goodman is in the midst of a major refurbishment of the former Bank of Ireland HQ on Baggot Street. That is due to be ready by the end of this summer.
Other blocks such as 30 Herbert Street have commanded rents of €47.50 per sq ft.
Sunday Indo Business