Office rent increases to slow sharply - BNP
The rate of increase in office rents will slow dramatically this year, as new supply finally begins to effect the market.
That is the view of BNP Paribas Real Estate, which believes prime office rents in Dublin will go up by only 5pc this year and 3pc in 2017.
The BNP figures are notably lower than some other property agents in the country, who have predicted office rents will continue to rise at a much faster rate.
However the firm's head of research, Joan Henry, said that she "could not justify other people's forecasts - I can justify ours".
BNP based its figures on data provided by research firm MSCI. The data breaks up the Dublin market into separate components such as the south docks or Dublin 2 and so on.
"Rental growth has been very significant with Dublin 4 experiencing the strongest increase of 25pc in 2015, followed by North Docks & IFSC and the North Suburbs, both of which saw rental growth of 22pc. The pace of growth has been driven by a continuous diminishing supply over the last three to five year period, particularly along the North Docks & IFSC and in the North Suburbs".
Double digit rental growth was experienced in all locations, with Dublin 2 and the South Docks experiencing increases of 17pc and 18pc respectively in 2015.
"Increased supply via new builds and renovations is the key factor influencing rental market dynamics in 2016 and we expect prime Dublin office rents to increase by 5pc this year and a more modest 3pc in 2017.
Prime rents started the year at €592 per sq m.
"We envisage that there will be some exceptions for space in super-prime Dublin 2 locations, which might benefit from flexible lease terms and quality fit-outs, and could see some rents achieved close to €700 per sq m," Ms Henry added.
Most of those fit-outs are expected to be highly specialised and not include the standard high quality office fit-out that most clients will be seeking.
Ms Henry was speaking at a BNP Paribas Real Estate briefing on the state of the commercial market.
A slew of new office properties are expected to come on tot the market in the next 18 months or so, which should help to hold down rental prices for the foreseeable future.
MSCI's Colm Lauder noted that the Irish market is historically one of the most volatile in Europe and is now the best performing market on the continent when it comes to capital value returns. That however has come after three years when Ireland was the worst performing market in Europe.
"Crucially, the drivers of the robust Dublin performance have shifted towards the occupier market, as a buoyant economy encourages businesses to be more confident about the future," he said.
BNP head of investments Kenneth Rouse added that while yields were probably at their lowest level in the current cycle, given the zero interest rate environment around Europe, there is unlikely to be any yiel d softening between now and the end of this year.
BNP's forecasts come days after HWBC suggested office rents in the capital will climb 18pc to €700 per sq m this year.
HWBC managing director Tony Waters said, "based on our forecast, rents in the prime office market by the end of this year will have almost doubled since post-crash lows.
"All the fundamentals remain in place to drive growth, with continued strong demand from FDI investors and domestic occupiers, and an insufficient number of offices under construction, particularly with 50% of the available space already pre-let.
"It hasn't been talked about much during the General Election but ensuring there is adequate high quality office space in place for Irish companies to expand and for more foreign investors to set up operations is a key infrastructure challenge.
"There is also the secondary issue of ensuring that there is high quality and affordable residential accommodation that is of the type that the young and internationally mobile tech savvy employee will want to live in," he added.
Office availability remains tight, and is likely to do so until next year at least when new supply arrives on stream.