Offices on Molesworth Street set the trend and the tone for Dublin city
I wrote previously on the transformation of Molesworth Street, Dublin 2, which had been dramatically changed by the demolition of entire blocks of properties. The crop of new developments on the street will all be completed this year and the first lettings are being agreed. The pitching of those properties and demand for them is an interesting barometer of the Dublin market.
The first development to be completed is No. 32 Molesworth Street. This is an interesting scheme in that it involves a redevelopment of the existing period building (approximately 500 sq m) and the construction of a modern block to the rear (approximately 2,500 sq m), and the linking of the two via a three-storey, glazed atrium.
The developer is Green REIT plc and the property has been pre-let to a financial services firm at a rent of some €520 per sq m on a 25-year lease with tenant break options at years 10 and 15. The joint agents, Savills and Knight Frank, say that there was a very limited rent-free period involved. Agreeing a pre-letting effectively de-risks a development and the developer trades the hope of getting better terms in a rising market, against doing a good deal, now, with one good occupier, which is what No. 32 is most suitable for.
The terms reflect fundamental changes in the market, one of which arises from the advent of upwards and downwards rent reviews. Tenants Incentives (TIs), such as rent-free periods, were always a function of the strength of demand. In weak markets, tenants got more, and vice versa. However, with potential downward reviews after five years, it makes little sense for a landlord to grant long rent-free periods, just to get a tenant 'on the hook'.
Furthermore, while historically there was a trend for landlords to sweeten incentives at the start of a lease in order to get a higher headline rent, now, overseas funds becoming landlords here, and institutions here, are far more interested in sustainable rents, strength of covenant, a longer certain term (before a break) and reduced TIs.
As Andrew Cunningham, director and head of offices at Savills, explained: "That's why the pace went out of headline rental growth last year, but it didn't for effective rents, which still grew.
No. 10 Molesworth Street, the redevelopment of the former passport office site, will be ready for fit-out this autumn. This is a new building of approximately 11,500 sq m being developed by IPUT. The joint agents, JLL and Knight Frank, are quoting a rent of €650 per sq m, which appears to be the top quoting rent in the city.
No. 1 Molesworth Street, on the corner with Dawson Street, is a new development of approximately 7,000 sq m, with offices over retail units, also by Green REIT plc. This is also due for completion this year and the agents, CBRE, are quoting approx. €600 per sq m.
On the opposite corner is No. 40 Molesworth Street, essentially a new building on the site of the European Commission's former Dublin offices. Two new floors are being added by IPUT to provide a total of 3,000 sq m.
Interestingly, the letting strategy is to multi-let the property to different occupiers and the floor sizes, from its 330 sq m penthouse level to its lower floors of 600 sq m, are ideal for that. Agents Savills are quoting rents from €600 to €625 per sq m.
A trend with Dublin buildings is less demand for car parking. As Andrew Cunningham of Savills explained, a location like Molesworth Street is well served by public car parks, the Luas and the Dart. In fact, Cunningham says secure bicycle parking has become a priority for city occupiers, followed by shower facilities. Another trend is that professional firms, such as lawyers and accountants, are following the tech companies in taking buildings without suspended ceilings.
Cunningham says "the first Brexit requirements are now on the streets". He expects headline rents to grow again this year. He points out that despite all the cranes on the skyline, there is little net addition of space, as most schemes are redevelopments of existing buildings.
With each new scheme making Molesworth Street better, I predict it will set Ireland's top rent this year.