Rent-free incentives for Dublin offices among best in Europe
Dublin's office market is offering the fourth most generous incentives in Europe to prospective tenants. A survey of 19 European markets conducted by estate agents Savills has found that Dublin landlords are offering rent-free periods which are worth the equivalent of about 20pc of the rent over either five or 10 years.
The highest percentage of months rent-free is offered in Milan (25pc), followed by the two Parisian markets – CBD and La Defense – (21pc each) and London City and Dublin (20pc each). On the other hand, Athens, where prime headline rents have fallen by as much as 30pc over the past five years, offers only 2pc of months rent-free.
The agents say that contrary to expectation, markets perceived as stronger offer higher rental concessions to tenants than markets perceived as weaker.
European research analyst Julia Maurer explains: "Over the past five years, landlords in some of Europe's prime office markets have lengthened rent-free periods to support headline rents. This means markets such as London and Paris, where landlords should be feeling more confident, have surprisingly large incentives on offer."
This implies that Irish headline rental values would have fallen more sharply were it not for the incentives.
The survey also shows that Dublin office rents fell 40.2pc since 2008 - the second sharpest fall after Madrid, where they fell 42.8pc. Over the same period, rents in London rose 22.2pc – the strongest growth of the seven cities showing increased rents.
Director of Savills Ireland Roland O'Connell says he expects that as demand continues to improve and rents increase, the likelihood is that Dublin's rent-free periods will reduce.
Already the IPD/SCS survey shows a 0.2pc rent increase in Dublin in the first quarter of this year and Mr O'Connell says he expects this to rise again in the coming months.
The overall take-up of office space in Q1 2013 rose in about half of the 19 locations surveyed, and the agents believe that this improved take-up could lead to a reduction of incentives offered by landlords in these markets, and therefore have a positive impact on real rental growth.
The outlook is particularly positive for London, Vienna, Brussels and Warsaw, which all recorded year-on-year take-up increases of about 20pc.
Savills European research director Eri Mitsostergiou says: "We are seeing a moderately positive trend across European office markets as the average amount of rent-free periods offered is in some cases decreasing. German cities in particular reflect this trend, with rent-free periods either stable or going down and only a small difference between headline and effective rents."
On average, rent-free concessions for prime CBD space have increased by 21pc across Europe in 2013 compared with 2008 and currently account for an average 12pc of the total rental period in the markets examined.
In its examination of the impact economic challenges between 2008-2013 had on headline rents and incentives, the report shows that incentives seem to be determined by a combination of factors, such as availability and demand and the individual local characteristics. It concludes that incentives are a good indicator of the general market sentiment.