Office rent spike in 2014 signals economic surge
THE first increase in office rents since the property crash kicked in is being predicted for next year.
It's on the back of a growing shortage of space in the capital combined with a lack of development and finance which looks set to increase the cost of prime Dublin office space for the first time since 2008, a new report claims.
Roland O'Connell of Savills, which includes the prediction of hikes in its latest office space report, described the overall outlook for the capital's office market as "good".
"The lack of new construction and refurbishment could lead to a significant problem for the market as competition for the declining number of good quality units could lead to a spike in rents in 2014 if demand continues to improve as expected.
"An uplift in rents is required in order to justify new development or proper refurbishment of older buildings," he said . Thus far, office rents have stabilised and have not fallen for the last 18 months.
However, in one of the best indicators of increasing economic activity yet, the latest figures for the office market in Dublin show the biggest ever take-up of space occurring in the last quarter of 2012 since the market lapsed into a steep downturn in 2008.
Just over 51,000 sq metres of space was transacted in Q4 2012, with the biggest deal by far being the Central Bank's acquisition of the unfinished former Anglo HQ in Dublin 1, says the latest report by Savills.
"The absence of developers and indeed finance for new development may further delay new construction and it appears unlikely that any new offices will be delivered to the market before 2015 at the earliest, bearing in mind a development period of 24 months." However, Mr O'Connell warned that such a future spike in rentals would also damage the competitiveness of the economy as a whole.
Steady demand for space through the last quarter of the year resulted in a drop in the Dublin vacancy rate to 20.2pc which matched the previous quarter, and with 21.6pc compared with the same period last year. It represents a drop of almost 5pc over a two-year period.
Occupiers expressed a preference for space in Dublin 2 and Dublin 4 with 4.44pc of space take-up occurring in these areas.
Next came the IFSC where 3pc of space was transacted and where there is now a shortage of space compared with demand.
Most of the rest of the space was contained in the areas comprising Dublin 1, 3, 7 and 8, making up a combined 25pc of transacted space.
Take-up for the entire year was 137,000 sq metres, slightly lower than the 147,000 sq metres transacted in 2011, but with a sharp increase set to continue well into this year.
"The dominance of demand for space in prime locations will continue to be a key trend in 2013 but options, particularly for larger spaces, are limited.
"This will put pressure on prime rents but the market will remain selective regarding what is considered prime," said O'Connell.
He expected the first quarter this year to keep pace with the high take-up at the end of 2012. Usually office take-up is lower at the start of the year.