Stale air in offices as old systems lower value
As much as 920,000sqm of Dublin offices may suffer further falls in values if their air conditioning systems are not upgraded within the next five years.
However some tenants could try to avoid contributing to the cost of such upgrading by moving out of affected buildings before the upgrading takes place.
According to Tony Grant of CB Richard Ellis, buildings which use an air-conditioning system containing R22 must be updated or their components replaced in order to comply with new air conditioning regulations. Most buildings built before the year 2000 are likely to use air-conditioning systems containing R22 and these may become un-lettable, when existing tenants vacate, until the problem is dealt with.
For some landlords there is the risk of extended void periods, resulting in loss of income at a time of increased costs.
On the other hand prospective occupiers who are shopping around for office space may automatically rule out non-compliant buildings.
However some existing tenants may be obliged to bear the cost of upgrading so they need to check the terms of their leases. For example, in a multi-let building where the landlord maintains plant and equipment but recovers the maintenance cost for same through service charges, the landlord may undertake the upgrade and those costs will then be included in the service charge bill.
In a single let occupancy the entire responsibility may be placed on the tenant, and as such this issue needs to be addressed now rather than closer to the EU legislation deadline on R22.
Mr Grant says upgrade costs will depend on many factors, primarily whether the premises requires just a gas replacement option or a full scale replacement of the entire kit -- which could add up to €10 per sq ft on top of any other refurbishment costs undertaken to modernise a building.
In terms of costs, both landlords and tenants need to start investigating this issue now as the closer the issue is left until to the 2015 deadline the more costly an upgrade is likely to prove.
To date there has not been any discernible impact on tenant demand but many prospective occupiers are showing a preference for newer buildings where issues like this are less likely to occur.
Rents on secondary buildings are continuing to come under pressure in the current climate, particularly with the rate of vacancy in the market and buildings where this issue arises are more susceptible to further downward pressures as a result.