Big deals in the regions as rents start to increase
Rents in the provincial urban office markets of Cork, Galway and Limerick stabilised in the first quarter of this year as the markets appeared to take a breather after the momentum seen in 2014.
In terms of deal activity Cork's market witnessed the strongest performance according to the latest DTZ Sherry FitzGerald report on the regional office market. It estimates Cork take up at 8,250 sq m across 17 deals during Q1 2015, broadly in line with the level of leasing activity recorded in the final quarter of 2014 and says local demand during the quarter was also considerably higher than average quarterly levels.
However in a separate report rival agent Lisney says that compared to the last quarter of 2014, the Cork market was relatively weak in Q1 2015 with the amount of space taken up falling by over a third to 1,800 sq m compared with the previous quarter.
The difference between the two views reflect when their market reports recorded different deals. For instance Lisney secured the letting of 2,950 sq m at Abbeycourt House on George's Quay to the department of social protection in Q4 2014 and included this in its 2014 figures. However DTZ has included this deal in its Q1 2015 figures.
Other city centre lettings include Brookfield Renewable Energy Partners' occupation of 1,100 sq m at City Quarter on Lapps Quay. In the suburbs, the largest occupation was by the energy company Centrica Plc at Cork Airport Business Park. The remainder of lettings during the quarter comprised smaller sized deals reducing the average size deal in quarter one to 485 sq m, broadly in line with 2014 levels.
While Philip Horgan of DTZ estimates overall Cork vacancy rates as having fallen by 8 basis points in Q1 to 18.1pc, Lisney estimates available space at 98,000 sq m equivalent to a 19.7pc vacancy rate.
Current quarter activity has also received a boost from the announcement by Green REIT that it plans to pay between €55 and €58 million for Cork's newest and largest office block, One Albert Quay, nine months ahead of its completion. Developer John Cleary had already signed up two tenants for 89,000 sq ft. of its 166,000 sq ft of lettable space prior to the sales deal. Green estimates that if fully let, this centre city block could generate up to €4.1m in annual rent.
Mr Horgan says that after rents rising from €215 per sq m at the beginning of 2014 to €240 per sq m by year end, prime headline rents remained stable during the opening quarter of this year. Prime suburban rents stood at €140 per sq m at the end of March.
On an optimistic note Lisney's Ed Hanafin says a large number of lettings were agreed during Q1, particularly in the suburbs, and will be included in Q2 or Q3 reports. He also expects rents to rise in some locations.
Since the start of the current quarter Paul Hannon of Lisney has negotiated three large suburban office lettings with a combined 4,100 sq m, on behalf of private landlords at rents likely to have ranged between €130 and €140 per sq m.
These include 2,322 sq m let to Opentext in Building 2800/2900 Cork Airport Business Park and 892 sq m of ground floor offices at Westpoint Business Park, Ballincollig let to Radissens.
DTZ also points out while prime headline rents in Galway's office market stabilised at €193 per sq m at the end of Q1 2015, it expects upward pressure on city centre rents this year due to the combination of both increased demand and supply shortages. Prime Galway suburban rents also stabilised at €129 per sq m at the end of March. "A shortage of large Grade A floor plates is arguably masking the true value," adds DTZ's Sean Coyne.
Such optimism contrasts with DTZ's slight disappointment that the Galway market failed to sustain its strong 2014 momentum into the opening quarter of 2015.
While the 8,350 sq m let in Q1, reflected a doubling of activity compared with the previous quarter, it was accounted for by just one deal.
Take up was bolstered by the occupation by Hewlett-Packard of its newly constructed innovation centre at Ballybrit, Co Galway.
Total available accommodation edged up to 22,750 sq m at the end of March bringing the overall vacancy rate to 7.5pc as a modest amount of second hand space came to market.
"The dearth of supply is more pronounced in the city centre where the vacancy rate, net of signed space, declined to 5.8pc, the lowest rate seen since the height of the market," Mr Coyne adds.
An analysis shows that two thirds of all available space is Grade A stock, of which 59pc is located in the city of Galway.
Prime headline rents in Limerick city centre also remained stable during the first quarter of 2015 at €150 per sq m, 16pc higher than the corresponding period in 2014.
Limerick suburban prime rents also remained stable at €129 per sq m.
Following an exceptionally strong 2014, Limerick offices also saw a sluggish first quarter with take-up amounting to 4,000 sq m. of which 3,300 sq m was taken by US bank Northern Trust at City East Plaza on the Ballysimon Road. Smaller deals accounted for the remainder of the space.
Nevertheless continuing release of second hand stock is boosting supply levels, to 71,950 sq m, up 12pc on the corresponding period in 2014. Consequently the vacancy rate has risen to 20.7pc.
The city centre accounts for 54pc of available space, with the suburbs and the Shannon Free Zone accounting for 24pc and 22pc respectively.
On the optimistic side DTZ's John Buckley points out that 15,750 sq m of the vacant space is in shell and core space on the market and 40pc of this is either signed or reserved.