Innovative ideas needed to keep attracting tech firms
DUBLIN'S reputation as a magnet for IT companies faces increased competition from new centres in the UK which are also aiming to attract hi-tech companies. The fresh competition is emerging just as Ireland's Digital Hub and the Silicon Docks around the Grand Canal Harbour are running out of offices to meet demand.
According to estate agents Savills, Irish IT employment during the 12 months to March last rose by 27pc and this has been a key factor driving down Dublin's overall office vacancy rate from a high of 24pc in 2011 to 14.5pc.
In Dublin's Central Business District, the vacancy rate has fallen much lower to only 4pc or close to full occupancy levels. Consequently, prime rents have risen by 14pc in the year to date and with headline rents now at €430 per sq m, they are edging closer to old peaks.
Such increased rents are vital to encourage new development and such development is vital to attract large IT companies. However, should rental growth accelerate too much, there is a risk that Dublin may lose its competitiveness and this could set back the recovery of key areas such as north docklands.
A Colliers International report earlier this year pointed out that the 45pc drop in Dublin office rents after the crash helped to improve the city's competitiveness as a business location, "despite rents remaining higher than in many other competing cities".
But the Colliers report shows that Dublin city centre is the second most expensive location for the tech sector, second only to London.
The same report also instances Manchester as one of the cities which has improved its attractiveness for digital companies partly due to "its occupancy costs, measured by office rents, being on average cheaper than in London and central Dublin".
At a time when prime rents in Dublin 2 and 4 averaged €28 per sq m per month at the end of 2013, those in Manchester's Media City were €20, while rents in Berlin's periphery were the lowest at €8 per sq m per month.
The Colliers report also says that "tech occupiers face a lack of 'quirky' space in Dublin, with high costs deterring conversion of stock into suitable properties. On the plus side it says that Grade A space could increase due to a "gradual recovery in rents which will kick-start construction".
However, rents alone are not the only factor and Colliers also points out that Ireland's low corporate tax rate, educated workforce and use of the English language have been key factors in attracting North American IT players. But the buzz of certain cities also appears to be a factor which can outweigh rental concerns.
Indeed London is one of the most active areas for start-ups despite having the highest rents in all of the European cities surveyed by Colliers.
Another survey by British accountants UHY Hacker Young found that London's Silicon Roundabout in east London attracted as many as 15,620 business start-ups in the 12 months to the end of March and that Canary Wharf attracted about 3,000.
Up until recently, the Irish Government led the way in terms of providing the cluster style environments which IT start-ups prefer, most notably through The Digital Hub and incubator centres in third-level colleges.
However, if the Irish Government wishes to compete with other cities and also encourage more indigenous IT start-ups, it needs to consider how it might emulate the success of the Digital Hub in other areas of Dublin and other parts of the country. Many such start-ups don't need prime locations and are willing to locate in quirky refurbished old warehouses in clusters where there is a community of people with similar lifestyles and a creative and energising ambience.
Currently the Digital Hub is operating at close to full occupancy and it has done a deal for Knightsbridge to develop more accommodation space and is also exploring the next opportunity to bring a site to market for development to provide more space. Rents on its campus range from €161 per sq m to €236 per sq m per year, depending on building type and such rents can vie with the competition in other cities.
Demand is such that the incubator sector is also attracting enquiries from private investment companies. In February this year, Irish venture fund Tribal.vc opened a co-location hub in South William Street, just off Grafton Street, in a building leased from the National Asset Management Agency.
It has 70 desk spaces for start-ups which it is renting out at €250 per desk space. One of the directors Conor Stanley is reported to have said that "[with] the level of interest we've had already from start- ups we could have filled a space twice or three times the size".
Nick Coveney of Colliers also reports increased investor interest in providing more basic coffee shop-style facilities in Dublin for start-ups.
But with vacancy levels as high as 32pc for Grade C office space in Dublin's south west suburbs, this raises the question as to whether such vacant offices can be re-configured in a quirky style as it would obviate the expensive risk of developing new space.
It may simply take some imaginative property developer to team up with an equally imaginative software developer to create the type of an imaginative environment where a new IT cluster community can grow and ensure that we have the space to meet both indigenous and overseas IT demand.
Digital Hub CEO, Edel Flynn, is not overly concerned about UK competition. "Many clients of the Digital Hub Development Agency operate internationally, so it is imperative that the agency has an understanding of – and affinity with – similar projects in the UK and elsewhere. One example is the Irish multimedia production company Athena Media, which has offices both here at The Digital Hub in Dublin and in Media City in Manchester.