Office construction pace slows as banks apply brakes
Tough funding constraints by the banks continue to keep a lid on speculative developments in the office sector, according to a new report by property agents Savills.
Four years ago the post- crisis surge in construction had fuelled concerns of a supply glut in the industry.
But a study by Savills executives Andrew Cunningham and Christopher Boyce, 'Skyline Survey', shows the number of new buildings has consistently fallen short of expectations despite the steadily strengthening economy and rising employment levels.
Mr Boyce pointed out the 2.17 million sq ft of new office space due for completion in Dublin this year represents "a 55pc fall on what was estimated back in 2015".
The slower than anticipated construction pace is largely attributable to the stricter financing environment, according to Mr Cunningham. He argues that while private developers account for more than half the office development pipeline, they struggle to land the necessary funding to start construction without substantial pre-letting agreements.
In the boom era, banks piled into speculative developments, even in the absence of indicative demand from future tenants.
Mr Cunningham says lenders now steer clear of new projects unless tenants have signed up to 25-30pc of the space.
The report pours cold water on fears of a bubble in the speculative office sector, with Mr Cunningham noting the number of projects in a two-year pipeline tend to halve in volume amid funding constraints, competition for tenants, planning disputes and legal issues.
The report shows that of the 202 new office buildings planned for Dublin over the next three years only half are likely to be delivered, even as vacancy rates in completed complexes remain at 6-7pc.
The Savills report comes as Bank of Ireland releases its latest Economic Pulse survey, which shows business sentiment is now at its highest in almost two years.
According to the report, the optimism chimes with the more upbeat mood among consumers, with two in three households planning to spend the same or more on holidays this year.
Firms in the accommodation and food sectors are also positive about their prospects for the season.