Office rents to come close to record levels this year
OFFICE rents will increase by a fifth this year before easing in 2016, according to a new report from HWBC.
In its latest offce market review, the broker said rates for prime Grade A offices in Dublin city centre rose 30pc in 2014 to finish at €45 per square foot (€485 psm), and will reach as high as €60 per square foot (€645 psm) by December 2016. The €60 estimate is the highest forecast amont the major property agents, and is only €5 less than the all time peak rate achieved in 2007.
The continued rapid increase in rents is due to the fact that no new offices have been built in the past 5 years and there will be no significant completions in Dublin until well into 2016.
HWBC investment director Tony Waters was blunt in his assessment of the market.
"The simple fact is that the economy is improving, further foreign investment is coming to Dublin and yet we have no new office supply.
"As occupiers compete to lease the best locations it is inevitable that rents will continue to be driven higher. We are forecasting 20pc rental growth this year, with some moderation in 2016 as new schemes start to come on stream," he said.
"The success of the IDA in attracting new FDI clients and expansion of existing companies like Twitter and Facebook is playing a major role in driving the market higher.
It is a good problem for the economy to have, but what we need now is further investment in development so that demand can be catered for at what we would regard as reasonable rent levels," Mr Waters added.
The lack of new construction shows no sign of changing in the short term.
HWBC's report shows that there is just 45,000 square metres of office space under construction relative to a total take up of 220,000 square metres in 2014. The former Canada House on St Stephen's Green will provide 6,000 sq m and the former Bank of Ireland building on Baggot Street will provide up to 20,000 sq m on a phased basis, but there will not be enough to bridge the "supply gap" in 2015.
Last year also saw the rise in city centre rates fed through into suburban locations, with Dublin suburb rental rates up 42pc to €25 per square feet by December 2014. Even in areas of legacy over-development like Sandyford & Leopardstown rents are showing gains, HWBC say.
The rising market is also being seen in the rental value of car parking spaces, with a city space now yielding an estimated €3,000 per annum, up 9pc since last year and expected to rise a further 17pc in 2015.
The recent acquisition of 28 spaces by law firm Arthur Cox for a reported €1.7m is evidence of the value being place on prime parking locations. Even in Dublin suburbs parking spaces are estimated to be offering an annual rental yield of €1,500 per space.
The vacancy rate at the end of December stood at 12.75pc, compared to the peak rate of 22.8pc in 2010.
The average deal size for new leases this year was 1,100 sq m with 199 transactions taking place over the past 12 months or so.