Monday 16 July 2018

Office rents to surge by up to 14pc in Dublin suburbs

While WeWork will pay €60 per sq ft to rent 5 Harcourt Road in Dublin city, other occupiers are seeking less expensive space in the suburbs
While WeWork will pay €60 per sq ft to rent 5 Harcourt Road in Dublin city, other occupiers are seeking less expensive space in the suburbs

Donal Buckley

Existing office tenants in most Dublin suburbs could be faced with increases of between 12pc and 14pc in forthcoming rent reviews, according to Goodbody real estate analyst Colm Lauder. He was commenting on reports that office occupiers are looking to the suburbs as one of the more cost-effective alternatives to taking long leases in city centre premises.

He believes that on the basis of increased demand for offices in the Sandyford Leopardstown area, that business district will see some of the strongest rent increases. Prime rents there have already reached around €30 per sq ft, which is less than half the €65 per sq ft being achieved for city centre prime space. The availability of larger, more flexible spaces in the suburbs is also a factor appealing to occupiers.

Lauder was basing his forecast on a CBRE report that prime suburban office yields have hardened to 5.25pc, which is lower than the 5.9pc to 6.3pc net initial yield recorded by IPD for average suburban offices at the end of last March.

He also believes that Dublin fringe city centre office rents could show growth of 10pc in 2018 and he defines those as secondary Dublin city offices, excluding the north and south docklands.

Those secondary centre city yields have hardened to between 5.25pc and 5.5pc, and rents there have already risen to between €35 and €45 per sq ft, suggesting that they have a further 4pc to 6pc growth possible before the end of this year.

Such growth contrasts with the stabilisation in rents, which CBRE reported for prime city centre offices at the €65 per sq ft level in its latest bi-monthly report.

CBRE reports that prime south suburban offices averaged €28.50 per sq ft at the end of June; north suburbs €19.50 per sq ft; and west suburbs €17.50 per sq ft.

The CBRE report said that strong occupier demand and major increases in employment by expanding international and Irish companies boosted office occupier activity market in the first six months of 2018.

It also noted that Dublin continues to win Brexit-related mandates with Clearbank Europe, Thomson Reuters, Aspen Insurance and Arch Insurance all recently announcing plans to set up or expand existing operations in the Irish market. IDA Ireland recently confirmed that 42 Brexit-related mandates have been fulfilled to date in Ireland.

As well as doing so much to attract so many international occupiers to the Irish office market, the IDA itself also helped to boost the market's recent performance with one of the biggest lettings of the second quarter as it did a deal to relocate its headquarters from Wilton Place to 141,000 sq ft at 3 Park Place, Upper Hatch Street, in Dublin 2, developed by the Kenny family's Clancourt. Facing on to Iveagh Garden, the rent was reported at €60 per sq ft.

Flexible office provider WeWork was also active, taking three more office lettings to bring its Dublin locations to six. These include 73,530 sq ft at Hines' Central Plaza, the former Central Bank on Dame Street, D2. That followed the 99,500 sq ft that WeWork had signed up for earlier at Ballymore & Oxley's No 2 Dublin Landings, next to the Central Bank's new headquarters in North Docklands. This Landings building is also currently for sale, with Knight Frank and CBRE guiding €98.8m.

Meanwhile, WeWork has also taken 5 Harcourt Road, the 50,000 sq ft office building which Green Reit is due to complete by the end of this month. WeWork's rent on this will total €3m per year, which equates to €60 per sq ft - 11pc more than the last valuation on the building.

Colm Lauder says that, in the main, only space let on a multi-tenant basis has achieved rents in the region of €65 per sq ft, as tenants tend to get a discount for larger deals. WeWork's lease will extend to 20 years with no break options and it has agreed to a fixed uplift to €65 per sq ft in year six.

Lauder says that the terms suggest a valuation of €64m for the completed and let building.

Green Reit's risk on the Harcourt Road property is further reduced by WeWork's parent company agreeing to a rent guarantee. Mr Lauder says that this guarantee contrasts with recent WeWork lettings in London, where softening market conditions have allowed WeWork to reduce the level of guarantees as negotiating power in the UK capital switches to the tenant.

"Dublin, by comparison, remains firmly a landlord's market, with growing rents and narrowing incentives. The lack of a tenant break option is of additional comfort to Green Reit and would appeal to institutional investors should the Reit decide to recycle further capital into its Central Park and Horizon plans.

"However, we note that WeWork has a weaker sub-investment grade covenant than traditional blue-chip tenants and as a result we expect some restraint in the level of yield compression achieved by this letting," he adds.

Also last month, global healthcare supplier Perrigo agreed to rent 45,000 sq ft in the Sharp Building, Hogan Place, Dublin 2, for a rent which 'The Irish Times' reported was €55 per sq ft. This new six-storey, over-basement block was developed by McGarrell Reilly Group. Another large letting was Intercom's taking 14,630 sq ft at St Stephen's Court, Dublin 2.

Meanwhile, one of the bigger pure office deals was that of Beaver House at the Beech Hill office campus near UCD in Clonskeagh, Dublin 4. Agents Knight Frank had been guiding €8.75m for the refurbished, three-storey office building which was fully let at an average rent equating to €14.95 per sq ft, and offering strong potential for rent increases.

But even more interesting was Google's acquisition of the Boland's Quay development on Dublin's Barrow Street, with the tech company set to invest €300m. The investment will include construction and fit-out costs relating to 238,380 sq ft of offices, as well as 46 apartments, cafés and cultural space.

Offices currently on the market include the Vista office building let to Novartis at Elmpark in Dublin 4, for which Colliers and CBRE are guiding €39m.

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