Sunday 18 February 2018

Office take up slips in Q1 but rents still rising

The LXV Building will bring 61,000 sq ft to market next year
The LXV Building will bring 61,000 sq ft to market next year
Peter Flanagan

Peter Flanagan

Office take up levels fell sharply in the first three months of this year, as the commercial property market consolidated following months of expansion.

According to a new report from estate agents JLL, some 340,000 sq ft of office space was taken up in the first quarter of this year.

That compared to close to 1m sq ft being taken in the final three months of 2014.

The fall off was due to a number of factors, JLL said. Notably the fact that the fourth quarter of last year was a record level and was not likely to be matched considering Q1 is traditionally the quietest period of the year.

The average deal size was also smaller than previous quarters, coming in at 7,500 sq ft. There were five deals greater than 20,000 sq ft closed in the period.

The JLL report also highlights that the suburbs were more popular than the city centre at the start of this year.

The firm estimates that 56pc of space taken up was in the suburbs - a reversal of past markets which have tended to be focused on the city centres.

Despite the slow start to the year, there is an estimated 400,000 sq ft of space ready to be occupied in the second quarter of the year before the traditional summer slowdown.

The shortage of suitable office space shows few signs of being eased in the short term.

The overall grade A vacancy rate stands at 5.5pc, although around 10.2pc of offices are free around Dublin.

The lack of grade A space in the city centre though is now critical. The 2.6pc vacancy rate for top quality space in the centre of Dublin means the vacancy rate is now effectively zero.

In that climate, it is no surprise that the market is now very much in landlords' favour. New leases now tend to be close to 25 years than the 10 of 15 years that had been in favour since the crash, while favourable break clauses have all but disappeared.

That shortage is having a knock on effect on rents, with prime office rents now seen in the €50 to €55 per sq ft bracket. That compares to €35 per sq ft only 18 months ago.

The JLL data shows that five new blocks supplying more than 600,000 sq ft of space are in the pipeline.

The likes of the LXV building on St Stephen's Green, Windmill Lane, and Number One Ballsbridge though will not be completed until next year at the earliest.

A shorter term solution is refurbishing existing space. Around 15 developments are set to bring 708,000 sq ft of new space to market.

Sunday Indo Business

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