Prime regional office rents set to rise in third quarter
Prime office rents in the three regional cities are expected to grow in the second half of this year after second-quarter pauses in Cork and Limerick.
Galway recorded the strongest growth in regional office rents during the second quarter, according to the latest office market report from Cushman & Wakefield.
In Galway, rental levels for prime office space increased by 7.6pc from quarter one, standing at €269 per sq m per annum, and are expected to approach €296 per sq m for the latter half of the year.
Rents for prime suburban space strengthened marginally in the quarter, by 2.7pc, to €188 per sq m.
In Cork, prime headline city centre rents remained unchanged in quarter two, at €315 per sq m, which itself was 8.6pc above June 2016 levels.
The firm forecasts that they could rise to €325 per sq m by the end of this year. Prime suburban rents rose 2pc in quarter two, while rents in the south-east suburb of Mahon remained stable, at €255 per sq m.
Limerick saw the strongest level of activity of the three cities. Nevertheless, its city centre prime headline rents remained stable during the second quarter at €215 per sq m.
Delivery of new Grade A speculative builds could lift rents in the second half of the year. The suburbs saw unchanged rents, which are in line with the city centre at €215 per sq m.
Grade A availability and vacancy rates continue to fall across all markets and the shortage of these types of offices is most acute in Galway.
In Cork, following a sluggish opening quarter, take-up in the second three months recorded a threefold increase to 3,900 sq m (41,979 sq ft), bringing first half take-up to 5,150 sq m (55,434 sq ft).
This compares to 13,750 sq m (148,000 sq ft) recorded in the comparable period last year, with performance continuing to be restricted by a lack of large, prime space. The largest letting saw FMC take 1,250 sq m (13,454 sq ft) at 11 Eastgate Avenue, Little Island.
At the new Capitol project on Grand Parade, Alien Vault took up 950 sq m (10,225 sq ft), and Huawei 550 sq m (5,920 sq ft). By June, 30pc of the Capitol offices had been taken and since then a further 59pc is now either signed or reserved. With further speculative schemes in the pipeline, this should help improve supply and boost activity.
Availability in Cork is now at its lowest since 2008 and total available space, net of signed and reserved, stood at 42,300 sq m (455,313 sq ft) in June. This reduces Cork's net vacancy rate from 9.7pc last year to 7.4pc.
Somewhat unusually, the proportion of available space is lower in the suburbs than the city centre, with a 45pc and 55pc share, respectively.
Despite completion of two city centre builds, Grade A availability declined and when discarding signed and reserved space, net grade A availability fell to 30,200 sq m (325,070 sq ft).
Construction broke ground at Navigation Square in Cork docklands in June. Extending to 28,800 sq m (310,000 sq m), Navigation is expected to be the largest office development outside Dublin. A further 130,850 sq m (1.4m sq ft) of space is in the planning pipeline.
In Limerick, activity dampened in the second quarter, mainly owing to lack of larger floor plates. Only two lettings were seen amounting to a combined 500 sq m (5,381 sq ft).
Over the first half total take-up amounted to 5,550 sq m (59,739 sq ft), or more than double the corresponding period of 2016 thanks in part to the extension of the Vistakon building at the National Technology Park.
Limerick's suburbs accounted for over two-thirds of activity during the 12 months to June, while 26pc was occupied in the city centre with the remainder in Shannon. Furthermore, Grade A space dominated, accounting for 85pc of activity.
While overall available space increased to 74,500 sq m (801,911 sq ft), the city centre suffers from a shortage of large-scale, Grade A plates, with only one Grade A building greater than 1,000 sq m (10,763 sq ft) in size currently available. There are no office buildings suitable for accommodating 5,000 sq m (53,819 sq ft) requirements.
Limerick remains the most active of the three regional centres in terms of the quantum of new developments, with work continuing on 24,800 sq m (266,944 sq ft) across three schemes.
Galway's market was also constrained by lack of space. Only three deals saw a total of 900 sq m (9,687 sq ft) transacting during the second quarter.
The HSE took 550 sq m (5,920 sq ft) at Geata an Eolais, on University Road in the city centre.
In the 12 months to June just 5,400 sq m (58,125 sq ft) has transacted compared to 7,500 sq m (80,729 sq ft) in the same period last year.
Encouragingly, several mandates are active and 4,950 sq m (53,281 sq ft) either signed or reserved at the end of June. Overall supply increased from 15,450 sq m (166,302 sq ft) to 28,950 sq m (311,615 sq ft) at the end of June 2017, due to the release of second hand space.
However, availability still remains 23pc below the long-run average.
The suburbs saw accounted for 66pc of available space whereas city centre net vacancy rate has dropped to 6.5pc.
Grade A stock accounted for just 28pc of available space, net of signed and reserved space, Grade A availability has fallen by 38pc annually, to stand at just 6,150 sq m (66,198 sq ft), with just one unit greater than 1,000 sq m (10,763 sq ft) in size available in Galway at the end of June.
Construction activity has picked up and 4,300 sq m. of space got underway at Parkmore East bringing total construction at the end of June to 10,800 sq m.
While this is a positive step considering the shortage, all of this space will be located in Galway's suburbs and will do little to address scarcity of large office floor plates in the city centre.