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Raft of US tenants continue to drive very tight Irish office rental market


The Irish Financial Services Centre in Dublin

The Irish Financial Services Centre in Dublin

The Irish Financial Services Centre in Dublin

I hit the kerb at Dallas Fort Worth airport. The gleaming white BMW 735i coupe drew admiring glances as it pulled up. I jumped in. The driver pecked my cheek, gunned the engine and hit the freeway for downtown Dallas.

No, I haven't converted to writing crime thrillers. The driver was my cousin, Mary Stoner Yost, who in 20 years with Colliers International has become one of the top office acquisition agents in North America and she was giving me a whistle-stop tour of the Dallas office market.

With over half of the overseas companies establishing in Ireland coming from North America, it's interesting to look at how US office tenants acquire space there, compared with an Irish market suffering from a lack of new supply.

In the US, companies retain their "tenant rep", that is a broker whose role is to identify buildings, organise architects, IT installations etc. and negotiate the best deal with the landlord.

A big difference between the two markets is that whilst the US broker is representing the interests of the tenant, their fee is paid by the landlord, as are the tenant's architects fees.

Some landlords also pay the tenant's broker a bonus fee of $1 per square foot.

US companies take shorter leases and Irish legislation was changed to allow landlords and tenants opt out of the statutory situation whereby a tenant for over five years acquired rights to renew indefinitely.

For a new building in Dallas a tenant will commit to a 10-year term, with a "break clause" after seven years.

If the tenant breaks they must repay any rent concessions they received at the outset, plus the costs of non-amortised tenant's improvements and the landlord's costs.

Mary Stoner Yost told me that the broker's job is to make sure the tenant is not exposed to risks or costs.

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As part of a 10-year deal she will negotiate two five-year renewal options and at each renewal she negotiates a further renewal option.

A major item is the "Tenants Improvement Allowance" which is a payment from the landlord to the tenant's contractors for the fit-out work.

The responsibility for repairs varies much more than here and is separately negotiated in every deal.

Broker's fees vary across the States – in Dallas they are 4.5pc of the capital value of the rent, so for a deal at $100,000 per annum for 10 years, the broker's fee is $45,000.

In New York, broker's fees are based on the floor area and are usually $1-$2 per sq ft. Irish agents will be envious that the US broker is paid that fee every time the tenant renews or expands, as long as they stay involved.

Recently in a new building in Dublin docklands the tenant ripped out the landlord's standard fit-out of ceilings and lighting and Mary Stoner Yost confirmed that similar is happening stateside.

"There is a real trend of companies in the technology sectors preferring the bare-bones look of concrete floors, exposed ceilings and ducting."

All of this tells me that the developer of the next speculative office building in Ireland should stop well short of the traditional level of landlords' finishes.

Dublin rents are another surprise for incoming companies. In Dallas, for a prime new building, a tenant will be paying $25 per sq ft plus $9 per sq ft for common area maintenance, taxes and insurance. In Silicon Valley rents are below $40 psf whereas in Dublin the next deals announced will be at €45 psf.

Top Irish agent Fionnuala O'Buachalla, a director at JLL, specialises in "tenant rep" work and confirmed that about half of her fee income comes from US companies.

She recently acquired 70,000 sq ft for Amazon and acted for Twitter and Citrix.

Her colleague Deirdre Costello recently acquired a site in Sandyford for a 400,000 sq ft headquarters for Microsoft.

Ms O'Buachalla told me that many of her enquiries are generated by the JLL International desks on the east and west coasts of America.

The initial requirement is typically for a start-up operation for two people in serviced offices.

Within six months the requirement grows to 20 people and after a year is for 50 people. Thereafter the tenant usually needs their own office space of 8-10,000 sq ft, housing up to 100 staff.

Tenant representation fees in Ireland are traditionally 10pc of the rent but some agents have moved to charging a rate per sq. ft, which varies depending on the quantum of space required. Money from America!


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