Suburban offices see ripple effect of capital's rental growth
The growth in headline rents to €65 per square foot for the best offices in Dublin's CBD (central business district) is prompting an increasing number of tenants to look for space in the suburbs where costs typically remain at less than half that of the city's traditional core.
The trend is being viewed by Goodbody's senior real estate analyst, Colm Lauder as a particular positive for Green Reit and a number of other major developers and investors with offices already available to let or nearing completion on the city's periphery.
In a note on the subject issued last Friday, Lauder pointed to the findings of two recent office market analyses released by agents BNP Paribas Real Estate and HWBC respectively. Both recorded the uplift in the performance of suburban Dublin locations and of the South Dublin market especially.
BNP Paribas's Dublin Office Market Analysis 2017 for its part shows that leasing levels in suburbs accounted for 29pc of total Dublin activity in the final three months of last year.
South Dublin rents meanwhile increased by 7.6pc in 2016 making it one of the top-returning areas for investors in 2016 with a return of 13.2pc and an attractive equivalent yield of 6.5pc (MSCI).
The growing popularity of Dublin's key suburbs was further evidenced by HWBC's finding that the Dublin 18 postcode, where Green Reit's Central Park is located, accounted for a substantial 11pc of total office lettings in Dublin.
This level of demand has pushed prime suburban office rents up from approximately €12 per square foot in 2012 to close to €30 per square foot today.
Lauder pointed to three recent deals as having confirmed this trend. These were:
n Green Reit's securing of an average of €28 per square foot in its letting of the newly-completed Block H - Central Park (Dublin 18) to Allied Irish Banks (AIB).
n Facebook's agreement to rent 100,000 sq ft at Beckett House (a former Danninger development now owned by the Comer Group) in East Wall, Dublin 3 for €24 per square foot.
n Zurich Bank's deal to pre-let 68,000 sq ft of space at the to-be-refurbished Enterprise House (owned by Friends First) in Blackrock. This is believed to be the highest rent ever achieved in Dublin for a suburban office block at €30 per square foot.
Commenting on the significant increase in suburban rents since 2012, Lauder said: "The level of tenant interest for suburban locations emphasises how much pressure is on central Dublin office rents. This supports our thesis of prime 'Grade A' headline rents hitting €65 per square foot this year.
"Given the completion timings of Hibernia's One Windmill Lane and Two Dockland Central, we expect both developments to exceed their previously-quoted ERV (estimated rental value) estimates of €48.60 per square foot and €51.50 per square foot respectively.