Supply for office market is slowly getting up to speed
A large increase in the supply of Grade A office space is getting underway in Dublin City centre, mainly through refurbishments but nevertheless rents are expected to continue to rise this year and should hit the €55 per sq ft level.
This is the view of agents JLL in their latest report on Dublin's office market.
According to the JLL report, there is as much as 790,000 sq ft of Grade A offices are is already underway which will increase the availability of office stock to 1.23 million square feet in the area which includes Dublin 4 as well as areas of Dublin 1, 6 and 7. Of this space, 365,843 sq ft is under construction and a further 424,337 sq ft is being refurbished.
However demand looks set to absorb much of this increased supply with as much as 240,000 sq ft of Grade A space currently reserved in Dublin 2 alone.
Consequently JLL's head of research Hannah Dwyer says this is likely to sign within six months.
The increased supply follows a drop in the office vacancy rate in the city centre from 14.9pc at the start of 2014 to 6.1pc by the year end.
When the suburbs are included in the total, the overall vacancy rate has fallen from 18pc to 10.2pc and is expected to fall below the 10pc level by the end of this year despite the increased supply.
After a year when tech companies accounted for 39pc of demand she foresees this sector continuing to drive demand in 2015 as "Dublin maintains its strong tech hub status."
After a year of strong rental increases, Ms Dwyer expects the pace of rental growth to slow this year but still attain €55 per sq ft. That would rents within shouting distance of the €65 a foot peak of the Celtic Tiger days.
In 2014 prime city centre rents increased by a hard to believe 43pc to between €45 and €50 per sq ft while prime suburban rents increased by 24pc to between €18 and €21 per sq ft.
"Suburban rents could increase to an average of €23.50 by the end of this year," she says while adding the caveat that the performance of Dublin rents is dependent on a number of factors including demand and economic stability across global markets.
The refurbishment trend which got underway in 2014 is gathering momentum as landlords continue to respond to tightening supply and rising rents.
With new builds still 18 months to three years away from coming onstream, refurbishing older proerties has become popular as a way to keep buildings occupied, and deal with a demand level that shows few signs that it may ease off any time soon.
Indeed, the shortage of suitable office space particularly in Dublin has led to repeated warnings that Ireland may lose out on valuable foreign direct investment as the country may not have the office space to handle a large new employer.
After refurbishment of 258,858 sq ft in 2014, Ms Dwyer has identified 690,000 sq ft of offices that is likely to be refurbished this year.
Last year's largest refurbishments included Block 2 Grand Canal Plaza totalling 60,460, sq ft and Irish Life's 30 Herbert St with 52,363 sq ft.
In Dublin 4 both numbers one and two Shelbourne Buildings, with a combined 44,500 sq ft, were also refurbished.
Among the major refurbishments scheduled for completion this year are: Blocks A, B and C at Miesian Plaza, the former Bank of Ireland, complex on Baggot St which is owned by Larry Goodman and which will account for 240,628 sq ft. About a third of the 164,463 sq ft in Miesian's Block A will be new build.
In a separate development on the same street a further 40,193 sq ft will be refurbished at 76 Lower Baggot St.
Just off Baggot St, 45,500 sq ft will be refurbished at Haddington House, Haddington St, Dublin 4.
At least two blocks will be refurbished in the IFSC. Hibernia REIT yesterday announced it plans to refurbish the 71,289 sq ft Commerzbank House on Guild St. to Grade A standard. Another landlord plans a 103,000 sq ft is to be refurbished at the International Centre West Block.
These refurbishments will go some way to meet this year's demand as she does not expect any of the 495,000 sq ft of new office construction currently underway to be completed this year. Ms Dwyer has identified four new major office developments which are currently underway: LXV, with about 61,000 sq ft on the former Canada House site at St Stephen's Green; The 129,000 sq ft Arthur Cox offices on Hatch Street being developed with the Clancourt /Kenny family; Burlington House, on Burlington Road, the 172,000 sq ft re-development led by Paddy McKillen and Johnny Ronan; The Comer Brothers' development of 138,500 sq ft of offices at the former Veterinary College site, now known as Number One Ballsbridge.
Supply could increase by a further 7676,000 sq ft if a number of other projects which have planning permission get underway. Hibernia REIT yesterday announced that it has begun preparation work for two new office developments: Windmill Lane, Dublin 2, where it has permission for 130,000 sq ft; and nearby 1-6 Sir John Rogerson Quay where it has permission for 102,000 sq ft.
Other prospective new offices could include: Cumberland House on Fenian St, Dublin 2 which is on the market and has permission for 220,000 sq ft of offices; The 110,000 sq ft Pavilions which the RDS plans to add to its Simmonscourt campus; a 110,000 sq ft Dublin Exchange Facility in Dublin 1; 50,000 sq ft at Kestrel House, Clanwilliam, Dublin 2 and there is 45,000 sq ft at 21 Charlemont Place, Dublin 2.
JLL's figures do not include other projects which have also been signalled such as those being partnered by NAMA but which have not yet got planning permission. Recent research by Construction Information Services show these to include: 275,000 sq ft at Boland's Mills site; and 645,000 sq ft at Project Wave on North Docks.
Research by Knight Frank also includes 110,000 sq ft which could be developed by 2017 at The Frederick Buildings, 10/11 Molesworth St, Dublin 2, where JLL's offices are located.