The regional office sector tries to follow Dublin
Rents in the Cork office market continued to increase during the first quarter of the year. While those in Galway and Limerick stabilised. Meanwhile the IDA has decided to address the supply shortage in Galway.
These are among the latest highlights of the Regional Office Market report from DTZ Sherry FitzGerald for the first quarter of 2016.
Prime headline rents in the Cork office market rose by 8pc in the first quarter of 2016, to stand at €270 per sq m (€25 per sq ft), fuelled by the shortage of large office plates in the city centre. Rental levels in the Cork suburbs rose to €160 per sq m, while rents in Mahon are achieving as high as €230 per sq m.
While Dublin has led the recovery in the office market after the crash, there are growing signs of momentum in the regions. While the likes of Limerick and Galway are seeing growth, most analysts expect the Cork market to be the next one to see significant growth, although the levels of improvement will not be anything as stark as Dublin, where office rents have almost doubeld in little more than two years and are close to three times the level they were at at the bottom of the cycle in 2011 and 2012.
Following a strong 2015 performance, momentum continued into 2016 with a robust 9,700 sq m transacted in the Cork market in the three months to March 2016, considerably higher than that recorded in the final quarter of 2015 and the long-run quarterly average of 6,900 sq m.
Green REIT's new offices, One Albert Quay, was completed and half of it was occupied accounting for the majority of the quarter's take-up.
Its new tenants include TYCO which has 6,950 sq m; Ardmore Shipping has taken 750 sq m; and Investec, 350 sq m. A further 5,550 sq m was either signed or reserved at the end of March, leaving just 13pc available.
Also on the city's northside, Teamwork.com took 1,500 sq m at Park House, Blackpool. Consequently
Cork's net vacancy rate remains unchanged at 12.9pc.
Its suburbs account for 56pc of available accommodation but volume of available Grade A floor plates in the city centre remains tight.
Net of signed and reserved space, there was just 16,650 sq m of good quality Grade A space available in the city centre at the end of March. Just five of these units are greater than 1,000 sq m. In contrast 41,750 sq m of Grade A space is available in the suburbs, net of signed and reserved.
Only one unit commenced construction during the quarter, namely The Capitol site on Grand Parade, which is expected to provide 5,000 sq m of prime city centre space which DTZ expects will be much sought after, as it will be the only Cork building capable of accommodating a requirement for 5,000 sq. m.
In Galway take up in the quarter increased 15pc to 2,600 sq m, compared to the previous quarter. However this is still 28pc below the long-run quarterly average due to the lack of good quality office space.
Block 4 at in the suburban Parkmore was completed during the quarter and software company SAP took 1,500 sq m while Fidelity Investments took the remaining 750 sq m. SuperPixel Labs took 350 sq m. at Fairgreen House in the city centre.
Net of signed and reserved space, just 6,500 sq m of Grade A space is currently available in Galway city and suburbs, compared with 11,700 sq m in the same period last year. This spans across just 13 units only one of which is greater than 1,000 sq m.
Galway's vacancy rate at 4.7pc remains the lowest in the country and has fallen to 3.7pc in the suburbs.
With no new development commencing the Government agency IDA Ireland has taken the initiative and is seeking tenders from developers and investors for a 4,200 sq m building with planning permission at the IDA Parkmore East Business Park in the north-eastern suburbs. IDA are also currently tendering for the development of a 1,900 sq m building at Dangan Business Park, further north of the city.
After a 14pc rent rise last year, Galway's prime headline rents remained unchanged at €220 per sq m, during the quarter. Quality suburban offices can achieve rents as high as €178 per sq m - up 38pc from the €129 per sq m rents recorded 12 months earlier.
In Limerick prime rents in both the city centre and the suburbs remained unchanged during quarter one standing at €172 per sq m and €140 sq m respectively.
Following a year which saw a 47pc surge in office take-up, Limerick saw leasing activity in the first three months of this year drop to just two deals totalling 1,100 sq m. This is significantly below the long-run quarterly average, which stood at 3,950 sq m at the end of March. Furthermore, no new space was either signed or reserved during the quarter.
Both deals comprised Grade A office space located in the city centre. US advisory services company, Glass Lewis took about 500 sq m at 14 Henry Street.
Meanwhile 31/32 Upper William Street was bought at an Allsop auction for €240,000 and is being occupied by the purchaser. Formerly occupied by Griffith College, internally the five storey modern terraced building comprises a number of lecture / administration rooms together with ancillary office accommodation and extends to 692.4 sq m, suggesting a price of €347 per sq m.
While Limerick's vacancy rate rose from 18.2pc to 18.7pc at the end of March, the available stock of Grade A space in the city centre, net of signed and reserved, fell 16.5pc during the 12 months to 10,600 sq m. Furthermore, there are only two Grade A1 units available in the city centre. Moreover, there is currently no Grade A unit greater than 5,000 sq m in size available in any Limerick district.
At the end of March, there was 10,100 sq m of office space under construction, the majority of which is in the suburbs. However, 73pc of this is either pre-let or design and build extensions. Therefore, it does not address the shortage of large Grade A floor plates in Limerick city centre.