The right moves: Where will the office supply come from?
It is extraordinary there has not been one new office block completed in Dublin for four consecutive years, a result of course of the collapse of the market.
Even though speculative office development looked viable again from two years ago there has been a very slow response in supply, chiefly because of a lack of finance. Now however a combination of new players and some familiar names are vying to produce schemes, although too late for today's tenants who face little choice and spiralling rents.
The real "pinch points" for prime supply are in Dublin 2, 4 and docklands where there are no buildings available over 5,000 sq m and a lack of units of about 1,000 sq m. Not surprisingly, with demand improving, rents are increasing quickly. The highest rent paid to date in a large letting was Facebooks last deal in docklands where they paid €485 per sq m for 12,000 sq. metres. (The previous year they paid €380 per sq m in another deal.) However it seems likely that prime rents will be at €590 per sq m by the end of this year and experts like Savills Chairman Roland O'Connell believes we may see the very best fetching €650 per sq m.
According to Mr O'Connell, tenants in the market now have little choice and are being forced to consider locations outside their original brief. "There is a growing interest again in suburban offices although rents there will have to rise more to make new development viable.
In the city centre development has got going at last, although there are just three new schemes underway; Denis O'Brien's 6,500 sq. m. building on St Stephens Green, the Comer brothers 18,500 sq. m. in Ballsbridge and the scheme of 16,500 sq. m. being developed by the Johnny Ronan led consortium on Burlington Road, Dublin 4.
It's interesting that whilst attention has been focused on the overseas funds as the cavalry to kick-start development, familiar names like Irish Life and IPUT have re-emerged as developers likely to get space on the market this year. IPUT hope to go on site this summer on Molesworth Street, Dublin 2 with a 9,000 sq m redevelopment of the Passport Office site. The REITs are also preparing to develop and Green REIT are progressing plans at Central Park, Sandyford, Molesworth Street and the former RSA HQ on Dawson St.
Large scale refurbs will also be adding to supply, for example at the former Bank of Ireland and former Bord na Mona headquarters, both on Lr Baggot St Nama have been charged with kick starting office supply in the national interest and have been funding fit-out works and they will be injecting development finance into schemes, particularly in docklands.
For the moment though tenants face tight terms and to secure flexible terms are prepared to pay up to 10pc over the normal rent to secure break clauses.
In a busy week, I was pleased to present yesterday at the Irish Independent Property Leaders Business Success Forum where Independent News & Media launched an exciting programme of industry events for the year. One of the points I made was the importance of a renewed emphasis on standards of customer service as the best long term strategy for agents in a strengthening market.
Growth in the economy is also focusing concentration on "customer service" as a strategy for growth. Last week I was honoured to speak at the 25th anniversary dinner of the Irish Brokers Association Insurance Service Awards at the Shelbourne Hotel. Ciaran Phelan, CEO of the Irish Brokers Association told me that "brokers are in a unique position of being able to offer consumers the choice of the most suitable products across the market. Service levels from insurers are a key factor and the awards recognise those companies whom our members feel offered the best service in 2014."
Also last week, at the Crown Plaza Hotel, Santry, I was delighted to speak at the Hickey's Pharmacies managers meeting. The group operates 29 pharmacies in Ireland and managing director, Paddy Hickey told me that the cornerstone of the success of the business, particularly through the recession, has been the company's staff and their commitment to customer care. As the business resumes growth, this will continue to be central to our success."