€450m of building projects under way in office sector
MORE than 50 office-related building projects costing more than €450m are under way in Dublin and around the country.
In addition a further 145 projects costing up to €178m have received planning approval while 202 new planning applications for projects costing €394m were made over the last 12 months.
This level of activity is a substantial increase on the 2012 figures when planning applications were submitted for 135 new office projects costing a combined €131m.
Only 91 projects costing €95m were approved in 2012. These figures were compiled by Construction Information Services (CIS) at the request of the Irish Independent.
Almost all of the projects where work has begun are being undertaken by owner occupiers and many of these involve extensions or new building work on existing buildings.
In addition two major new speculative development projects have got underway in Dublin.
These include the redevelopment of the site of the former Canada House offices, a corner site at 65-68 St. Stephen's Green, Dublin 2, comprising approximately 6,900sqm.
With a design and build cost of €19m to €20m, this high quality development has already attracted offers from prospective tenants and buyers even though the marketing will not get underway until late Spring and the construction will not be completed until December 2015.
It is being developed by Island Capital, a company owned by communications billionaire Denis O'Brien.
Richard Strappe, investment director of Island, is very pleased with the response from the market. "What looked like a risk a year ago has turned out not to be one," he adds. The agents are Jones Lang LaSalle and Knight Frank.
Meanwhile, in Dublin 4, Comer Brothers have started work on the office element of the former Veterinary College site, extending between Shelbourne Road and Pembroke Road in Ballsbridge.
The original planning permission allows for an office element measuring 15,600sqm. It has been estimated that the office component of this mixed use development could cost €22m. Comer had not responded to a request for information before we went to press.
Marion Finnegan of DTZ Sherry FitzGerald estimates that about 22,500sqm of speculative office development was underway in Dublin's central business district area at the end of last month. She also expects a number of other office projects to commence construction during 2014.
The Central Bank and NAMA are also gearing up for projects, the former on north docklands and the latter on south docklands although it may be 2015 before site works get underway.
In the interim, the market is expected to absorb the current excess space.
Hannah Dwyer, head of research at Jones Lang LaSalle, estimates that Dublin currently has 7.1 million sq ft of vacant office space which is a vacancy rate of 18pc. The vacancy rate in the city centre at 14.9pc is significantly lower than the suburbs' where it stands at 21.9pc.
She estimates that Dublin has 2.1 million sq ft of vacant Grade A space, with just over half, 1.1 million sq ft, in the city centre. This is across 36 buildings, of which seven have availability greater than 40,000 sq ft. However four of these are currently under offer.
But the new office related developments are not confined to Dublin. Indeed the largest project is a €100m innovation centre being developed by Kerry Group in Naas, Co Kildare.
Meanwhile, in Cork pharmaceutical multinational Eli Lily is investing €10m in the office element of a major development.
In Galway an 8,260sqm office building at a cost of €10.4m is being developed by Hewlett Packard and a local developer at HP's site in Ballybrit.
The fact that most of the current 50 projects are being undertaken by owner occupiers and 35 of them outside Dublin may offer some encouragement to developers. However vacancy levels are still quite high in Cork, at 21pc and Limerick, 23pc.
According to DTZ availability in Galway has fallen to less than 50,000sqm or 16.7pc.
In Dublin among the owner occupiers with major projects underway is book seller Amazon's Data Services subsidiary which is undertaking a €7.8m project at Clonshaugh Business and Technology Park on Dublin's northside.
With a floor area of 5,341 sq m and including a loading bay as well as two storey offices and a workshop, it is expected to be completed next September.
In west Dublin IBM is undertaking a €6.1m project which will see the conversion of a warehouse to offices at the IBM Technology Campus, Damastown Industrial Park, Dublin 15. This follows IBM's receipt of planning permission last July for change of use of 6,904sqm of ground floor space at an existing building for use as office, call centre, business continuity and recovery, and science and technology work.
Marie Hunt of CBRE is among the agents who are quite optimistic about further speculative development getting underway in Dublin this year following the 25pc increase in prime office rents in Dublin 2 and 4 during 2013. She predicts that these rents will increase a further 15pc this year to reach €435 per sq m or €40 per sq ft by next January.
"On the basis that new development is feasible at these rental values we expect to see the beginning of the next wave of office development during the next 12 months. This will be supported by the Dublin Docklands Strategic Development Zone later this year," she adds.
Meanwhile, in Cork, Lisney point out that rents, which stabilised in a range of €150 to €190 per sqm for Grade A city centre space, will need to increase to encourage refurbishment of city centre offices. "Nevertheless limited instances of this may occur in 2014," they add.