Business Irish

Friday 24 November 2017

Growth forecast for Dublin office prices and rents

Donal Buckley

Prime Irish office prices are likely to rise, while conditions will improve for the development of new offices, a recent business seminar in Dublin has heard.

Paul McDowell, managing director Knight Frank Ireland, pointed out that while Dublin rents compare favourably with those in Munich, Amsterdam, Edinburgh, Birmingham and Brussels, Irish yields are lagging behind those in the same cities.

Dublin office rents average €32 per sq ft which compare favourably with their British and European counterparts. However, Dublin office yields at around 7pc are higher than those cities which show 6pc yields for prime offices.

This, he suggested, was one reason why Dublin yields could contract further and added that "future, prime investment product will perform strongly as overseas funds chase a tight supply attracted by the higher yield."

Total Dublin office vacancy at around 22pc is now declining, particularly for prime space in core areas.

"There is no new supply of any significance in the pipeline. Dublin take-up in 2011 was around 1.75m sq ft of space, which is equivalent to a 10-year average for the city.

"However, it would appear that yields have moved too far out and there is scope for some yield compression," Mr McDowell said.

He told representatives of banks, finance houses, investors and receivers that rents for prime space in core areas also have scope for moderate increases in the medium term due to shrinking supply.

In order to drive returns, asset management will be key, as is reacting to tenants' demands to ensure their economic viability and to keep vacancy to a minimum.

However, he cautioned, "investment structures need to be conservative with loan to values and interest cover that allows for amortisation of the debt and that can withstand any unforeseen shocks, such as vacancy etc."

He forecast that conditions would improve for new office developments in key locations with 18 months.

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