HWBC has reported that Prime office rents in Dublin will rise 8% in 2017, continuing the more modest growth experienced in 2016, when Grade A office rents rose 9% to end the year at €60 per sq ft (€646 per sq m).
In its annual Office Market Review for 2016 released this week, HWBC notes the strong pipeline of potential movers to Dublin from London following the UK’s Brexit vote, which it says will be supportive of the Dublin office sector. It writes: “As the UK looks increasingly likely to move towards a ‘Hard Brexit’, the potential loss of financial services ‘passporting rights’ for London based firms will increase the volume of potential relocations to Dublin.”
HWBC said office construction in Dublin came back on stream with a bang in 2016, with a total of 818,000 sq ft of space completed in the year, a 10-fold increase on the modest completion levels in 2015. Completions are expected to increase 184% in 2017 with a total of over 2.3m sq ft of space expected to be finished, however 55% of this is already pre-committed.
Despite the rapid increase in completions HWBC argues that a prudent approach to pre-letting and limited availability of finance for some developers ensures that there is no current risk of the oversupply that dogged previous property cycles.
HWBC’s research shows that rents have now doubled since the trough in 2012, and occupier demand should help drive prime rents up a further 8% in 2017 to €65 per sq ft (€700 per sq m) by year end. Significant prelet deals announced last year included Amazon (171,000 sq ft) in Burlington Road, Grant Thornton (104,000 sq ft) in City Quay and the NTMA (83,000 sq ft) in the North Docks, with buildings due for completion over the next 12-15 months.
HWBC Managing Director, Tony Waters, said: “There is potential for up to 5 million square feet of office space to be delivered in Dublin over the next few years with schemes at various stages of the planning process. However much of this space will not be delivered without significant pre-lets in place, so at current levels of construction we see no risk of over supply as happened in previous cycles
“Whilst rental growth in the office market in Dublin has eased from the double digit levels of 2012 to 2015, prime office rents rose a very respectable 9% and will grow by a similar level in 2017, helped by the Brexit demand that is clearly now coming through, with plans to expand in Dublin by investment banks like Barclays and Credit Suisse emerging in recent days. Demand may come from companies moving 100 or 200 staff, rather than moving thousands, but it will still have a very positive impact given the supply constraints in the Dublin market.”
The pace of increase in city rents is also benefitting suburban locations such as Sandyford and Leopardstown where rents are typically half the city rate, but grew at a slightly faster pace in 2016.
The vacancy rate at the end of December stood at 7.8%, compared to the peak rate of 22.8% in 2010, and 9.0% at the end of December 2015. The average deal size for new leases this year was 1,200 square metres, with 201 transactions taking place in 2016.
HWBC Director, Paul Scannell said: “2016 was another strong year for the Dublin Office Market, despite the unexpected geopolitical events of Brexit and the Trump election in the US. With foreign direct investment the lifeblood of the market here, all market participants will continue to closely track the impact of the UK triggering article 50, Trump’s moves on free trade, and the uncertainties surrounding elections in France and Germany.
At home the minority Government must address the challenges in the residential property market, where lack of new supply and rental accommodation at affordable rates could have negative consequences for winning Brexit business and foreign direct investment.
HWBC anticipates another active year for its investment team after advising on over 20% of the €4.5m of commercial property investment deals completed in the Irish market in 2016, in a record year for the company. Major deals included advising Bayerische Versorgungskammer (BVK), on its acquisition of Liffey Valley Shopping Centre, and Friends First on its acquisition of the Madrid Portfolio of retail and office assets. HWBC also advised on one of the year’s biggest loan portfolio acquisitions, assisting Colony Capital’s €450m purchase of the Tolka Portfolio of loans from NAMA.