Dublin commercial real estate market showing signs of improvement, report indicates

Despite recent turbulence in European markets dampening prospects for global recovery, there has been an encouraging improvement in activity in the Dublin property office market in recent months, according to a new report.

Take-up in the Irish capital over the last three months is likely to be higher than the first quarter of the year, says the report from CB Richard Ellis as a number of notable deals are due to sign shortly.
 
Almost all of the transactions being completed in the Dublin office market at present are letting deals although there was one high-profile office sale concluded on the instructions of a receiver in recent weeks, the sale of a Georgian office building on Lower Baggot Street for approximately €2 million.
 
In addition to a healthy level of letting activity, there are a number of significant requirements for office accommodation in Dublin, including two large requirements, which is very encouraging, the report says.
   
Prime rents in Dublin city centre are holding steady at approximately €376 per square metre or €35 per square foot although downward pressures remain for secondary accommodation, particularly around the M50 where there is a large concentration of vacant accommodation.
 
Despite a significant decline in the number of new schemes coming on stream, the existing overhang of space will be slow to erode until more net absorption is achieved, the report points out.
 
‘We are encouraged by the increasing number of overseas firms, particularly pharmaceutical and IT companies, choosing to locate their European headquarters in Ireland. They are attracted by the 12.5% corporation tax rate, the fact that prime rents have declined by as much as 44% from peak, the potential for upwards and downwards rent review clauses, the notable decline in wage rates in the last 18 months and the ready availability of labour,’ the report says.
 
It also points out that the ability to make quick decisions can make the difference between potential tenants choosing one building over another in the current climate.
‘Occupiers remain extremely cost-conscious, are focussed on turnkey solutions and are showing a preference for fully fitted accommodation. In addition, occupiers are focussing attention on the all-in costs of occupation, including service charges and rates as opposed to just rents, with finance directors having significantly more input into the decision-making process than before,’ it adds.
 
The Irish retail sector has seen a modest improvement in underlying consumer spending trends but a number of retailers remain under pressure and there continue to be casualties. From a property perspective, there are a number of deals progressing, primarily because the terms and conditions on offer in the current climate are leading to an increase in the number of rollout and expansion plans being announced, the report also says.
 
Analysts also report a notable reduction in the volume of industrial transactions signed in recent weeks. Almost all of the industrial transactions being concluded in the current market comprise short term lettings. ‘Occupiers are purely focussed on cutting costs and as a result, rental values remain under pressure with a clear gap emerging between rents for modern/new premises and older second-hand accommodation. Certain occupiers are willing to compromise on building quality and in some cases efficiency in order to cut costs. They are demanding greater flexibility and shorter lease terms and landlords are willing to do deals on this basis in order to generate rent roll in the short to medium term,’ it adds.
 
Although overall there is a definate improvement in demand for Irish investment property, there is a dearth of prime properties being offered for sale and transaction volumes, albeit up significantly year-on-year, remain weak, the report concludes.