The latest Dublin Office Market Review and Outlook 2015 from JLL predicts another strong year ahead for the sector after a “phenomenal 2014” where rents increased 43 per cent over the year.
JLL’s top five predictions for the office market in 2015 are for supply to tighten further across all geographies; strong occupier demand to be constrained by lack of supply; further increases in rents; refurbishments to offer a short-term supply solution; and for an increase in on-site construction activity.
The review notes that the availability of prime office space across Dublin decreased by more than 40 per cent in the past 12 months – the overall vacancy rate for completed Dublin office space stands at 10.2 per cent, down from 18 per cent in Q4 2013.
Given that no new office space was delivered to market in 2014, JLL says a major issue for occupiers in 2015 will be a tightening of supply in the city and suburbs. “The overall vacancy rate is forecast to drop to below 10 per cent by the year-end, with city centre availability likely to be even tighter than its current vacancy rate of just 6.1 per cent while the suburban rate stands at 15.2 per cent,” according to JLL. “In addition, some 240,000sq ft of grade A space is currently reserved in Dublin 2 which is likely to sign in the next three to six months.”
Demand
In terms of occupier demand, JLL notes that year-end take-up was 20 per cent higher than in 2013 with a strong preference for space in the city centre borne out by Dublin 2 being the strongest performer. Tech companies were the main driver of demand while 67 per cent of deals were for space of 10,000 sq ft or less.
“Take-up of office space in 2015 is not expected to achieve the same levels as 2014,” says JLL, “but it should be in line with five-year averages of 1.76m sq ft. While demand is likely to remain strong, limited availability of space may restrict occupier activity. We may see an increase in suburban take-up in response to this, or an increase in secondary quality lettings. Technology companies are expected to continue to be the driver of demand.”
Rents
Prime city centre rents are now at €45 to €50 per sq ft, according to JLL, while prime suburban rents increased by 24 per cent in 2014 to €18 to €21 per sq ft. “As pressure on rents has continued, we have seen leases lengthen and incentives tighten, particularly for prime space in city centre locations,” says JLL’s
Deirdre Costello
.
“As supply continues to tighten, we expect prime rents to increase further, although not at the same pace we have seen in the last 12 months. We are forecasting that rents will exceed €55 per sq ft in 2015 while prime suburban rents by Q4 2015 could hit €23.50 per sq ft.”
Refurbishments
Landlords started refurbishing space in core locations during 2014 in response to tightening supply and strong demand for high quality offices. By year end some 258,858sq ft of such space had been refurbished.
JLL has identified “690,000 sq ft of space that is likely to be refurbished” in 2015.
“This will make refurbishment activity one of the main features of the market in 2015,” says JLL, and “there are increased levels of refurbishment of non-prime space in core locations. The delivery of this space to the market will help to deal with shorter-term supply issues.”
Significant refurbishments expected by JLL in 2015 include more than 240,000 sq ft at blocks A, B and C in the Miesian Plaza, Dublin 2; 103,000sq ft at the International Centre, West Block, in the IFSC; 71,289sq ft at Commerzbank House, Guild Street, in the IFSC; 45,500sq ft at Haddington House on Haddington Road, Dublin; and 45,016sq ft at Number 1 Building, Grand Canal Street, Dublin 2.
Construction
At the end of 2014, 198,907sq ft of office space was under construction in Dublin – all in the city centre – while a number of high profile planning applications for space in excess of 100,000sq ft, including 27-32 Upper Baggot Street and EBS Fitzwilliam Street, had been made. “But no new space will be delivered in 2015,” says Ms Costello. “There are significant increases in the number of planning applications and further speculative development will commence in 2015 with delivery in 2017. New construction starts of up to 1m sq ft are expected to be under way by the year-end and these will be delivered in different phases.”
Large office schemes with planning permission include those at Cumberland House, Dublin 2 (220,000sq ft); Windmill Lane, Dublin 2 (130,000sq ft); Simmonscourt RDS, Dublin 4 (110,000sq ft); Dublin Exchange Facility, Dublin 1 (110,000sq ft); 1-6 Sir John Rogersons Quay, Dublin 2 (102,000sq ft); Kestrel House, Clanwilliam, Dublin 2 (50,000sq ft); and 21 Charlemont Place, Dublin 2 (45,000sq ft).
