Market Analysis:Dublin estate agent HWBC is predicting that take up of office space in Dublin this year will exceed 200,000sq m (2,152,780sq ft) despite the overall slowdown in the economy and wider liquidity issues in financial markets.
However, it says that activity at the smaller end of the office market may see a slowdown in transactions as small to medium-sized firms put decisions on hold as the economy slows.
Paul Scannell of HWBC says that prime headline rents are beginning to settle around €650 per sq m (€60.4 per sq ft) with the top rent of €672 per sq m (€62.43 per sq ft) achieved at the newly refurbished building at 75 St Stephen's Green.
"We expect to see a rent of €700 per sq m [€65 per sq ft] achieved during the year for new space in Dublin 2 and all eyes will be on the new quality building at One Warrington Place to see what headline rent is secured. With so much negative sentiment during 2007 occupiers are likely to use this to their advantage to attain the best possible terms from developers with completed buildings."
HWBC says that with a more challenging year ahead developers will be looking to maximise their target market and many will consider more flexible letting programmes and even splitting floor plates to increase activity. Most developers now factor this in at design stage so that all potential requirements can be accommodated subject to market conditions and demand.
Another increasingly important factor for office development was designing greener buildings to minimise CO2 emissions and maximise the energy performance of the completed building. Energy efficiency was now an important factor for large multi-national occupiers, both for corporate profile reasons and to reduce operating costs.
From January 1st, 2009, Building Energy Rating certificates would apply to all office buildings and would be based on the amount of energy actually consumed. Although adding to developer costs, energy rating and efficiency would have an impact on lettings and future rental growth for offices and therefore must now be considered an essential element in developing economic and sustainable buildings for the future.
Scannell said that 2007 was a good year for the office sector in terms of growth in prime headline rents which had the effect of increasing rents across all sectors in both secondary city locations and the suburbs. The office market was again the best performing sector with overall returns of around 10 per cent.
Prime headline rents reached €670 per sq m (€62.26 per sq ft) for the first time and were established at around €650 per sq m (€60.4 per sq ft) for best quality space. Rents of over €700 per sq m (over €65 per sq ft) were now being quoted for new developments due for completion in 2008, although these levels would only be achieved with significant incentives from developers to secure tenants.
The majority of large corporate occupiers were now unwilling to commit to long leases without a break option at year 10 or 15 due to a shortening in business cycles.
The report also highlighted a number of large pre-lets last year to companies such as Anglo Irish Bank, State Street Bank and William Fry. It said that the exact terms of these deals were normally subject to confidentiality clauses. However, it was not uncommon for tenants to receive three or four years rent-free in exchange for committing to a scheme early, agreeing a strong headline rent and signing a medium to long term lease.
At first glance these deals may look generous from the developer's point of view but having a significant covenant secured early can make a difference to the finance terms available and completed valuation figures making tenant incentives worthwhile.
