Dublin office vacancy rate is 22.8 per cent – but there’s a shortage of brand new buildings, says Lisney

MORE than 80 per cent of companies renting office space in Dublin are opting for brand new buildings which require substantial capital investment in fit-outs, according to the latest office review from agent Lisney.

The report said that this was particularly true for larger occupiers who tended to have bespoke requirements and found it difficult to adapt second-hand space for their needs. A further encouraging sign was the level of unfulfilled requirements in the market.

Lisney estimates that there is a combined demand for at least 120,000sq m (1.29 million sq ft) with a strong weighting in favour of city centre locations. There was only about 80,000sq m (861,112sq ft) of Grade A (brand new and never occupied ) space available in Dublin 2 and 4.

Future requirements would create an interesting dynamic in the market and it may be that in 18 months time, occupiers seeking sizeable chunks of accommodation would either have to split their organisations into different locations or pre-lease property on a design-and-build basis. Despite these signs, it was unlikely there would be any speculative development as the current rental levels made it uneconomical apart altogether from the absence of any development finance. This demonstrated that in certain locations rental growth would return to the market within the next 18 months.

Lisney estimated that despite the take-up of 51,000sq m (548,959sq ft) of space in the first three months of this year, the overall vacancy rate in Dublin now stands at 22.8 per cent. The equivalent figure for the city centre is 19.9 per cent.

On the face of it, such vacancies should prevent rental growth for some time to come but further analysis shows that 41 per cent of all space available in Dublin 2 and 4 is classed as obsolete or nearing obsolescence. In many cases such properties were capable of being occupied but in a different economic climate they would be redeveloped. The rents for these properties were now hugely competitive.

With nearly 31,000sq m (333,680sq ft) of the 80,000sq m (861,112sq ft) of Grade A space transacted in Dublin 2 and 4 in the first quarter of this year, it was evident that rental growth would return to some locations much quicker than most would believe possible.

Lisney said that as the year progressed it was likely that further second-hand space would become available from certain financial institutions and this would hamper the reduction in the vacancy rate. “There is no doubt that 2011 will be a better year than last year and at this stage we estimate year-end take up at about 140,000sq m (1.5 million sq ft) which is nearing the 15-year average (excluding the boom years of 2006-2008) of 167,000sq m (1.79 million sq ft).”

Lisney estimated that the take-up of space in the first quarter if this year was 51,000sq m (548,958sq ft) – marginally ahead of the 46,000sq m (495,139sq ft) figure published by Savills. The overall figure was somewhat distorted by Googles purchase of the newly completed Montevetro block on Barrow Street in Dublin 4. Savills also monitored a marginal fall from 23.6 to 23.2 per cent in the vacancy rate reflecting a consistent demand for space since the middle of 2010 and a halt in the volume of newly completed space coming to the market.

Roland O’Connell of Savills said they expected the demand for space to remain consistent as existing occupiers availed of opportunities to move to better locations on more favourable terms and conditions. “We expect the optimism that is evidenced by the fact that take-up in the last three months was twice the level seen in the same quarter last year to keep activity robust this year when we expect take-up could reach 150,000sq m (1.6 million sq ft).