Property services powerhouse and NAMA valuation panel member, CB Richard Ellis has just published its first bi-monthly (every two months) report looking at the commercial rental sector in Ireland. The press release is here and the (very slightly longer) report itself is here. This is the snapshot of current rents in Ireland including Belfast.
As with many reports from the property sector, this is a basically upbeat assessment in terms of tone – read the first sentence of the report a couple of times and see that it is actually forecasting an almost 20% drop in activity in 2011 compared with 2010 but the tone is casual. The report does highlight the threat to the property sector from the FG/Labour proposals to deal with upward only rent reviews retrospectively and concludes that such a move will seriously damage the sector. The report claims that 2011 has gotten off to a good start and that prime rents are stabilizing, having fallen 50% from peak. This is the second report (see below) which highlights the fact that there is little new space under construction. Indeed, according to CBRE, there are only five new Grade A buildings in Dublin 2 and 4 with over 75,000 sq ft. There is still a chasm between rental levels in Dublin and Belfast.
Elsewhere, competing property services giant Cushman and Wakefield has published its 2011 “Office Space Across the World” report (free registration required) which concludes that Dublin is now the 26th most expensive city in the world for office rents, down from 17th last year. At €448 per sq metre (€42 psf) occupancy cost for Central Business District locations, and that includes rents, rates and service charges, costs are down 13% from last year. Just comparing rents alone and excluding taxes and service charges, we are even lower ranked. For non-CBD locations we are ranked 22nd with occupancy costs of €244 psm (€23 psf). Rents in Europe overall declined by just over 1% in 2010, though several cities notably bucked the trend including London where rents in the City and West End were up 25-30%. The C&W report also claims that there is an imminent shortage of large prime office in Dublin, which might go some way to explaining Google’s recent acquisitions.
(C&W review of Ireland’s office sector, click to enlarge)
NAMA Wine Lake 
I spoke with CBRE before this report was published. They admit that the rental rentals in it are “bullish” and even a few weeks later, probably need to be revised downwards. For instance recent office deals have been done, both in the city and suburbs, on prime properties at several euro per sq. ft. below the levels quoted.
It’s a work of fiction. And why would anyone in their right mind pay that amount of rent for retail space?
P.S. Talking of retail rents…… Liffey Valley with a rent roll of circa €32 million per anum is supposed to be on the market once more at a price of €320 million. Asking rents of €302 per sq. ft. per annum? It seems to me that whoever buys it at that level wouldn’t want to suffer from vertigo.
The truth is…..
PRIME D2 and D4 offices: €28 to €30 per sq. ft.
South suburb offices: €12 (and less) to €14 per sq. ft.
North suburb offices: €10 to €12 per sq. ft.
West suburb offices: sub €10 per sq. ft.
The retail warehouse rents are correct. But the city and SC retail rents are imported from a scene in “Alice in Wonderland”!
Can i just point out that most of the retail rents in the CBRE bi-monthly report which i drafted based on conversations with agents in the market who are doing deals at these levels are PRIME HEADLINE QUOTING RENTS for ZONED properties. All Dublin high streets and shopping centres are zoned, ie the rents quoted are on the basis of first 7 metres of retail space, the next 7 metres is half that rate and so on etc. If we were to quote the rents on a non zoned basis (which is the way that retail park rents are quoted generally in the market) they would be substantially less. I am happy to stand up in a court of law to justify my report and the numbers contained therein. If they need revising downwards when our next report comes out beleive me I will do so.
If you would like to contact me to discuss the zoning principle I am happy to talk to you about it.
Marie
@Marie, how would you treat a rent of €500 psm pa on a 5 year lease with a six month rent holiday, in the context of a “headline quoting rent”? Do you consider there to be any potential to distort rent levels through terms like holidays, refurbishment at landlord’s expense or other subsidisation by the landlord of costs usually borne by the tenant?
@Marie. This is the usual “smoke and mirrors” of justifying headline rental levels. They are meaningless other than in the context of agents calculating their own fees on an inflated basis. They are affected by rent free periods, fitting out periods, contributions to fit outs… in fact, whatever you want to dream up yourself.
In London those rent free incentive periods amount to one year for every five years of the lease. And it is only now that they are contracting – to 21 months for every 10 years. The true rents in Dublin are far below the levels you have quoted – and I can stand up in court and prove it too!
And Marie, you know that these rental levels already need revising downwards.
P.S. Marie, What does “PRIME HEADLINE QUOTING RENTS” mean in terms of real AGREED rental levels in the market? Are they headline rental levels that the agents are quoting? Why do you publish them? It is disingenuous. On the ground deals are not consummated at these levels. They give a false impression of where the market really is.
This is all down to definition. I totally agree that agreed rental levels are lower when you factor in rent free periods and other incentives. In the Dublin market, the typical lease being signed at present is 10 years with a break at Year 5 and with approximatley 1 month of rent free for every year of term. The problem is that in the Irish market, there is no requirement to report the details of lettings and until such time as the Government enforce this, obtaining evidence is very difficult. For this reason, it has always been CBRE policy to issue Prime Headline Rents and Prime Yields. Arguably these are synthetic but we have been using the same definitions for decades across all major European markets and it gives us a benchmark to work from. I dont want to keep coming back tit for tat with responses in this forum. Our research team have access to excellent databases and I am more than happy to demonstrate these to you if you require. I am certainly not trying to be disengenous but rather trying to provide the market with a reliable indicator, even if it is not perfect. If you look at the CBRE series you will see that current prime rents are a full 50% less than peak levels, proving that we have adjusted our rents downwards in line with the market. I have a presentation that I will gladly share with you in which we make predictions for 2011 and you will see that for both rents and yields our expectation is that both will trend weaker over the course of 2011. This detail is also contained in our Outlook 2011 report.
I just do not see why agents cannot publish the real market rental levels, not a fictitious level that is clearly inflated and opaque.
@Marie, and I do not understand when CBRE says “prime rents have fallen again in recent weeks and now appear to be stabilising at approximately €65 per square metre – a fall of 50% from peak levels.” – is it referring to headline quoted rents or settled rents. Because if it is the former, it would indeed seem disingenuous if the latter is continuing to decline. But as the property giant in possession of both asking and settled rents, only you are in a position to clarify.
The CBRE Outlook report referred to by Marie above is accessible at http://www.cbre.ie/ie_en/research/research_content/research_right_col/CBRE_Outlook_2011.pdf
@ Marie. The mian issue that I have with these agents’ reports is that they are perceived by the general public and the government to be transparent and represent current rental levels in the market , when clearly they do neither.
Take the south Dublin suburban office market as an example. You quote headline rental levels at €17 per sq. ft. and assign a rent free period discount of one month per annum of the lease. This would give a market level of circa €15 per sq. ft.
There is over 3 million sq. ft. of space available in the south suburbs and the rental levels for office space (aepecially in the Sandyford area and further south) are sub €10 per sq. ft.
In fact you will be aware that CBRE has let a large amount of space in the inner suburbs for just that price recently. Why then the €17 (or even €15) per sq. ft?
All it does is confuse. It is not transparent. It allows agents (and NAMA) to place values on properties that are incorrect and no longer warranted. It also gives support and credence to the public outcry and to those politicians who claim that rents are uncompetitive and too high.
The adjustment has been made. It’s time to catch up and let the public know.
If you want, I’ ll leave it at that and give you the last word. :-)