Property services giant and NAMA valuation panel member, Jones Lang LaSalle (JLL) has just produced its quarterly review of the Dublin office market which has an upbeat assessment of the market with rental transactions roaring ahead, and vacancy levels plummeting to levels last seen in 2007 before the recession, rents have stabilised, tenant incentives are being scaled-back and there is a distinct lack of new construction. As Senator Donie Cassidy said in April 2008 “there is unbelievable value in the marketplace today. It will not last forever. It is never the wrong time to do the right thing.”
Behind the JLL report, it seems that the market is still quite challenging. JLL claim rent free periods for new tenancies are now 9-12 months which is considerably shorter than the 18 months reported to have been on offer to BSkyB at Burlington Plaza, reported yesterday in the Irish Times (following a report by Tom Lyons in last weekend’s Sunday Times)
JLL claims that prime headline city centre rents have stabilized at €28-32 psf. Clearly there are exceptions – the Irish Times reported the recent renting of 18,000 sq ft at Sean Dunne’sBloodstoneBuilding at Sir John Rogerson’s Quay for €26 psf. These are headline rates. Factor in rent-free periods and fit-outs, and you may be looking at real rent levels 30% below these. Minister for Justice, Equality and Defence, Alan Shatter has stated that the legislation to give effect to the abolition of Upward Only Rent Review rents will be brought before the Oireachtas in late October 2011/November 2011. Whilst the legislation might be far less wide-reaching than previously expected in terms of qualifying tenants, the legislation is likely to tend to depress rents further.
Beyond the city centre, JLL claims rents of €13-17psf. Again that might be a little optimistic, for example, the Paddy Power transaction in Clonskeagh, exclusively reported on here in May 2011 where net rent is working out at just over €10 psf.
JLL estimates that the city centre office vacancy rate is now just 15.8% which equates to 3.5m sq ft (47.5% of 7.35m sq ft in total vacant office space in Dublin). By my calculations, this will provide accommodation for about 30,000 new employees. With the outlook for continuing elevated levels of unemployment and with anecdotal evidence of high emigration and with the CSO estimating Dublin’s population is falling, then even with obsolescence and limited new build coming on stream, I don’t think there’s any danger of running out of space any time soon. There are strong rumours that NAMA is about to do a deal on Liam Carroll’s 300,000 sq ft building which was earmarked to become Anglo’s HQ. The historical vacancy rate in Dublin has been 7%.
What is less contentious is that rental transactions are increasing. It had been thought that these were being almost exclusively driven by tenants downsizing and taking advantage of breaks in leases to move to cheaper, better quality and better located premises; but JLL says that demand for rented space is primarily driven by expanding companies. In terms of outlook JLL don’t see rental price increases in the near term. God love them for their optimism!
Lastly, you may have come across JLL in the media a little more than usual in recent weeks. It seems the company is raising its profile with radio advertising and other marketing initiatives. It has also just launched a Twitter account on property and related economic matters, @JLLIreland.
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