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News Release

Dublin

Office market affected by economic downturn during 2008

Credit crunch causes drop in occupier demand and rental levels


Dublin, January 21 2009 – “During 2008 the letting market in Dublin was affected by the economic downturn combined with low occupier activity.  Occupier activity in the Dublin office sector deteriorated during the year with take-up falling in the year by 40% to 166,978 m2; the lowest take up in for the last five years” according to the latest Dublin Office Market Report by Jones Lang LaSalle.

“Finance was difficult to secure from the banks during 2008 and confidence was undermined in the economy due to the continued fallout from the credit crunch.  This combination of declining economic prospects and rising finance costs inevitably had an impact on the office sector during the year”, commented Dr Clare Eriksson, Head of Research at Jones Lang LaSalle in Dublin.

Take-up in the city centre stood at 69,433 m2 (42%) compared to 97,545 m2 (58%) in the suburbs, indicating that demand within the suburban office market, where rents are typically lower, is increasing.  Fionnuala O’Buachalla, Director of Tenant Representation comments that “this is a reversal of the trend experienced in the market over the last few years and is driven primarily by a need by occupiers to increasingly lower occupation costs where possible”. 

Despite the increased level of take up in the suburban markets the single geographical area with the highest take up for the year was Dublin 2 (46,754 m2).  In the out of town market the City Edge area recorded the highest level of take up of 16% of the total for the year (26,366 m2); occupier interest in this area is increasing due to the provision of lower cost office options close to the city centre with good transport links.

During 2008 the Business Services sector was the leading occupier in terms of take up in the Dublin market and it is worth noting that the two large lettings in Grand Canal Square to William Fry and BCM Hanby Wallace alone account for 16% of total take up in the year.  As can be expected with the ongoing banking crisis the Finance & Insurance sector (including banks) accounted for only 19% of take-up in 2008 a significant decrease from 30% of the total in 2006 and 49% in 2007.

A key feature of the market in 2008 was that many tenants decided to sublease office space and therefore became landlords.  In this new role, tenants can offer greater flexibility in terms of break option dates and higher specification, fully fitted office accommodation.  Corporate available space increased by 75% in 2008 and totalled 17% of total availability in the Dublin market at the end of Q4 08.  It is expected that this figure will continue to rise during 2009 as corporates attempt to consolidate and reorganise their business space.
 
The vacancy rate increased to 17% in Q4 2008, from 11% at the end of 2007.  This was due to the amount of speculative new office stock coming to the market as well as an increasing supply of subleases and assignments from the corporate sector.  However, office development tends to slow as the market responds to higher vacancy rates, as was the case in 2003; 12 months after the vacancy rate reached its peak in 2002.  Due to the economic climate, some schemes which were due to commence construction or were already under construction have been put on hold.  By year end 2008 approximately 12% of the stock under construction was placed on hold and it is expected that more projects will be suspended during 2009.  As such any contraction in future planned developments will help in the reduction of overall vacancy levels.

Office rental levels came under downward pressure during 2008 in reaction to deteriorating market conditions and an increase in supply.  As a result the prime rent in Dublin fell to €592 per m2 in Q4 2008, down from €646 per m2 in 2007.  It is expected that prime rents will continue to fall during 2009.  Deirdre Costello, Director of Office Agency comments that letting incentives such as extended rent free periods, fit out contributions, flexible leases and early break options are already present in the market and will remain a feature going forward.