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News Release

Dublin

After challenging year, an increase in tenant-friendly market conditions gives rise to hope for 2010


After one of the most challenging years ever in the Irish office leasing market, an increase in the number of lettings, coupled with tenant-friendly market conditions, gives rise to hope for a slightly brighter 2010, according to the latest Dublin Office Market Report by Jones Lang LaSalle.

During 2009, the Dublin letting market continued to be affected by the economic downturn, resulting in declining levels of occupier activity.  Tenant demand in 2009 was the lowest recorded for approximately 15 years, and take-up fell in 2009 fell by minus 56% to 72,959 m2.  Despite this, the number of office transactions increased from 155 in 2008 to 165 in 2009. 

The fact that tenant demand for offices was almost evenly balanced between the city centre and suburbs during 2009 may be reflective of the narrowing in the rental gap between the two areas during the year, commented Dr Clare Eriksson, Head of Research at Jones Lang LaSalle in Dublin.  There has been increased competition from city centre offices in the form of increased incentives, such as rent-free periods and shorter leases.

Business services tenants were the dominant player in terms of office demand, and were responsible for 23.4% of take-up during 2009, an ongoing trend which has continued since 2008.  The majority (55%) of business services activity came from the IT services sector, including companies that provide specialist software development for businesses and IT security services. 

Despite the economic downturn’s unquestionable negative impact on financial services, this business sector still accounted for the second highest volume of occupier demand in 2009, equating to 18.9% of all lettings.  However, insurance and reinsurance companies, rather than banks, saw the biggest  increase in activity, and they accounted for 33% of the office demand in 14 separate transactions within the financial services business sector during the year.

As a result of rising office vacancy levels and decreasing tenant demand for office space, headline prime rent in Dublin fell to €430 per m2 in Q4 2009, down from €592 m2 in 2008.  Deirdre Costello, Director of Office Agency noted that this makes Dublin offices more competitive on an international level.  Letting incentives such as extended rent-free periods, flexible leases and early break options have all been evident in the office transactions that took place during 2009; moreover, they are set to remain a feature of the market going forward.  This is a positive trend for the market because when combined with increased levels of staff availability, it makes Dublin more attractive for international corporates that might be considering locating here.

A key trend in 2009 was increased levels of Foreign Direct Investment (FDI) into Dublin; this helped bolster the demand for office space and accounted for approximately 8% of take-up during the year.  Examples of the larger FDI lettings completed during 2009 include the 1,885 m2 in Hanover Reach taken by Facebook; the 1,309 m2 in One Kilmainham Square taken by Amazon, and the 649 m2 taken by Bentley Systems in Europa House.

Fionnuala O’Buachalla, Director of Tenant Representation noted: “FDI continues to be attracted to Ireland as a result of our low corporation tax, more competitive economic environment and large educated workforce, coupled with more competitive property choice and property terms that incorporate lower rental levels and increased incentives.”
The vacancy rate increased to 22% in Q4 2009, from 17% at the end of 2008.  This was due to a combination of a high volume of new speculative office stock coming to the market and an increasing supply of subleases and assignments from the corporate sector.  Vacancy rates have now exceeded their historic norms and their last recorded peak of 18% in 2002.

The vacancy rate of 22% is also being driven by the volume of older and unlettable office stock available in the market.  Approximately 9% (or 71,559 m2) of the vacant Dublin office market was built more than 30y years ago and much of this is ripe for redevelopment.  If the vacant stock built more than 30 years ago is excluded from the analysis, the vacancy rate for the city immediately drops to 20%.

The rise in the levels of corporate accommodation (often referred to as grey space) became a major feature of the market in 2008 and this continued into 2009.  As a direct result of this, there has been greater flexibility in terms of short leases, break option dates, higher specification and fully fitted office accommodation available to businesses seeking new office space in the market.

The office supply pipeline has effectively been turned off by developers during 2009, reducing by minus 66% from 335,636 m2 at the end of 2008.  There is currently 70,489 m2 of office space on hold; this is space which had previously been under construction. Many other planned developments throughout the city have been stalled or shelved completely until the market recovers.  This trend should assist in the overall recovery of the office market once confidence returns to the general economy.