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News Release

Dublin

Office Demand Continues to Improve in Q2 2010

Dublin, 30 June 2010


According to data released by Jones Lang LaSalle tenant demand continued to improve in the Dublin office market with take up increasing by 7% on Quarter 1 and by 45% year on year in Q2 2010.  Despite this, the office vacancy rate for the city remained constant at 22% as a result of more vacant buildings coming to the market combined with a sizeable volume of completions in Q2 10 of 237,139 sq ft. 
 
At the end of the half year point office leasing activity has reached 556,314 sq ft.  Another 200,000 sq ft of office accommodation is currently reserved so we are of the view that overall take up in the market could reach 1 million by year end 2010. 
 
The Business Services sector was the most active in Q2 10 accounting for 54% of all take up.  Of this, 43% of demand was by IT Companies, mainly IT Software. IT Support and Game Development.  One of the largest deals of the quarter was 39,000 sq ft leased to Yahoo in East Point.  Other active industries undertaking office deals in Q2 2010 were pharmaceutical manufacturing companies who accounted for 4 deals and 23% of all demand.
 
According to Dr. Clare Eriksson Head of Research “the majority of deals in Q2 2010 were driven by companies expanding (59%) while a further 24% were new companies locating to the market, all of which is a very positive indicator for the market going forward”.  A further 14% were tenants relocating within the city.  As in the first quarter of the year the most popular deal size in Q2 was for the category of 2,000 to 5,000 sq ft. 
 
In terms of the amount of time it is taking for vacant offices to be let in the current economic climate it is interesting to note that of the Q2 10 office leasing deals 45% had been on the market for less than a year while a further 34% had been available to let for between 1 and 2 years.
 
Office tenants continue to favour Dublin 2 as a location; 24% of all Q2 deals were undertaken in the area.  In particular the South Docks area performed well with 10% of demand in Q2, though vacancy in the South Docks is currently 21% compared to 16% for the entire Dublin 2 area.  The City Edge area had the highest level of suburban demand of 21% primarily due to the area’s ability to provide a close to city location at suburban rental levels. 
 
The length of time it is taking to execute leasing deals for Dublin offices has greatly improved.  Last year it took approximately 12 to 24 months to move from enquiry stage to deal completed, this has now shortened to 6 to 12 months in general.
 
There are now only 7 buildings under construction in the Dublin comprising a total of 838,409 sq ft, all of which are due to complete later this year or early in 2011.  Offices under construction include three buildings in the South Docks area; Montevetro in Barrow Street and Block 4 & 5 Grand Canal Square.  Current suburban developments include Number One Central Park in Leopardstown and Blocks 1 & 2 Waterside in Citywest.  Deirdre Costello, Director of Office Agency states that “as the office supply pipeline has now been effectively turned off, this should assist the recovery of the market in terms of reducing availability within prime buildings in the city and suburban sectors”.
 
The current office market ins Dublin is still in favour of the tenant.  The current prime rental level for the city is now in the region of €30/€35  per sq ft and there is a wide variety of office choice available for tenants as a result of the existing 22% vacancy rate.  According to Fionnuala O’Buachalla Tenant Representation Director “new occupiers entering the market, and existing tenants availing of break options, are using these favourable conditions to secure the best possible office space at the lowest possible rents with flexible lease terms”.  This trend was reflected in Q2 10 as 66% of all tenant demand was for Grade A properties and 50% of all take up was for newer buildings built within the last 5 years.  This is a notable change in trend as in previous years Grade B space historically attracted the highest levels of take-up.  The shift for demand from Grade B to Grade A space by tenants signifies the need for future refurbishment of some of the older and obsolescent office stock vacant in Dublin to meet current tenant preferences and requirements. 
 
Future opportunities for the Dublin office market include a renewed interest by some shared services businesses, many of these businesses had moved out of the market when costs grew considerably during the peak of the last economic cycle.  The primary threat for the office sector going forward will continue to be the high level of sub lease or assigned space available.  This currently constitutes approximately 18% of all vacancy or 1.5 million sq ft and its reduction will be the main trigger of recovery for the office sector.