New research by Savills, the property
consultants, shows that Dublin has experienced the fastest growth in net
effective rents among 21 European office markets over the last year. Effective
rents in Dublin have increased by 39.3% in the last 12 months, compared with an
average of 5.1% across Europe.
Dr. John McCartney, director of Research at Savills,
commented that net effective rents comprise two elements. On one hand, they
include standard ‘headline’ rents. However, headline rents overstate the ‘true’
market rent they are partially offset by the rent-free periods that landlords
typically offer to attract tenants into buildings. Therefore, net effective
rents adjust for the value of these concessions over the lease term to give a
more representative measure.
McCartney says that these two elements - - headline rents and rent-free periods
-- have moved in opposite directions over the last year, causing effective
office rents in Dublin to rise quite sharply.
“Service sector jobs growth has led to an upsurge in the demand for office space
causing headline rents to rise by 24%. But increasing
demand has also allowed landlords to row back on rent-free incentives.
On average, the rent-free period on a standard office lease has halved over the
It is this combination of rising headline rents and falling rent-free
concessions that has led to the sharp upturn in net effective rents.
According to the Savills report, Dublin was one of only seven markets across
Europe in which the average rent-free period fell, with Hamburg, London,
Dusseldorf and Paris also seeing a significant tightening of the incentives on
However, although net effective rents are increasing sharply in Dublin,
Roland O’Connell, director of Office Agency at Savills
in Dublin, notes that they are recovering from a very low base.
“Effective rents fell by more than 50% during the downturn and, in that context,
it is not surprising that we are seeing something of a bounce-back.”
O’Connell continued: “While increasing commercial rents are welcome insofar as
they reflect the underlying strength of the economy, we would not want to see
this rate of growth continue in the long term. Rents can account for a
significant part of the occupier cost base and they have knock-on implications
for Ireland’s competitiveness and its attractiveness as a business location”.
For this reason O’Connell noted the urgent need for more construction activity
to boost the supply of prime office space in Dublin.