With Dublin house prices rising by 22% in May,
the office prices in the capital are also climbing towards the danger zone.
Research by Savills, the property consultants,
last month showed 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.
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 said 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%.
However, 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 last year.”
It is this combination of rising headline rents and falling rent-free
concessions that has led to the sharp upturn in net effective rents.
An investor has told Finfacts that some
prospective tenants are still getting 'side letters' but with foreign buyers are
moving elsewhere as €40 per sq ft is almost €800 per sq ft capitalised, which is
too high for small city where all new Commercial Leases are all up & down and reasonably short
term (5-10 years), and where the marginal demand is from international dot.com
type firms and not large long-stay domestics (most of whom have already moved to
He said: "If the Irish banks (once again) start
increasing their financing to commercial property on the basis of 'hype' rents
then we could end up back in the same place again."
EMEA Office MarketView Q1 2014 [pdf]
Extraordinarily Strong Volume of Activity In The
Irish Commercial Property Market