Property
Dublin's net effective office rents surge 39.3% in 12 months - - fastest growth in Europe
By Finfacts Team
Jun 23, 2014 - 1:47 PM

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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 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.

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 offer.

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.


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