Dublin office rents climbing towards danger zone
By Michael Hennigan, Finfacts founder and editor
Jul 4, 2014 - 7:21 AM

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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.

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 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 type firms and not large long-stay domestics (most of whom have already moved to new offices).

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."

CBRE EMEA Office MarketView Q1 2014 [pdf]

Extraordinarily Strong Volume of Activity In The Irish Commercial Property Market

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