Irish Office Market
Autumn Review 2014
Irish Office Market
The following report incorporates a detailed overview of the regional office
markets including Dublin, Galway, Cork and Limerick. This market analysis
covers occupation levels, vacancy levels and rental performance in each
location.
•
Occupier demand across the Irish office market
strengthened during the third quarter of the year as
office leasing activity rose to its highest level since the
opening quarter of 2008.
•
Vacancy rates in Dublin, Cork and Galway continue to
decline, largely driven by a strengthening of demand
during the year. The vacancy rate in the Limerick
market edged upwards during the quarter.
•
Strengthening occupier sentiment has seen the total
volume of lettings in the year to September more than
double compared with the corresponding period in
2013.
•
•
The Irish office market remains a two-tiered market,
with Dublin continuing to outperform the rest of the
country. Outside of Dublin, a multi speed recovery
exists among the regional centres. However, data for
the first nine months of the year suggests that the
recovery is becoming more broad based.
The falling availability of Grade A supply is now a key
theme across the country’s regional markets. Grade A
availability continues to be eroded across the majority
of markets. The shortage is most pronounced in the
Dublin CBD where the vacancy rate fell to 4% in
quarter three. •
The shortage of good quality large office floorplates remains a feature of the overall office
market. An occupier with a requirement for Grade A
accommodation in the city centre is faced with very
limited options.
•
Rental inflation was evident in Dublin and Cork during
the quarter, while prime rents were stable in the
Galway and Limerick markets.
•
•
Office take up across the regions rebounded strongly
in 2014 with a notable increase in larger sized lettings.
This in turn has resulted in above average quarterly
take up achieved in Dublin, Cork and Galway, while the
Limerick market is approaching the long run average.
The gap between take up and net take up continues
to narrow across the regions, indicating that net new
demand is now more prominent. Having said that, there
still exists movement within the market, particularly
in Limerick, where the rate of release of second hand
space remains strong. Table 1
Irish office markets - key figures Q3 2014
Office Market
Dublin
Galway
Cork
Limerick
Market Stock
3,348,350 Sq M
297,000 Sq M
549,000 Sq M
305,300 Sq M
Take Up YTD
178,750 Sq M
9,900 Sq M
15,150 Sq M
18,250 Sq M
Availability
477,500 Sq M
35,050 Sq M
101,000 Sq M
70,550 Sq M
Vacancy Rate
14.3%
11.8%
18.4%
20.5%
Under Construction
22,500 Sq M
8,350 Sq M
15,850 Sq M
13,350 Sq M
Source: DTZ Sherry FitzGerald Research
2 Irish Office Market - Autumn Review 2014
Dublin Office Market
Following strong performance in the opening half of 2014, momentum in
office leasing activity gathered pace during the third quarter, posting the
highest quarterly level of take up of the recovery. Furthermore, net absorption, a key indicator of
demand, improved significantly during the year to date,
supporting the view that the market is firming up and
the economic crisis is behind. The higher volume of
occupier demand stems from notable improvements
in macroeconomic conditions and a strong rebound
in business confidence. Potential occupiers are more
confident in the outlook of the Irish economy; expansion
strategies are being dusted off and companies are
preparing for future growth. This renewed confidence is
driving positive demand in the Dublin office market and
paints a very encouraging picture for the market in 2015.
Demand is steadily rising, but is taking place at a juncture
when supply is tightening and speculative development
remains limited. Overall availability in the Dublin office
market declined 33% year-on-year and supply is back to
2008 levels.
3 Irish Office Market - Autumn Review 2014
Supply levels in the Central Business District (CBD)
continue to recede, in particular, the stock of available
Grade A office space continues to shrink rapidly. At the
end of September, net available Grade A space declined
sharply to just 42,000 sq m; with Grade A stock of just
over 1 million sq m, the corresponding vacancy rate fell
to 4% in Q3 2014. Pipeline supply in the Dublin office
market remains limited with just 22,500 sq m under
construction at the end of September, all of which is
located in the CBD.
Strong demand for Grade A space in the face of declining
supply will continue to support upward pressure on
rents. Furthermore, the anticipation of a short-term
supply squeeze has pushed up headline rents in the
capital by 33% in the year to date. Rents are forecast to
rise to €520 in 2015.
Dublin Office Market
Take Up
Following a robust level of take up in the opening half of 2014, transaction
activity in the Dublin office market continued on an upward trend during the
third quarter of the year. The total quantity of space occupied in the three months
to September increased to 77,600 sq m, the highest level
of activity recorded in a quarter since the height of the
market in 2007. The past twelve months have witnessed
above-average quarterly take up, thus highlighting the
strength at which the recovery has gathered pace.
An analysis of the profile of space occupied during the
quarter reveals a continued robust level of demand for
space greater than 1,000 sq m. The average size deal in
quarter three was 1,150 sq m, which is in line with the
previous quarter but up significantly from an average of
650 sq m during the corresponding period in 2013.
The volume of take up in the first nine months of
the year stood at 178,750 sq
m, representing a 114% uplift
Strong
in activity compared with the
performance
same period in 2013. For 2014
recorded in quarter as a whole, take up will surpass
three
200,000 sq m for the first time
since 2008 and will not only
significantly exceed 2013 levels but also the 10-year
annual average of 161,500 sq m in Dublin.
The third quarter of the year saw the occupation of a
number of significant transactions that helped boost
take up during the three month period. The largest deal
during the quarter measured approximately 10,150 sq
m. This was the occupation by Deutsche Bank at Pinnacle
2 in EastPoint Business Park, Dublin 3; a deal signed in
late 2013. Other notable deals include the occupation
by leading corporate firm William Fry of almost 9,000
sq m at 2 Grand Canal Square, Dublin 2, in the south
docklands area, and 6,500 sq m occupied by Amazon at
Burlington Plaza, Burlington Road, Dublin 4.
Furthermore, demand remains strong; the level of space
signed and awaiting occupation rose to approximately
39,000 sq m at the end of September, demonstrating
a higher level of commitment by occupiers. A further
86,800 sq m was under offer at quarter end and the
volume of enquiries were notably stronger during the
three month period. Accordingly, the strength in the
level of underlying demand supports a strengthening of
take up during 2015.
A key development during 2014 was the improvement
in the level of net take up, which measures the change
in occupied space. Net take up hit a recovery high of
approximately 177,000 sq m in the year to September
and is running at its highest level since late 2008.
The positive trend in net take up is underpinned by a
combination of strong leasing activity in recent quarters
and a reduction in the level of second hand space
entering the market. Many tenants who had attempted
to sub-let space are now re-occupying and holding for
future occupation. That said, while net new demand is
now dominating, there still exists movement within the
market, however, the rate has fallen considerably.
4 Irish Office Market - Autumn Review 2014
Figure 1
Dublin take up by tenant type, YTD 2014
Source: DTZ Sherry FitzGerald Research
Dublin Office Market
Take Up
There were a number of significant deals signed during
the third quarter and a notable increase in the level
of enquiries during the third quarter. At the end of
September, the market saw an encouraging amount of
space under offer, 60,400 sq m, the strongest quarterly
level in a number of years. This brings the total space
under offer to 86,800 sq m at the end of September.
With regard to future demand,
there are a number of high profile
Occupier
companies with requirements
sentiment
for space, including indeed.com,
continues to
strengthen
Twitter, Parexel, Mason Hayes &
Curran and Airbnb.
Demand for office space remains largely concentrated
in the core CBD, with CBD lettings in the year to date
accounting for 47% of overall take up in Dublin. The
suburban market was also active accounting for 35% of
activity in the nine month period, with the secondary
region absorbing the remaining 18% of space.
Tenant demand remains focussed on Grade A
accommodation. In particular, the CBD saw demand for
Grade A space soar during the first nine months of 2014,
hitting a high of 69,200 sq m at the end of September.
This equates to approximately 83% of overall take up in
the CBD.
The IT/Telecommunications sector continues to be the
main driver of corporate occupier activity, accounting for
36% of overall take up during the year to date. The IT/
Telecommunications sector had held pole position for
eight consecutive quarters, however, the third quarter
saw strengthening demand in the CBD and from the
more traditional occupants like legal firms, accountants
and business service organisations. The professional
sector accounted for 18% of take up during the year to
date. Furthermore, improving prospects have become
apparent in the financial sector which is gradually
regaining lost ground following a prolonged period
of decline. The finance sector’s share of the market
increased to 15% of total activity in the first nine months
of the year, with active occupiers including Deutsche
Bank, Fidelity and HWBC. This is expected to increase in
2015. The State was active occupying 5% of total take up
but activity remains low by historical standards.
Figure 2
Dublin office market: take up (sq m) & vacancy rate (%), Q3 2014
Source: DTZ Sherry FitzGerald Research
5 Irish Office Market - Autumn Review 2014
Dublin Office Market
Availability
Supply levels in the Dublin office market peaked in the second quarter of 2011
at 811,400 sq m; since then supply levels have been on a downward trend
underpinned by limited new supply and a recovery in demand.
The past twelve months have witnessed a more
aggressive erosion in the rate of decline, which coincided
with a period of above average take up. The overall total
quantity of available office space declined by 15% during
the three month period to stand at 477,500 sq m at the
end of September. The rate of decline in supply means
that supply levels are now back at levels not seen since
late 2008.
The reduction in supply largely stems from strengthening
occupier demand together with a stabilisation in the
rate of second hand space entering the market. A
comparison with the same period in 2013 reveals a
startling 33% reduction in supply levels. The sharp
decline in supply during the year to date is also reflected
in the vacancy rate, which declined to 14.3% at the end
of September. The vacancy rate is fast approaching rates
achieved at the height of the market and has declined
considerably from the peak rate of 24.2% recorded
in mid-2011. Taking into account the space currently
signed and reserved, net availability declined to 438,450
sq m, reflecting a vacancy rate of 13.1%.
Availability in Dublin’s CBD is constrained, in particular,
Grade A availability. The CBD, which accounts for 34%
of overall availability, saw its sharpest fall in availability
since records began.
Supply fell by 21% in the three months to September.
The total quantity of available space declined to 162,450
sq m in quarter three; this brought the vacancy rate
down to single digits, 9.5%, for the first time since Q3
2008.
There is an acute shortage of available space in the
Dublin office market capable of accommodating large
scale office requirements. There are just two buildings
measuring in excess of 10,000 sq m across the entire
Dublin office market. The situation is worse in the CBD
where the last remaining large office building measuring
in excess of 10,000 sq m, Grand Canal Square - Block 5,
was reserved during the third quarter.
An analysis of the spread of overall available space in the
office market at the end of quarter three 2014, reveals
that the suburbs continue to account for the majority
of accommodation, 41%. This would suggest that the
vacancy rate in this region is significantly greater than
the overall market rate of 14.3%. The CBD accounts for
a further 34% of the available office space, with the
remaining available accommodation, 25%, located in the
secondary region.
Figure 3
Dublin office market: availability (sq m) & vacancy rate (%), Q3 2014
Source: DTZ Sherry FitzGerald Research
6 Irish Office Market - Autumn Review 2014
Dublin Office Market
Under Construction
The total space under construction
stood at approximately 22,500 sq m
at the end of September, unchanged
from the previous quarter. This
comprises two developments, both of
which are speculative and located in
the CBD area of the city. While the final quarter of 2013 saw cranes re-emerge
on the Dublin skyline, the Dublin office development
market remains limited. Despite strong demand for
offices, development and indeed refurbishment,
activity remain relatively limited. 2014 is set to
mark the third consecutive year in which no new
construction enters the market. At the same time,
much of the cities prime office available stock has
been steadily absorbed. Dublin vacancy levels are
approaching pre-crisis levels and there is an acute
shortage of available Grade A office space in the CBD
market. The development pipeline is only equivalent
to 1.3% of overall stock. However, despite demand and
supply imbalances in the CBD, development has been
slow to restart.
While business confidence is starting to grow, many
developers remain cautious and are weighing up a
return to building. While strong upward pressure on
prime rents in the CBD is positively impacting the
viability of development, banks remain cautious with
regard to funding speculative development.
On a positive note, NAMA has announced plans
to increase its involvement in the delivery of key
office projects within the Dublin Docklands Strategic
Development Zone and the CBD. It will do this via
increased financing and joint venture deals.
Development activity is expected to be further
enhanced with a number of projects in the pipeline to
commence construction in late 2014/early 2015.
The total stock of office accommodation remained
unchanged at approximately 3,348,350 sq m at the end
of quarter three 2014.
Figure 4
Dublin take up & completions
Source: DTZ Sherry FitzGerald Research
7 Irish Office Market - Autumn Review 2014
Dublin Office Market
Rental Levels
The Dublin office market has experienced rapid rental inflation since
the beginning of the year; prime headline rents are up 33% in the
nine month period and are showing little signs of cooling. Headline rents increased to €468 per sq m at the
end of September, driven by the ongoing depletion
of prime office accommodation in the CBD region
as occupiers continue to seek high quality buildings.
The rate of acceleration in rents over the past nine
months has surpassed expectations. Prime headline
rents are expected to see further rental inflation in the
final quarter of 2014 and are
forecast to rise to €520 in 2015
as CBD vacancy rates continue
Upward pressure
on a downward trend and the
on rents forecast
market becomes more supply
for 2015
constrained.
The road to recovery in the suburban market is a longer
road. The third quarter of 2014 witnessed further
polarisation between rental growth for prime CBD and
secondary office accommodation. Suburban rents are
recovering, but at a much slower rate.
However, an acute shortage in supply in the CBD
coupled with rapidly increasing rental levels could
see demand for suburban offices increase further.
In the suburbs, while demand was robust during the
quarter, rents have broadly remained stable and can
vary significantly depending on location and building
specification. The south suburbs continue to see the
strongest suburban headline rental levels, particularly
in Sandyford where rents range between €172 and
€247 per sq m per annum. In the western suburbs,
rents typically range between €86 and €150 per sq m
per annum. In the northern suburbs, headline rents
generally range between €129 and €193 per sq m per
annum.
Within the CBD, 2014 has seen the level of incentives
available on existing new Grade A space continue to
tighten and lease flexibility diminish, terms are more
flexible in the suburban market.
8 Irish Office Market - Autumn Review 2014
The Central Business District
The Dublin Central Business District (CBD) office market has entered a new phase in the
recovery cycle. At the beginning of 2014, the single biggest concern facing the Dublin CBD
was a shortage of Grade A space. Demand and supply dynamics within the CBD has seen
the imbalance become more pronounced as the year progressed. Demand within Dublin’s
CBD occupier market continued to strengthen during the third quarter, with take-up
reaching its highest quarterly level since the onset of the downturn. As a result, the CBD
vacancy rate has fallen to single digits with less than 42,000 sq m of net available Grade
A space. A combination of rising demand and limited supply has resulted in office rents in
Dublin’s CBD increasing by 33% since the beginning of the year.
9 Irish Office Market - Autumn Review 2014
The Central Business District
Take Up
Occupier demand within Dublin’s established CBD strengthened during the
third quarter of the year as office leasing activity rose to its highest level
since the final quarter of 2007. Take up in the three months to September stood at
41,450 sq m, almost a third higher than the level
of floorspace transacted in the previous quarter.
This brings the total quantum of activity in the year
to date to 83,600 sq m. Demand for office space
remains largely concentrated in the CBD, with CBD
lettings in the year to date accounting for 47% of
overall take up in Dublin. This compares with the
year to date against pre-crisis levels of 33%.
A combination of resurgent tenant demand arising
from renewed business confidence coupled with
downward trending vacancy rates in the CBD, and
in particular, Grade A vacancy, is driving activity at
present. 2014 has seen occupiers becoming more
far-sighted and seeking space now to accommodate
potential future expansion, as opposed to growing
into space in line with incremental expansions. This
is reflected in the net take up figures which have
shown substantial gains in 2014. Net take up, space
let minus space vacated, recorded an occupancy
gain of 74,750 sq m in the year to September. This
compares to negative net take up recorded during
the corresponding period in 2013.
A number of significant
occupations took place in
the CBD during the third
quarter which boosted take
up during the three month
period. Leading corporate firm
William Fry occupied almost
9,000 sq m at 2 Grand Canal
Square, Dublin 2, in the south
docklands area of the CBD.
Other notable occupations
included 6,500 sq m by
Amazon at Burlington Plaza,
Burlington Road, Dublin 4.
Tenant demand in the CBD remains firmly focussed on
Grade A accommodation. Demand soared during the
first nine months of 2014, hitting a high of 69,200 sq m
at the end of September.
This equates to approximately 83% of overall take up
in the CBD, thus illustrating occupiers’ preference for
modern accommodation,
and in particular, Grade A
accommodation. Grade A
take up will be constrained
Ongoing erosion
of Grade A stock
going forward as the stock of
available Grade A office space
continues to shrink rapidly
in the CBD. At the end of September, net available
Grade A space declined sharply to just 42,000 sq m.
Taking account of the limited existing level of Grade A
availability, coupled with limited development pipeline
and strengthening demand, the CBD market is fast
approaching a tipping point.
Figure 5
CBD office quarterly take-up by sub sector (Sq M)
Source: DTZ Sherry FitzGerald Research
10 Irish Office Market - Autumn Review 2014
The Central Business District
Take Up
Moreover, further analysis of Grade A demand reveals
that Grade A1 remains the occupational preference.
As a result, the best space in the best buildings
continues to diminish.
At the end of September, there was approximately
57,350 sq m of A1 space unoccupied in the CBD,
however, 73% of this space is either signed or
reserved. As such, the net available Grade A1 space
falls to just 15,600 sq m in the CBD. This highlights the
critically low levels of top Grade A1 accommodation
available in the city.
The vacancy rate for Grade A offices in the CBD
has declined rapidly over the past twelve months
and hit a low of 4% at the end of September, net of
reserved and signed space.
There is an acute shortage of
available Grade A office space
Rapid decline in
in the CBD market capable of
Grade A vacancy
accommodating large scale
rate
office requirements. The
last remaining large office
building measuring in excess of 10,000 sq m, Grand
Canal Square - Block 5, was reserved during the third
quarter. Furthermore, of the net stock of available
Grade A space, there is only one unit greater than
5,000 sq m in size available, highlighting the need
for either refurbishment or further speculative
development to come on-stream for large floor plates
in the CBD. The acute shortage in supply of Grade A
office space in the CBD could potentially compromise
Dublin’s attractiveness to corporate occupiers, both
domestic and overseas.
The third quarter saw tenants from the IT/
Telecommunications sector continue to be enticed
into the CBD and this sector is now the main driver
of corporate occupier activity in the year to date.
Active occupiers during the quarter included Amazon,
BT, Intercom and Telefonica. The sector increased
its share of activity in the Dublin office market,
accounting for 42% of overall take up during the
year to date. The more traditional CBD occupants
like legal firms, accountants and business service
organisations account for 24% of activity. While the
IT/Telecommunications sector continues to dominate
market activity, improving prospects have become
apparent in the financial sector which is gradually
regaining lost ground following a prolonged period
of decline. The finance sector’s share of the market
increased to 7% of total activity in the first nine
months of the year.
Figure 6
Dublin CBD take up by tenant type, YTD 2014 (%)
Demand remains strong, at the end of quarter three,
the quantity of space signed and awaiting occupation
in the CBD stood at 21,800 sq m, over 80% of which
consisted of Grade A accommodation. Furthermore,
there was 38,700 sq m under offer in the CBD at the
end of September.
Within the CBD boundaries, demand during the first
six months of the year was strongest for offices in the
Traditional Core area; accounting for 46% of the CBD
space occupied in the nine month period. The South
Docks area remains a highly sought-after location,
accounting for 38% of take up. The IFSC – North
Docks and Ballsbridge areas absorbed 9% and 5%
respectively, with the remaining space in The Fringe
area of the CBD.
11 Irish Office Market - Autumn Review 2014
Source: DTZ Sherry FitzGerald Research
The acute shortage of Grade A accommodation
in the CBD has fuelled a 33% increase in
rents in the year to date. Our in-house forecasts now
suggest that rents could reach €520 in 2015.
Ronan Corbett – Director, Head of Business Space
DTZ Sherry FitzGerald
The Central Business District
Availability
Dublin CBD availability saw its
sharpest fall since records began,
with supply down 21% in the three
months to September.
The total quantity of available space declined to
162,450 sq m in quarter three, this brought the vacancy
rate down to single digits, 9.5%, for the first time since
Q3 2008.
Simultaneously, the supply of modern offices and,
in particular, larger office suites within the CBD
boundaries continue to diminish rapidly. Availability
continued to be eroded across all grades in quarter
three, however, the rate of decline of Grade A has
outpaced that of Grade B. In particular, the supply of
Grade A space continues to recede, falling sharply since
the beginning of the year, by 39%, to stand at 91,950
sq m. The corresponding vacancy rate declined to 9%
from a peak of 19.7% in 2011. Furthermore, the Grade
A vacancy rate net of signed and reserved space fell
to a critically low level of 4% at the end of September,
reflecting the high volume of Grade A lettings,
particularly in the last two quarters. The demand for
higher Grade A1 stock saw supply levels diminish at its
fastest rate, down 45% since the beginning of the year.
The stock of Grade B space also continued on a
downward trend, declining 18% in the year to date.
Dublin’s South Docks market has been the biggest
beneficiary of falling supply in the year to date,
declining by 38% to stand at just 38,350 sq m, of which
20,700 sq m or 54% is either signed or reserved. This
leaves just 17,650 sq m available against take up of
31,800 sq m in the year to date. Supply levels in the
South Docks are critically low, with a present net
vacancy rate of 5.4% for the area. A similar situation
exists in the Traditional Core area, where supply levels
stand at 48,900 sq m and the corresponding net
vacancy rate at 6.7%.
12 Irish Office Market - Autumn Review 2014
Both of these areas are experiencing a supply crunch
with vacancy rates sub the 7% benchmark rate which
traditionally indicates a shift toward a landlord’s
market.
Pipeline supply in the CBD remains limited; the total
space under construction stood at approximately
22,500 sq m at the end of September, unchanged
from the previous quarter. This comprises two
developments, both of which are speculative and
located in the CBD area of the city. The first wave of
supply, approximately 6,900 sq m, is expected to come
on stream in 2015. However, such a low volume will do
little to ease pressure on the tightening vacancy rate,
as with each passing quarter, the existing low level of
available space continues to be absorbed, leading to
downward pressure on vacancy rates. CBD vacancies
are falling and the development pipeline is only
equivalent to 1.3% of overall stock.
The Central Business District
Rental Levels
However, despite the clear demand and supply
imbalances in the CBD, development has been slow to
restart. While business confidence is starting to grow
and rents are on the rise, many developers remain
cautious and are weighing up a return to building.
While strong upward pressure on prime rents in the
CBD is positively impacting the
viability of development, banks
remain cautious with regard to
Grade A shortage
funding speculative development.
fuelling double digit
However, there are a number
rental growth
of projects in the pipeline to
commence refurbishment during
the latter half of 2014/early 2015.
The combination of strengthening occupier sentiment
and the limited availability of Grade A accommodation
has fuelled very significant rental inflation in 2014.
Prime headline rents in the CBD Stood at €468 per sq
m at the end of September, up 33% since the beginning
of the year. Headline rents are forecast to continue on
an upward trajectory during the final quarter of 2014
and into 2015, as competition for the limited supply of
available space in the CBD intensifies. Rents are forecast
to rise to €485 and €520 in 2014 and 2015 respectively.
Figure 7
Dublin CBD headline rent, € per Sq M (Quarterly)
Source: DTZ Sherry FitzGerald Research
13 Irish Office Market - Autumn Review 2014
Galway Office Market
Leasing activity in the Galway
office market rebounded during
2014. The volume of lettings
increased notably during the third
quarter; following a very strong
opening six months of the year.
Occupier sentiment has improved notably and this
has translated into an uplift in both the volume and
number of deals transacted in the first nine months
of the year.
A total of 4,150 sq m was taken up across
seven deals in the three months to September,
representing above average quarterly take up and a
significant increase on performance in the previous
quarter. Take up during the quarter was boosted
by the occupation of
approximately 1,550 sq m
Deal volumes
at Fairgreen House, Forster
up significantly in
Street by Atlantic Language
quarter three
School. Other notable
deals include 750 sq m let
at Galway Technology Park in Parkmore. The level
of net take up stood at 3,800 sq m at the end of
quarter three; a slowdown in the rate of second
hand space being released to the market was the
main driver of the positive net take up level.
Overall take up in the year to September stood
at approximately 9,900 sq m, representing a two
fold increase on the corresponding period in 2013.
Encouragingly, the increased take-up was made up
of numerous mid-sized transactions. The average
size deal increased by 48% compared with 2013.
Tenant demand during the nine month period
remained focussed on Grade A accommodation in
the suburban market, reflecting the lack of suitable
Grade A options and the more plentiful good
quality suburban space. Approximately, 69% of the
take up during the nine month period were Grade A
lettings.
14 Irish Office Market - Autumn Review 2014
Table 2
Galway office availability by Grade A, Q3 2014
A Stock
No. of Offices
Sum of
Availability
Sq M
%
City Centre
< 1,000 sq m
1
950
4
> 1,000 – 5,000
sq m
4
12,350
53
> 5,000 – 10,000
sq m
0
0
Sub-total
5
13,300
57
Suburbs
< 1,000 sq m
4
3,150
14
> 1,000 – 5,000
sq m
4
6,650
29
> 5,000 – 10,000
sq m
0
-
-
Sub-total
8
9,800
43
Total
13
23,100
100
Source: DTZ Sherry FitzGerald Research
Galway Office Market
The suburbs remain the most attractive location for
occupiers, accounting for 69% of take up, while the
share of take up in the city centre increased to 31%.
Availability continues to be eroded at a fast space,
underpinned by the strength of demand in the year
to date and a substantial slowdown in second hand
space entering the market. Supply levels in the Galway
office market decreased by 10% in the quarter to stand
at 35,050 sq m, with year-on-year results showing a
decrease of 25%. Lettings have offset any additions of
space to the market during the first nine months of
2014, a significant reversal in recent trends.
The suburbs continue to account for the majority of
available accommodation, 59%, while the remaining
41% is located in the city centre. Examining the profile
of available stock reveals that 66% of all space is Grade
A stock, of which 58% is located in the city centre.
However, the stock of Grade A space available in the
city centre is largely accounted for by four buildings,
namely the Webworks Building in Fairgreen, Fairgreen
House, City Gate and Dockgate on Dock Road.
Furthermore, there is no unit greater than 5,000 sq
m in size available, highlighting the need for either
refurbishment or further speculative development to
come on-stream to accommodate requirements for
larger floor plates.
The vacancy rate in the Galway office market remains
the lowest office vacancy rate in all regional centres
and currently stands at 11.8%. Notably, the rate has
declined rapidly from a 15.6% during the same period
in 2013.
Prime headline rents in the Galway office market
remained static during the third quarter at €162 per
sq m. Rents for prime suburban space remain stable at
€129 per sq m.
Figure 8
Galway office market: take up (sq m) & vacancy rate (%), Q3 2014
Source: DTZ Sherry FitzGerald Research
15 Irish Office Market - Autumn Review 2014
Cork Office Market
The Cork office market was the
most active of the regional centres
during the third quarter. Following
a slow start to the year, demand
for office space improved notably
in the second quarter, momentum
continued into the third quarter with
above average take up recorded in
the three months to September.
Occupier demand strengthened during the third
quarter of the year as office leasing activity rose by
13% to 6,900 sq m during the three month period.
However, activity was dominated by one large deal,
with the number of individual deals declining sharply
during the three month period.
The largest occupation in the
three months to September
Above average
was the occupation by Eli Lilly
take up recorded in
of approximately 6,000 sq m
quarter three
at Island House - Island Plaza,
in Eastgate Business Park. Eli
Lilly purchased the building for a reported €10 million
in spring. The remainder of deals transacted during
the third quarter comprised smaller sized deals.
Table 3
Cork office availability by Grade A, Q3 2014
A Stock
No. of Offices
16 Irish Office Market - Autumn Review 2014
%
City
Centre
< 1,000 sq m
36
9,850
15
> 1,000 – 5,000 sq m
8
15,400
23
> 5,000 – 10,000 sq m
0
-
-
Sub-total
44
25,250
38
Suburbs
< 1,000 sq m
51
17,300
26
> 1,000 – 5,000 sq m
15
24,300
36
> 5,000 – 10,000 sq m
0
0
0
Sub-total
66
41,600
62
Total
110
66,850
100
Source: DTZ Sherry FitzGerald Research
Figure 9
Cork office market: quarterly take up (sq m) & vacancy rate (%), Q3
2014
Occupation levels in the twelve month period to
September stood at 15,150 sq m; 37% lower than the
comparable period in 2013. The average size deal in
the year to date has risen to approximately 400 sq m
but remains lower than 2013 levels. That said, 2013
data was skewed by one very large letting.
Tenant demand during the nine month period
was firmly focussed on Grade A accommodation,
accounting for 80% of activity during the period.
Furthermore, at the end of quarter three, there
was approximately 9,200 sq m reserved and an
additional 7,300 sq m signed. An analysis of this
pipeline activity highlights that 68% comprises
Grade A accommodation, thus highlighting occupiers
preference for Grade A accommodation.
Sum of
Availability
Sq M
Source: DTZ Sherry FitzGerald Research
Cork Office Market
A lack of suitable Grade A options in the city centre,
in particular, large floor plates has seen the suburbs
dominate lease activity in the third quarter. The
suburbs accounted for 76% of activity in the year to
date. The remaining space was occupied in the city
centre region.
Supply levels continued on a downward trend,
declining by 1.5% in the quarter to stand at 101,000
sq m. A comparison with the same period in 2013
reveals a 19% reduction in the quantity of available
space. The reduction in supply levels is being driven by
both a reduction on the release of second hand space
to the market and increased demand in the market.
Additionally, approximately 16,500 sq m was signed or
reserved at the end of September, which will result in
ongoing erosion of supply due to limited construction
activity.
Furthermore, the vacancy rate for the Cork office
market stood at 18.4% at the end of September. While
the rate remains high by historical trends, it has fallen
from 23.2% during the corresponding period in 2013
and down from a high of 25.9% in late 2012. That
said, the rate is running considerably ahead of the
equilibrium market rate of 7%.
17 Irish Office Market - Autumn Review 2014
The suburbs continue to account for the majority of
available accommodation, 58%, while 42% is located
in the city centre. Of the stock that is available in
the overall Cork market, Grade A space accounts for
77%. Having said that, a significant proportion of the
available Grade A space consists of smaller sized units;
the average size unit measures 550 sq m. An occupier
with a requirement for a Grade A floor-plate measuring
greater than 5,000 sq m is currently unsatisfied by the
market.
Construction activity recommenced in Cork during the
quarter, with almost 16,000 sq m under construction at
No 1 Albert Quay in the city centre. This will go towards
easing the shortage of good quality office space that
exists in the city centre, however, 44% or 6,950 sq m is
already pre let to Tyco.
Rental levels for prime city centre space in Cork
increased to €230 per sq m during quarter three, up
from €215 per sq m at the end of June. Prime suburban
accommodation saw a 4% rise from the previous
quarter, now standing at €140 per sq m.
Limerick Office Market
Performance in the Limerick office
market has been mixed during the
year. Following an exceptionally
strong start to the year, occupier
demand fell sharply during the
second quarter before rebounding
in the third quarter.
A total of 2,150 sq m was transacted during the three
months to September; while up 22% on the previous
quarter, activity remains below the long run average
quarterly take-up level.
Table 4
Limerick office availability by Grade A, Q3 2014
A Stock
No. of Offices
Sum of
Availability
%
City Centre
< 1,000 sq m
35
9,350
32
> 1,000 – 5,000 sq m
2
2,600
9
> 5,000 – 10,000
sq m
0
-
-
Sub-total
37
11,950
41
Suburbs
< 1,000 sq m
32
8,450
28
The largest occupation during the quarter was
approximately 750 sq m at the Castletroy Park
Commercial Centre in Castletroy. Despite the
moderation in activity in recent months, there are
positive signs of an uplift in demand for the coming
months with a considerable
amount of space signed or
reserved.
> 1,000 – 5,000 sq m
0
-
-
> 5,000 – 10,000
sq m
0
-
-
Sub-total
32
8,450
28
< 1,000 sq m
2
1,150
4
> 1,000 – 5,000 sq m
5
7,950
27
The total quantum of take
up recorded in the year to
September stood at 18,250
sq m. Activity levels are considerably higher when
compared with the corresponding period in 2013,
however, it is important to note that activity levels
were particularly strong in the opening quarter due
to one large deal, which has in turn skewed take up
levels. So far this year take up in the Limerick office
market has predominately comprised smaller size
deals averaging 250 sq m.
> 5,000 – 10,000
sq m
0
Sub-total
7
9,100
31
Total
76
29,500
100
Mixed performance
during the year
The level of net take up, which measures the change
in occupied space, remains fragile, highlighting
the considerable amount of movement within the
market at present.
The Shannon Free Zone accounted for the largest
share of take up, 63%, in terms of value. However,
in terms of volume, the city centre remains the
preferred location, accounting for 67% of activity in
the year to date. Activity in the suburbs was stable
during the nine month period.
18 Irish Office Market - Autumn Review 2014
Shannon Free
Zone
Source: DTZ Sherry FitzGerald Research
-
-
Limerick Office Market
An examination of the profile of available
accommodation reveals that approximately 47% of
available stock is Grade A stock, However, of the Grade
A available space, 64% of the available units measure
less than 1,000 sq m and there is currently no available
office unit greater than 5,000 sq m; thus highlighting
the lack of larger, good quality space available.
Furthermore, 27% of the available accommodation
comprises Grade B with the remaining space, 26%, shell
and core space.
At the end of quarter three, there was approximately,
13,350 sq m under construction in the market,
however, all of this space is pre let and do little to
address the shortage of large Grade A floor plates.
Furthermore, shell & core stock dominated
take up accounting for two-thirds of activity
in the year to date. Activity levels are
expected to remain elevated for this product
as a significant proportion of this type of
accommodation is now reserved and signed.
Grade A stock accounted for 26% of activity,
with the remaining 8% of space Grade B
stock.
The overall volume
Supply levels
of available space in
continue to fluctuate the Limerick office
market continues to
fluctuate, increasing
by 4% to 70,550 sq m during the third quarter
of 2014. The increase in supply levels is due to
the continuous release of second hand space
back to the market. Following a pick-up in
the rate during the opening six months of the
year, the third quarter saw no slowdown in
the rate of release of second hand space
to the market, with additions of space to
the market offsetting new lettings.
In line with rising supply levels, the vacancy
rate climbed to 20.5% at the end of quarter
three, up from 19.7% in the previous quarter.
The corresponding vacancy rate in 2013
stood at 21.5% thus highlighting the ongoing
volatility in supply.
19 Irish Office Market - Autumn Review 2014
The city centre accounts for the largest proportion of
available space, 48%. The suburbs and the Shannon
Free Zone then account for 31% and 21% respectively.
Prime headline rents remained stable in the city centre
at €150 per sq m and also in the suburbs at €129 per sq
m at the end of quarter three.
Figure 10
Limerick office market: quarterly take up (Sq m) & vacancy rate (%),
Q3 2014
Source: DTZ Sherry FitzGerald Research
Outlook
2014 has seen the Dublin office
market continue to perform strongly
but also the recovery across the
regional centres is gathering pace.
Renewed demand and sentiment in the regions,
against a back drop of improving economic conditions,
has resulted in robust performance in the year to date.
That said, some regional centres are faring better than
others.
Confidence has strengthened across all of the
key regional centres which in turn is filtering into
significant growth in transaction levels; most notably
in Galway and Cork where quarterly take up is running
above the long run average. Take up for 2014 as a
whole is expected to surpass 2013 levels considerably
in these regions. While demand improves in the
Limerick market, activity levels continue to fluctuate
quarter on quarter.
A strengthening of demand coupled with diminishing
availability of Grade A space has been a catalyst
for rental growth across the regions. Rental growth
accelerated in Dublin during the quarter with prime
headline rents in the CBD rising to €468 per sq m at
the end of September, up 33% since the beginning of
the year. Rental growth remerged in all the regions
during 2014 for prime city offices. Furthermore,
landlords are taking a harder stance with regards
to incentives. Prime headline rents are forecast to
continue to rise during 2015.
20 Irish Office Market - Autumn Review 2014
The appetite from occupiers for prime stock has
resulted in a diminishing supply of Grade A office
accommodation; a key feature evident across all the
regional markets. Furthermore, there is an acute
shortage of larger floor plate Grade A office units. There
are currently no Grade A office units measuring over
5,000 sq m available in any of the regional centres and
just one in the Dublin CBD.
The quantity of space under construction remains
limited across the regional centres, however, rising
rents coupled with constrained supply of Grade A space
should encourage further development starts over
the next six to twelve months. The commencement
of construction at One Albert Quay is a major boost
to confidence in the Cork market. This development
will ease pressure on demand for large floor plates in
the city area, however with over 40% pre let, similar
developments are needed in the city and suburbs in the
short to medium term.
In light of improving economic fundamentals and
business sentiment, the strong appetite presently
evident from occupiers is expected to be sustained
during the final quarter of 2014 and into 2015.
Market Definitions
Take Up: Occupation of a building by a tenant.
Reserved: Under active negotiation with single tenant.
Pre-let: Contract is signed by tenant but premises are not yet
occupied.
REGIONAL OFFICES
Cork Categories:
City Centre: Central Business District and adjoining areas.
Pre-sold: Contract is signed by tenant but premises are not yet
occupied.
Suburban: Locations outside city boundaries such as Little Island,
The Airport, and areas adjacent to the South Link Road system.
Vacancy Rate: This is the ratio of availability to market stock. The
vacancy rate for the Dublin office market is calculated excluding
Georgian accommodation. The vacancy rate for the Limerick office
market is calculated excluding Georgian accommodation. The
vacancy rate for the Cork industrial market excludes the South East
region and Ringaskiddy
Limerick Categories:
Office Market Definitions:
Shannon Free Zone: Shannon Free Zone, Shannon, Co. Clare.
3rd Generation: Modern Buildings, post 1990, with raised access
floors.
2nd Generation: Older Buildings, pre-1990, with floor trunking.
Georgian: Approximately 1725 - 1830.
Dublin Office Market Definitions:
Central Business District:
This incorporates the prime area of the city and extends to the IFSC
and North and South Docklands.
Secondary: Locations adjacent to the prime region
Suburban: Locations outside city boundaries such as Clonskeagh,
Blackrock, Tallaght, Sandyford and the M50.
Vacancy Rate: This is the ratio of availability to market stock. The
vacancy rate for the Dublin office market is calculated excluding
Georgian accommodation.
21 Irish Office Market - Autumn Review 2014
City Centre: Central Business District and adjoining areas.
Suburban: Locations outside city boundaries such as Raheen and
the National Technological Park.
Galway Categories:
City Centre: Central Business District and adjoining areas.
Suburban: Locations outside city boundaries such as Oranmore
and Mervue.
AUTHORS
Marian Finnegan
Chief Economist, Director
Research
+353 (0) 1 237 6341
[email protected]
Siobhán Corcoran
Associate Director
+353 (0) 1 237 6317
[email protected]
About DTZ Sherry FitzGerald
DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a global
leader in property services. With Irish offices in Dublin, Cork,
Galway, Limerick and an associated office in Belfast, we are the
largest commercial property advisory network in Ireland and
are part of Sherry FitzGerald Group, Ireland’s largest real estate
adviser.
We provide occupiers and investors around the world with
best-in-class, end-to-end property solutions comprised of leasing
agency and brokerage, integrated property management, capital
markets, investment, asset management and valuation.
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