Offices – Is the tide coming back in?

By Mark Smyth
Director, Head of Office Agency

Before we review the offices sector, it is worth mentioning the following which has a strong bearing on business sentiment and in turn investment.
 
•    Unemployment is dropping
•    The economy is growing

In a myriad of bad news, sometimes good news is overlooked and the above points are very much good news for both Ireland and in this case, specifically the office market.

Like any marketplace the office sector is driven by supply and demand. Supply in the sector is slowing considerably, as new office development has ceased and speculative developments have been put on hold.

We do not foresee any new office development in the near future unless a ‘pre-letting’ is agreed. The simple fact is that there are neither the resources nor the appetite from banks to fund speculative development.
 
There is also a strong argument that we are oversupplied in the Grade B and period Georgian/Victorian offices sector in the city. This ‘secondary’ space is obviously less appealing to prospective tenants in the market and understandably the high quality space that is on the market will let first.

This is not to say that lettings are not occurring in the Grade B offices and Georgian sector, but where they are occurring it is due mainly to these offices being competitively priced and in most cases after substantial investment has been carried out.     

So where is the demand coming from? While the phone is most definitely ringing, we have noticed a shift in enquiries and many companies are now seeking new offices.

In the last 10 weeks alone we are aware of demand from 40 companies for approximately 30,000 sq m in the Central Business District (CBD) alone. Demand is coming from the IT/Technology and Financial/Business services companies, whereas demand from the public sector and professional practices is minimal.

While the slowdown in new available stock and noted increase in demand from tenants is most definitely good news, we do not foresee a bounce in rents in the near future.

We predict leases will be invariably short and will contain break options into the medium term and this may become the norm, to mirror US trends.

Tenants are now ultra savvy and in no rush to conclude deals, but for a sector that has seen dramatic falls in rental and investment yields since this melee began, we are seeing signs of a steadier ship.

Let’s hope the sector does not take any further hammer blows and we see a return to some sort of a normal trading market in the short and medium term.