Prime office rents in Dublin rose faster than any other European capital in the last three-year period. However, they were merely aligning with prime rents in other countries and are still very competitive when compared with competing cities around the world according to the latest edition of the ‘World Office Rents’ publication, which is produced by Insignia Richard Ellis Gunne. The report, which details rental values and total occupational costs in leading cities across the world, clearly shows that Dublin office rents are still competitive (see bar chart below).
The ten cities with the fastest rental growth in the last six month period shows a strong bias towards the UK and faster growing economies in the Eurozone such as Paris, London, Madrid, Glasgow, Barcelona, Edinburgh and Frankfurt. London’s West End continues to be world’s most expensive office location with prime rents in the order of Stg 1,163 per sq. m. (Stg108 per sq. ft.). Rents are stable or rising in most locations and despite a general economic downturn since the beginning of the year, there is no evidence of rents falling in any of the cities surveyed. It is also interesting to note that despite a particularly significant slowdown in the US economy, office rents in the US have remained relatively stable. Indeed, prime rents have not retreated in any of the US cities surveyed despite much negativity regarding the economy.
Prime rents in Dublin rose by 6 per cent in the last six months, a significant slowdown on previous years. With over 250,830 sq. m. (2.7 million sq. ft.) of new office space due to come on stream in Dublin in 2001, supply will improve and a further slowdown in the rate of rental growth is expected as a result. This is in contrast with other European capitals, many of which are still in the growth phase in their rental cycle. This would suggest that while rents world-wide are certainly settling down to a less hectic pace, Ireland will not experience as significant an increase in prime office rents than other competing cities in 2001, and will continue to maintain competitive advantage as a result.
This survey also highlights the proportion of occupational costs that are attributed to service charges and taxes in each country. In this respect Dublin fares well with service charges and taxes accounting for approximately 17 per cent of the gross rent payable. This compares well with other competing centres such as Leeds, Birmingham, Belfast and Glasgow which have high service charge costs in comparison (see bar chart above).
Despite greater European integration, European countries remain very individual places in terms of property investment, since property returns are governed by far more complex issues than simply the rate of return on your initial investment. Supply and demand factors remain heavily localised, different taxation and lease structures continue to influence the real rate of return of property investment, and it will be some years before all European countries reach the same point in the economic cycle.
On the property front, lease structures vary dramatically from one European country to another. For example, in Rome, leases are generally for 6 years with automatic renewal for a further 6 years and no rent reviews for the first 12 years of the tenancy. However, lease structures in Ireland and the UK, are much more favourable. Twenty five year leases with five yearly ‘upwards only’ rent reviews are still the norm, with all of the repairing obligations (internal and external) remaining with the tenant.
Different legal structures together with economic and cultural factors mean that a ‘pan-European’ commercial property investment market has not yet arrived and in reality seems unlikely to happen in the immediate future.
In the meantime, Ireland remains a favourable location for investment. Both the tax and legal framework surrounding property cannot be matched throughout Europe.
The most significant factor encouraging investment in Ireland is the attractiveness of the corporate tax structure. By 2003, Ireland will have a corporate tax rate of 12.5 per cent, making it by far the most favourable European country from a taxation viewpoint. Indeed the majority of the cities surveyed in the ‘World Office Rents’ publication have corporation tax rates of between 30 per cent and 35 per cent. The true benefit of the 12.5 per cent tax rate will not be fully realised or firmly understood for another 2 years or so, but the future impact on the domestic economy and in turn the property market will be phenomenal.
However, despite the fact that our taxation structure is favourable and occupational costs in Dublin are still competitive, retaining competitiveness is still a real worry in the Irish market, particularly in light of ever-increasing labour costs in the economy.
Marie Hunt is an associate director of Insignia Richard Ellis Gunne and heads up its research and consultancy department. |
