| Suburbs competitive to regions for rental space |
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| With fast rising rental costs in Dublin and businesses looking to the regions for alternatives, Roland O’Connell examines the real costs of renting office space. |
Soaring rental costs in the Central Business District (CBD) area of Dublin over the last 3 years have contributed to a general feeling that there must be cheaper places in Ireland to do business. Over the same period the Government agencies, IDA Ireland and Enterprise Ireland were focused firmly on encouraging investment into provincial areas outside Dublin. At this stage the major Irish cities of Cork, Galway and Limerick were no longer seen as priorities, rather towns such as Sligo, Letterkenny, Arklow, Navan, Athlone, Kilkenny and Waterford have been the focus of attention.
Occupation costs in Dublin are competitive
To compare locations one has to look at not just the rent but also local taxes or rates. For a European capital city it would not appear that occupation costs in Dublin CBD area are particularly high. This is in no small part due to the fact that rates and local taxes in Dublin tend to be considerably lower than large cities in other countries. As the most recent global index of occupation costs published by CB Richard Ellis shows, Dublin City Centre costs are one third of the West End in London, less than half of the City of London and considerably cheaper than cities such as Paris, Edinburgh, Manchester, Frankfurt and Boston.
Secondly it is important to note that suburban rents in Dublin are very competitive by International standards. Suburban rents at present are largely in the IEP15-19 per sq.ft (gross internal) which equates to approximately IEP17-IEP23 per sq.ft on a net lettable basis. This equates to about 50 per cent of the typical level in the CBD area. Indeed high quality office accommodation is available in Dublin City Centre at these lower levels in locations such as Eastpoint Business Park and Parkgate Business Park.
Dublin has seen a huge surge in the demand for office space over the last 6 years but the planning system and indeed the construction industry have not been able to keep pace with this demand. The lack of suitable sites with planning permission in City Centre locations coupled with strong demand has been the main reason for the sharp rise in rents. In City Centre locations demand remains relatively strong and while the supply of new space is increasing slightly it is unlikely in the short term to rise to a level that will stop rental growth. It is likely however that over the coming years the rate of rental growth will slow considerably which will be good news for City Centre occupiers.
In the suburbs on the other hand there is a ready availability of development sites with planning permission and the level of speculative construction in suburban areas has ensured that supply has caught up with demand and indeed in some areas exceeded it. Consequently rental growth in suburban areas has been a lot slower than City Centre locations and it is likely that there will be very little rental growth in suburban areas for the next 18 months or so.
New starts of speculative schemes have fallen dramatically and consequently as existing supply is taken up over the next year to 18 months, we may see shortages developing in many suburban locations again with a reluctance on the part of developers to build speculatively. In these circumstances it is likely that rents for new suburban buildings will start to rise again at that time, reflecting the continuing rise in construction costs.
Locations outside Dublin
The Dublin CBD area is by far and away the most expensive office location in Ireland, however suburban rents in Dublin are not significantly higher than the equivalent rents in a city such as Galway or Cork. The attached table sets out typical rents for new buildings in various other locations.
So in occupational cost terms there is not a huge difference between suburban Dublin and other cities and provincial towns in Ireland but rather the main motivating factor appears to be in terms of staff. In these locations the competition for staff is less fierce while residential accommodation costs are considerably lower and the quality of life including commuting times is much better.
One of the major difficulties for companies seeking to go to locations other than the major cities of Dublin, Cork, Limerick and Galway is often the lack of availability of high quality modern office accommodation. It is unusual to find any speculative development, as historically demand for office space in these locations would be very low. As a result IDA Ireland have had to develop office parks in provincial towns in advance of attracting occupiers to them. This has been very successful for the IDA and they have attracted high quality office occupiers in locations such as Letterkenny, Kilkenny and Arklow.
Therefore it is likely that in the future more speculative office development will take place in similarly sized towns around Ireland.
In the future I expect that Dublin City Centre despite being relatively expensive by comparison to other locations in Ireland, will remain the preferred location for office occupiers. The attraction of being able to draw from a very large (if competitive) labour pool will continue to be there. Decentralisation from Dublin to provincial areas in Dublin is likely to have a greater effect on suburban locations in Dublin, as most of these projects will otherwise have gone to suburban locations.
Roland O’Connell is a director with Hamilton Osborne King, he is mainly responsible for the offices department. |
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| Article appeared in the May 2001 issue.
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