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Monday, 15th April 2024
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The commercial property market is getting bigger Back  
James Nugent outlines why the old adage of location location location does not really ring true for commercial occupiers and may be replaced with workforce, workforce, workforce.
The Dublin Commercial Property Market has over the past two years experienced massive growth in both rental and capital values. Keen watchers of the market are being bombarded on a daily basis with articles revealing results of the most recent surveys. Whilst the exact percentage increase on rental values on the last quarter may not be particularly relevant to company secretaries those who are given the task of preparing budgets are facing a daunting and thankless job.

The buoyant economy has meant that nearly all commercial organisations are facing a space crisis and have had to seriously consider acquiring expansion space or indeed relocating the entire operation. In other cases managers are having the added strain of having to deal with five year rent reviews.

The result of all of the above is that in 1998 nearly 2,500,000 sq.ft of office accommodation was acquired by various companies. This was an 71% increase on 1997 and whilst it is unlikely that the 1998 take up figure will be matched in 1999 this is only because supply is limited. Currently the vacancy rate has fallen to approximately 2.5% of the total office stock of 17,000,000 sq.ft. The result of Ireland‚€ôs economic success is an ever dwindling commercial property supply and therefore ever increasing rents.

Lisney research has revealed that the amount of office space currently under construction and not yet let, but due for completion this year extends to c. 823,000 sq.ft.. In reality this means that any company that needs to acquire accommodation by the year end should be actively searching the market and entering into negotiations. It is now not uncommon for larger occupiers to forward plan their moves by up to two years. Evidence of this can be seen in the Financial Services Centre where Citibank and A & L Goodbody are having substantial premises constructed to accommodate their future needs. The advice to any company who is even remotely considering moving part of, or their entire operation to new premises it to actively monitor the office market. This is because deals are being agreed quickly on good quality properties way before they ever become vacant or construction is completed.

To this extent 1999 to date has been relatively buoyant with a number of schemes under construction already let. This includes Grand Canal Plaza where Ocean the telecommunications company have agreed to take 60,000 sq.ft., Andersen Consulting have agreed to take 48,000 sq.ft. and the software company Visio are taking 40,000 sq.ft. Other notable transactions to date include Montegue House at Adelaide Road where Scottish Amicable are rumoured to be leasing 45,000 sq.ft. at a rent of c. £27.50 per sq.ft. This rental level sets a new benchmark and represents an 50% increase on prime modern office rents over the past 2 years.

Obviously availability of offices is not just limited to space under construction and there are a number of buildings which come to the market due to companies relocating. Typically deals are done on these buildings before the general public become aware of their availability and it is not uncommon for incoming tenants to pay substantial premiums to the outgoing occupiers. Examples where premiums have been paid so far this year include the Earlsfort Centre where A & L Goodbody successfully assigned 50,000 sq.ft. of accommodation, Garyard House on Earlsfort Terrace where Telecom Eireann assigned 16,000 sq.ft., Fitzwilton House in Dublin 2 where 13,500 sq.ft. was assigned by Visio and the former Satchi & Satchi premises at 4 Clonskeagh Square which extended to approximately 10,000 sq.ft. It should be noted that premiums are not just limited to the larger properties and there have been a number of deals on smaller amounts of space with substantial premiums being paid.

Despite the doom and gloom portrayed in all of the above there is light at the end of the tunnel. While supply for 1999 will be constrained there are a number of schemes in good out of town locations which will be coming to fruition mid 2000. These include a number of developments in the Sandyford area, sites off the M50 ring road extending as far as Cherrywood Loughlinstown and out to lands around the Airport including Parkwest, Citywest and Blanchardstown. The benefit of these locations is that companies will be able to find space in well designed modern buildings close to main transport routes at competitive rents and
with good car parking. The presence of good road networks, transport systems and availability of car parking obviously has an affect on the decision of companies to locate within specific areas. The increased rate of traffic congestion and limited parking has not yet deterred people from trying to take space within the city centre but may nonetheless encourage companies to look elsewhere for their needs.

Within the city centre there are a number of sites where substantial development is planned namely, in the Docklands where the Convention Centre, George‚€ôs Quay, Bord Gais Eireann Sites and Sir John Rogerson‚€ôs Quay will provide a good supply.

In a recent survey six out of 10 companies asked, responded that they were short of skilled staff and would consider hiring additional skilled staff if they were available. This shortage can not be underestimated when it comes to a companies decision to locate within specific geographical areas. The old adage of location location location does not really ring true for commercial occupiers and may be replaced with, workforce workforce workforce. The recent decision by the Government to try and entice skilled staff from abroad, highlights the seriousness of this problem.

There are many schemes which will be brought to planning stage but will not be progressed further. This because developers by their nature are cautious and do not want to contribute to an over supply of accommodation. Nonetheless the increasing difference in city centre and suburban rents may encourage a number of occupiers to rationalise their accommodation needs in favour of quality out of town location where good infrastructure exists, Consequently it is not unreasonable to expect development in these locations which will temper rental growth in suburban areas. However rents for the city centre areas will remain strong and companies seriously considering acquiring extra space will need to make quick decisions in order to secure accommoadation.

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